MLM vs Traditional Business

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Posted by Karen Umstattd on July 28, 2004 at 08:15:37:

MLM vs Traditional Business

In brief, MLM, also known as Multi Level Marketing or Network Marketing is simply a "system" for distributing product. Every business has a product to sell and when the product is sold to the market place, money is made. In a traditional business, whether it's retail, construction, food or what have you, when the product is sold, that's the end of the marketing system. Before that product is sold, however, it must go through many hands which jacks up the price of the product you are marketing.

Let's say you had a 5 and dime store. Remember those? Let's say you have a cereal you are selling in your 5 and dime store. Before that box of cereal gets to the end consumer, there are advertising costs, manufacturing costs, a sales person (or distributors) cost of convincing you to purchase that product to put on your shelf and each person in this line of production must earn money. That box of cereal that you are selling costs the manufacturer about 50 cents to make BUT, when you add on the manufacturers costs for production and advertising, then you add on the sales persons commissions they make in convincing you to put that product on your shelf and the end result is a 50 cent product that sells for $3.00 so everyone in the line can make money. Who pays for all these people's salaries to get that product to you? You do. To keep the end cost down on that product, quality may sometimes be sacrificed.

Are you familiar with wholesale stores like Sam's Club or Costco's? What these stores do is buy the product direct from the manufacturer, cutting out the middle man, and then sell the product directly to the market place at a reduced price.

Owning an MLM or multi level marketing business is in some ways very similar to owning a wholesale store like Sam's Club or Costco's. In MLM, you are buying directly from the manufacturer, cutting out the middle man therefore, increasing your commissions and/or the quality of the product.

Just think, if you could buy your cereal directly from the manufacturers warehouse, how much do you think you'd really pay for that product. The only downside is you'd probably have to buy cases and cases (Like those wholesale stores) to be able to buy that product direct.

Now, here's what makes MLM different from a Traditional business.

In that wholesale store, they "hire" employees and pay them an hourly salary to market their product. No matter how much product that employee markets, they earn that salary. Because you have "employees", you are responsible for paying taxes, insurance and other incentives and this expense is figured into the total selling price of that box of cereal.

If you are the employee, say a supervisor, and you train a new employee to market that product, you get a pat on the back, the wholesale store gets the expense and the profit that this new employee creates. The more employees you train, the more expenses and profit the wholesale company creates.

In MLM, we are all "wholesale" business owners. We are the Sam's Club and Costco's owners. We buy direct from the manufacturer and market our wares to the public. We usually don't have the overhead like taxes and insurance, the headaches of having employees that only care about making a paycheck. What we do have however is the tax breaks only a home business owner can earn because our "store" is a dedicated room in our home. We also take on the advertising expense (just like those wholesale stores) and we train others to market our product with the biggest difference being, we don't pay the salary to this new trainee.

In MLM, we all work on commissions. We get paid for production only. When we successfully market our product to the public, we earn money. When we teach others to do the same, we earn royalties or "mailbox money".

If you "hired" someone to come in and help you market your product, you will be obligated to pay them at least a minimum hourly salary, whether or not they produce a sale of your product. This is a cost that comes out of your pocket, no matter what. When you have an "employee", again, you're also responsible for the taxes and any other expenses of having this employee, whether or not they produce a profit for your company.

In MLM (multi level marketing) or NWM (network marketing), you don't technically hire someone like you do in a traditional business but you share the opportunity with others who want to learn how to buy direct from the manufacturer and how to market the product to the public themselves. You teach and train this person to duplicate what you've done. Yes, YOU invest your time and energy in training others and they in turn decide what they are going to do with that knowledge. Many people you come in contact with will NOT be the right people to teach and train. They would rather be the salary earning employee than the business owning employer. That's just the way it is. (So be careful and choosy about who you offer to teach and train.)

How you market your product to the public is no different than any other business out there. You need to let people know you have a business and a product you feel they may benefit from. You must also understand that not everyone is going to want to use your product, just like you don't shop at every single store in town either. If you went out and recommended your favorite restaurant in town to everyone you ran into, do you honestly believe that everyone you made the recommendation to would go to that restaurant? And if you didn't tell anyone that you were in business, do you really believe you could make a profit?

One final distinction you must understand.

MLM is a profession as well as an industry. Any high paying profession takes training. Many times, years of training. Your job, when you first get started, is to market your product to the public to create immediate cashflow. The more you market, or recommend your product, the more cashflow you create. This is one of the BIG side benefits of this profession.

Recommend to a lot of people, make a lot of money.
Recommend to a little people, make little money.
Recommend to no people, make no money.

While you are recommending your product, you also need to be a student of this profession. Any Doctor, Lawyer or high paying professional MUST go to school for years and years to learn HOW to become a professional in that industry. If you decided today you wanted to join the Medical industry, does that mean in 30 days you should be ready and knowledgeable enough to operate on someone and save their life? How long do you honestly think it will take to learn HOW to operate?

Treat this profession as you would any other high paying profession and you'll earn, in time, just like those other high paying professionals with the biggest difference being, your income will be what we call "walk away income".

Is this a pyramid scam?

What do you consider a pyramid scam?

According the to FTC,

Some people confuse pyramid and Ponzi schemes with legitimate multilevel marketing. Multilevel marketing (aka network marketing) programs are known as MLM's, and unlike pyramid or Ponzi schemes, MLM's have a real product to sell. More importantly, MLM's actually sell their product to members of the general public, without requiring these consumers to pay anything extra or to join the MLM system. MLM's may pay commissions to a long string of distributors, but these commission are paid for real retail sales, not for new recruits.

You're going to work some where, some how for the next 30-40 years anyway. Why not learn how to work smarter, not harder. Become a professional in an industry, master that industry, and earn a professionals income, live a professionals lifestyle. What else have you got to look forward to.

If you look back on the last 5 years of your life, think, are you at a position today where you thought you would be? If you don't change anything you're doing right now, if you don't make a commitment to do something different, where will you be in five years from today?

So, I guess your next step is to decide

Employee vs Employer vs Professional

MLM vs Traditional Business

I Love My Job!

I am
Karen Umstattd
Home Based Business Consultant

"Hakuna Matata"

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