Multi-level marketing (MLM) is a controversial marketing strategy in which the sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit. This recruited sales force is referred to as the participant’s “downline”, and can provide multiple levels of compensation. Other terms used for MLM include pyramid selling, network marketing, and referral marketing. Many pyramid schemes attempt to present themselves as legitimate MLM businesses. Some sources define all MLMs as pyramid schemes, even if they are legal. MLM is illegal in mainland China. According to the U.S. Federal Trade Commission (FTC), some MLM SOFTWARE IN HARYANA constitute illegal pyramid schemes which exploit members of the organization.
MLM is one type of direct selling. Most commonly, the salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing. MLM salespeople not only sell the company’s products but also encourage others to join the company as a distributor.
Companies that use MLM models for compensation have been a frequent subject of criticism and lawsuits. Criticism has focused on their similarity to illegal pyramid schemes, price fixing of products, high initial entry costs (for marketing kit and first products), emphasis on recruitment of others over actual sales, encouraging if not requiring members to purchase and use the company’s products, exploitation of personal relationships as both sales and recruiting targets, complex and exaggerated compensation schemes, the company and/or leading distributors making major money off training events and materials, and cult-like techniques which some groups use to enhance their members’ enthusiasm and devotion.
When compared with other MLM plans, binary plans have a lot of benefits, such as:
Fostering Teamwork. As both a member without recruits or a “child” and their recruiters both get the same benefits from successfully recruiting new members, the recruiters are more likely to help them to strengthen their sub-trees, allowing for the child to learn about sales and recruitment.Furthermor
e, due to flushing, a binary plan gives incentive to companies to try to keep all the legs of the operation at a high level, not allowing for certain sectors to lag behind.
Spillover. The profits of gaining a new member is shared between the entire high-line, which encourages everyone to attempt to recruit new members and make the binary plan larger.
Near-Infinite Depth. Due to the way that the Balanced Volume (BV) calculates payout, every member in the up-line is guaranteed to get some profit for a successful sale unless if the organization gets large enough that the net payout is negligible.
Rapid Expansion. As each new member only needs to recruit two other
Volume- based pay structure In a binary plan, distributors who bring orders are guaranteed to be paid more for them which is not true for other major MLM compensation systems.
However, on the other hand, there are a lot of risks to using binary plan systems such as:
Flushing. Due to Balanced Volume, if one leg is significantly stronger than the others it is very likely that a significant amount time, money and work can be wasted.
Short Term. The majority of binary plans fail within the first five years due to either expanding too rapidly and not being able to sustain it or not being able to get an initial base.
Pooling. Each person based upon their level takes a certain percentage of a “pool” of money that is gained from sales. However, as more people enter the binary, each person gets less of a percentage, meaning that as the binary plan expands, if sales do not increase at the same rate as the plan, profits could potentially decrease.