The challenges of Multi-Level Marketing

This week I have been assisting a client of mine with some forecasting for her new business.  The business is one of the many companies which operate a sales force using MLM or multi-level marketing.  Most of the products marketed in this way are 'business to consumer' and range from cosmetics to housewares, slimming aids to books.  One thing these all have in common is the appeal of flexible working  You are essentially your own boss with the backing of a large organisation and a team to help you market your product.  MLM seems attractive to those who want to fit a job around family commitments or another career.  It is also know as network marketing, direct selling or referral marketing.

There are essentially 2 revenue streams - sales made by yourself where you earn a commission sometimes expressed as a percentage of the retail price and a commission from recruiting a team of recruits.  For a relatively small outlay, a new consultant purchases a pack of samples and receives some initial training from their up-line ie the person who recruited them.  Large organisations have training days or online training videos and manuals. The level of sophistication of the marketing and selling training varies enormously from company to company. 

The mechanics of setting up in business are very simple but establishing the potential revenue from selling MLM products is actually very complex.  The discounts, percentages earned from your downline and their downline, bonuses for reaching targets, minimum sales requirements and numerous other rules, make forecasting very complicated.

I set up a model using an Excel spreadsheet which allows my client to work through some different scenarios.  As this was a new venture, the surprising result was the level of sales required to achieve a worthwhile return.  We worked on a balance between her direct sales and the commission which could be earned by recruiting a team.  But how large a team can you manage - 5, 10, 25?  There figures brought home the importance of knowing your numbers inside out and back to front.  Understanding the MLM model in minute detail is essential for anyone thinking of embarking on a new careeer in this competitive space.