by Sid Hale

People tend to fear what they don't understand.  So is it any wonder that Multi-Level Marketing (MLM) programs have been perceived with distrust for so many years?  

I mean, let's face it - some of the compensation schemes in older MLM programs have been so complex that you couldn't really be sure what you had to do to earn a buck!  If you ever got a commission check, did you have the necessary Masters in Mathematics to figure out if the amount was right?

MLM, in and of itself, is not bad.  But... greed at the top can really turn a program sour, and has single-handedly created the bad reputation that MLM has come to enjoy.

Unfortunately, the bad rep is probably the single most limiting factor to the growth of any MLM.  Each badly run MLM, just reinforces the fear.

Almost every form of marketing employs a multi-level compensation scheme. 

Fortune 500 Sales Organizations

Even in the corporate world of the Fortune 500, the salesman is often paid on a commission only basis.  He reports to a hierarchy of management, and each level of management gets a percentage override on that salesman's efforts. Then you get to the officers of the company. The VP of Sales gets a bonus based on the performance of that sales force. The VP of Marketing gets his share, too, because it was his brilliant marketing strategy that allowed the sales force to perform so admirably. The President and CEO get HUGE salaries, bonuses and PERKS awarded by the Board based on the company's performance (a large part of which is - you guessed it SALES).

Tell me how that is not Multi-Level Marketing.  Almost anything that doesn't follow the hot dog vendor/roadside fruit stand model is Multi-Level Marketing.

The "corporate world" picture I painted above, was a little bit of an exaggeration, because there were a finite number of levels.  In that scenario, the size of the sales force is constantly monitored and adjusted (by the Sales Management) based on demand for the product.  

But Fortune 500 companies use another form of marketing that more closely resembles what we think of as Multi-Level Marketing.  

Manufacturers' Representatives

Most of us are familiar with the concept of a Manufacturer's Rep.  But do we really understand how it works?  A Manufacturers' Rep is an independent salesman.  He runs his own business, and represents one or more manufacturers by selling their products.  He may even employ other salesmen to expand his geographical reach, or he may enter into a Sub-Rep Agreement with other independents for that same purpose.  These other salesmen are his network.

The manufacturer is only involved to the point of signing up his direct representatives.  Because the manufacturer normally exercises no control over how his independent representatives get the job done, that network will grow without his involvement, or control.

2-Tier Affiliate Programs are MLM

What????

That's right. A 2-tier affiliate program is an MLM. I'm not saying that just because of the strict definition I used above (i.e. more than 1 level). I'm saying it because the 2-tier affiliate programs that we tend to think of as being very different from MLM are, in fact, designed to be infinite levels. 

Once you recruit a sub-affiliate, you move on to find another because that is the only way you can grow your "organization".  But your sub-affiliate doesn't think of himself as a sub-affiliate. He's out there recruiting his own network of sub-affiliates. His 2nd tier is off your radar, because it is your 3rd level, but just because you don't get commissions at that level doesn't change the fact that this 3rd level exists (and a 4th, 5th, ad infinitum).  Eventually, it gets more and more difficult to recruit new affiliates into the standard "2-tier" program. 

The tier system just defines the depth of the matrix to which an individual is compensated.  It does not limit the depth of the entire matrix.  In the affiliate programs we see most often, we are working in an N x 2 matrix. In other words, our personal matrix can be as wide as we want to make it, but we are compensated for only 2 levels (our direct sales and one more level). 

In the forced matrix systems we hear about more often lately, the width of our matrix (our number of direct referrals) is limited, and if we exceed that number, we create spillover.  In other words, once we have filled our 1st level, any recruiting we do will help our lower levels fill their matrices. 

Is that good or bad? Mostly good, I think. When you are recruiting sub-affiliates, you don't interview them and then accept them based on their sales experience, etc. and there is no provision in the system for you to fire a non-performing salesman. 

The solution? You keep recruiting, and hope that somewhere along the line you place a good performer into that leg of your organization so that it becomes self-sustaining (maybe even creates some spillover for its lower levels), and you can go create spillover for another leg that may not be performing so well.

Again, the depth of compensation comes into play. The deeper the levels of compensation, the more the total compensation for a single sale has to be spread - and the less each individual makes on that sale.  This means that the organization building becomes more important, but with any MLM (including 2-tier affiliate programs), product sales need to happen on every level.  When there are little or no product sales, the organization building becomes the only goal - and no one makes any money.

So Which is Best?

Every program needs to be evaluated for its own strengths and weaknesses.  Remember, all you are choosing between is a program that compensates with larger commissions on 2 levels, and one that compensates with smaller commissions on many more levels.  

First, look at the product.  If the product has no reasonable market beyond those that are recruited to sell it, the act of recruiting erodes the market, and each new salesman faces a smaller and smaller market - fewer and fewer people to recruit.  If the product is just non-existent or has too small a market, there will be too few sales and commissions regardless of how many levels the commission is paid on.  If there is a good, marketable product - then look at the program.  Study it.  Understand it.  

In considering any opportunity where you intend to make a profit by selling, remember - any marketplace is of a finite size, no matter the product. The demand within that marketplace may change based on many factors, but at any given point in time, they are all controlled by population (or a segment of a population).

Summary

If you are "turned off" by the term MLM, then re-label it in your mind.  Think, instead, in terms of "Network Marketing".  If you are an Affiliate Marketer, understand that you are a Network Marketer in the truest sense and that Affiliate Marketer is just that subset of Network Marketers whose commission structure is limited to 2 tiers.  Don't be limited by labels.  Evaluate each program on its own merits and then decide.