MLM Explained in Simple Terms

Ever wanted MLM Explained in simple terms? If so, today is your lucky day.

There is a lot of confusion online about network marketing. LOTS. What’s it all about? Is it legal? Should I do it? Doesn’t everyone fail? Isn’t it a scam?

Let’s face it, network marketing is not something we are taught about at home or in school. If anything, most people come to their own opinion about it, based on what others have told them. Rather than do their own due diligence, they just take what they hear from others at face value and assume they know everything they need to know about it.

As I see it, this is normally a costly mistake. Someone who might have joined our great industry, and succeeded, and earned their time and money freedom, never gets involved because they “think” they know what it is all about. Ignorance is expensive.

MLM Explained

MLM stands for multi-level marketing, often referred to as network marketing. It is simply a distribution model. It’s a way of moving products or services from a manufacturer/parent company directly to the consumer. Rather than spend money on advertising, network marketing companies let independent distributors promote the products and services via word of mouth advertising. In return, these “independent distributors” earn commissions when they make a sale. Plus, distributors can help set other people up as independent distributors and earn overrides and commissions from their sales, and their team’s sales (and get paid on multiple levels).

mlm explained

Why Do Companies Choose Network Marketing?

So, why would a reputable company choose network marketing? This is the million dollar question to many people. I mean, if the product is so good, why not just sell it in stores? That would be a valid concern if you are NOT familiar with retail, and how it works.

First off, getting into retail stores is much easier said than done. It is very timely and very expensive. You need good connections, sufficient funding, and even a little bit of luck.

The big box chains and distributors have the leverage and control, not the manufacturer. In addition, you are competing against many other manufacturers who make similar products. As a result, it can become a pricing war. You’re typically working on VERY LOW margins.

It’s also very risky. In most cases, the manufacturer fronts their inventory in hopes of getting paid six to twelve months later, assuming the products even sell. Plus, you still have to advertise. The store isn’t going to do that for you.

Network marketing gives companies a BETTER WAY. They can focus on what they are good at (manufacturing a product) and let an independent sales force (not employees) promote these products via word of mouth advertising (the best form of advertising). Even better, the company only pays its reps when a sale is made. As a business owner, this is like a dream come true.

It’s Actually Similar to Real Estate and Insurance

Most people do not think of realtors or insurance agents as scammers. Nor do they feel that way about insurance brokers or real estate brokers. Network marketing works in a very similar way to both of these industries, but sadly does not have the same credibility (with many people).

To become a real estate agent, you must go through your training and licensing. Once you’ve completed that, you team up with a broker, and you can sell as many homes as you’d like. Each time you make a sale, you earn a commission. You do not keep the entire commission. Some goes to the broker and you keep the rest (minus your expenses).

As a real estate broker, you can sell homes yourself and earn a commission, just like a realtor does. Plus, you can also recruit other realtors and earn commissions or overrides from their sales. You can recruit one realtor or have hundreds of realtors. You choose! The more agents you have and the more homes they sell, the more money you make!

As a realtor, you are a one person show and your earnings are limited based on your own personal production. If you stop selling homes your income dries up. As a broker, you are leading a team and you have leverage! Whether you sell a home or not, there’s a good chance people on your team will make sales. Either way, you win.

Which one is the better deal? If I had to choose one, I’ll take the broker every time.

Insurance works the same ways. Agents earn commissions from their own personal production whereas the brokers earn overrides on their personal sales, plus their team’s sales.

What’s the major difference between network marketing and these two models? As I see it, network marketing is cheaper to get started, you have a smaller monthly overhead and there are no licensing requirements. And, the earnings potential is much greater, if you succeed.

Does it mean you will succeed if you join network marketing? Of course not. Most people fail, just like most realtors never sell one home and most insurance agents never sell one policy! But, the sky is the limit. Network marketing is a true level playing field. What you do with it is up to you!

is mlm legit

Is it a Scam?

Ah, nope. I’m shocked people even think that in today’s world. This industry does more than $100 BILLION in sales each year. It is much bigger than many other industries and it continues to flourish. Why? Network marketing offers a better way for the average person to start their own business. 

This business model is alive and well in more than 100 countries. The Amway vs FTC Case in 1979 helped legalize and legitimize our industry.

The industry is by no means perfect, but it’s pretty darn good!

Should You Do Network Marketing?

That is a personal question. Only you knows what is best for you. But with that being said, I believe EVERYONE would benefit by being a network marketer. Here are the most common benefits I can think of:

  1. Start a business for just a few hundred dollars, and sometimes less
  2. Work from home, no need for a storefront
  3. No inventory needed
  4. Get a free mentor
  5. No R&D
  6. No need to develop or source products
  7. You just focus on selling and marketing (company handles the rest)
  8. No territories
  9. No licensing requirements (in most cases)
  10. Earn residual income
  11. Earn a leveraged income
  12. Work from anywhere in the world
  13. Unlimited earnings potential
  14. No need for employees

And these are just the first things that come to mind. I love this industry! I haven’t found any other industry that can compete with it (just my opinion).

network marketing is booming

Final Thoughts

In conclusion, this is MLM Explained in simple terms. I hope it now makes sense to you. What are your thoughts? Do you love or hate our industry? Leave a comment below to let me know what you think. I look forward to hearing from you. Learn more about my business opportunity.

chuck holmes


Chuck Holmes
Network Marketing Professional (since 2002)
Author, Blogger, & Entrepreneur

P.S. Level up your life today! FREE resources to help you improve your health, finances, business, and relationships. I'll even give you FREE leads and a free business plan template. Learn more.

2 thoughts on “MLM Explained in Simple Terms”

  1. Wow! I actually haven’t thought of comparing MLM to Insurance companies or real estate, but that does make more sense.

    With an MLM, you are out of pocket a lot less money than these others businesses, so there is less financial risk.

    I chose MLM years ago because of the freedom to make my own schedule with my large family. I didn’t have a large amount of money to start a business and I couldn’t get a loan. Also, I needed the flexibility to be able to go to doctor appointments, etc. Plus, I’m my own boss, so I can make as little or as much money as I want without having to wait for “my boss” to give me a raise.

    I think an MLM is definitely something that everyone should try. Once you see what it’s all about and the money you could be making it will change your mind.

    1. Yes, I know people who participate in those other business models. Then spend considerably more to get started, plus they have to get licensed. While the insurance agents may have some residual commissions, the realtors do not. They are busy chasing their next sale.

      Network marketing is by no means perfect and it is not for everyone, but you must understand it has many advantages compared to other income streams and it has a low start-up cost anyone can afford. That’s why I love it so much. Plus, top network marketers can easily out earn these other professions.

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