MLM Business

Anyone who has seen advertising for an MLM business opportunity knows that these ads tend to promise “fortunes” of six-figure yearly incomes, thousands of dollars in bonuses, and residuals that “last for a lifetime!”

 

But where exactly does that money come from? How is money made in MLM?

 

Nowadays, many MLM companies promote as many as “12 ways to get paid,” but in general, this income falls under three groups: direct sales commissions, bonuses, and residuals. Confused already? Don't be. Let's take a look at all three groups to see exactly how this money is made in MLM.

 

This is usually the first money that is generated for a new MLM business-owner. When a new sign-up successfully sells a product, he earns a cut – or commission – of that sale. Direct commission percentages can range anywhere from 1% to 100% of the total sale, with the rest going to the company, and to other distributors as residuals (we'll explain this below). For example, if Bobbie Joe, a new MLM business-owner, sells $300 worth of products, and gets 33% sales commissions, then she would earn a $100 commission.

 

Many MLM companies may entice new recruits with larger commission percentages for their initial sales. This is designed to help new distributors quickly recoup any initial money they may have invested into the business. For example, a new distributor might earn a full 100% of the money from their first two sales, but only 10% for each direct sale after that.

 

For most MLMers, this is where the big money is made. In MLM, distributors earn commissions not only from their own sales, but also from the sales of other people who they've recruited into the business. This is why the majority of MLMers promote the opportunity to new customers just as much as they promote the product they're selling. Distributors often earn commissions on the sales of their team members for several levels down – sometimes to infinity. So, for example, if Bobbie Joe recruits Nancy into the business, and Nancy recruits Ted, and Ted recruits Sara, then Bobbie Joe would still earn commissions on any sales that Ted generates – even though she wasn't directly involved in the sale.

 

Residual commissions generally start as low as 1% to 3% and get larger as the team expands and has more success. One percent might not sound like a lot to new distributors, but that income can quickly add up as the team multiplies. Since MLM companies entice new distributors with these extensive residual compensation plans, oftentimes an MLM team will expand quickly on its own, regardless of the effort of the original distributor. If this distributor is earning 1% of all product sales of 20 people beneath him, the income can quickly reach staggering levels. But on the flip side, if the entire team isn't putting in the effort, the income levels will never reach their potential.

 

Today's largest MLM companies offer an extensive list of bonuses for their distributors. Bonuses can be rewarded as larger direct commissions, cash payouts, larger residuals – even money toward a new car or home. Bonuses generally get larger and more rewarding as a distributor and his downline have more success. In the case of commissions on direct sales, a distributor might earn 10% commissions on his first 9 sales, but then 25% on his 10th sale. Or, this bonus could be given as cash payout: for example, a $1,000 automatic bonus for the 10th sale. In the case of residuals, the distributor might earn a larger commission when other distributors in his downline reach a specific number of sales.

 

In general, the longer an MLM distributor stays active, continues to make sales, and continues to recruit new distributors to help produce those sales, the better the bonuses get. Many companies also offer “team bonuses,” and “leader bonuses,” which reward teams or individuals for reaching certain levels in their downline.