Investing Crossword Puzzles: MLM Business Models

Multilevel marketing (MLM) business ventures are marketing strategies designed to promote products through distributors, offering multiple levels of compensation.

Legitimate MLM business ventures are legal, so long as its focus is on selling tangible products, not payments made by distributors joining the venture. The promotors receive commissions on the sale of the product, as well as compensation for the sales their recruits make.

The main idea behind an MLM strategy is to increase the number of distributors for the product, and with more salesmen meaning more income.

There are a variety of MLM models.

Under the unilevel model, a distributor can recruit as many first level investors as they can find. Under this theory, there typically aren’t many levels, meaning that typically there aren’t high-level recruiters, and some refer to this as a “flat pyramid.”

The stair step design is considered by some to be the “most exploitative” MLM organization. In this type of plan, a distributor is even more focused on recruiting, frequently involving a “pay to play” requirement, where lower-level distributors must pay for the products on the outset allowing those above to move up in rank, making this design most similar to pyramid schemes.

With the binary model, distributors each recruit two “legs” of distributors. The upper-level distributor is typically only compensated for twice the amount sold in the lesser leg, encouraging balanced recruitment. These are called “split pyramids.”

The matrix model is similar to a binary model, but it can have more than two legs, frequently three. However, the limitations result in the number of distributors per level can result in a person on the top level recruiting distributors for two levels below, resulting in an opportunity for freeloaders to benefit from greater commissions.

Now, test yourself:

2. This model involves recruiting in sets of twos.
5. Distributors receive these based on their sales.
7. This model typically involves only two levels, and is based most on individual commissions
8. These are what distributors are selling to provide funds to support the venture. (Two words)

1. This is marketing schemes where recruiters find distributers. (two words)
3. This model is most similar to the binary model.
4. These are the salesmen moving products within the venture.
6. The ________ ________ model is frequently considered the most exploitative, since it often requires a buy in.