Advisory Dec, 01 2009

Rising Demand of Multi Level Marketing Business

If you are an aspiring entrepreneur but cannot afford to make big investment then MLM franchising business is an ideal choice for you. As such business provides ample opportunity to maximise the returns on investment. This article will provide you with a

By Ramanjit Kaur
Feature Writer
Rising Demand of Multi Level Marketing Business

Multi Level Marketing (MLM) business is a term used to illustrate the marketing arrangements of a business. It is a part of the overall marketing strategy to boost the sales of the products or the services. The MLM format is structured in a way to increase the sales of a product or service by directly selling it to the consumers. The structure includes the distributors and sponsors. Sponsors hire the distributors down their line which later do the same at their lower levels. Depending on the sales they have made and the line of distributors they have introduced in the hierarchy, their commissions are decided. In short, it is an easy and quickest way of promoting company’s products and generating maximum revenue.

The best part of an MLM business franchise is that it works through distributors/ representatives.  As G.K.Barwa, CEO, Citiesbazaar.com says, “Any distributor can work their down line (hire distributors at the lower levels) either in horizontal or vertical mode. Horizontal mode is the direct business that boosts revenue for a franchisee and vertical down line is the royalty for him.”

Key brands of the sector

A number of brands in the MLM sector offer franchises. For instance, Citiesbazaar.com supports (47 franchisees), Kapsun Global more than (five franchisees), Just Cash (30 franchisees), Cruise Technology Pvt. Ltd (1500 franchise outlets), BSD Associates (three franchisees), Pramod Sharma (250 franchised outlets), SkyQuest and many more.

How to operate MLM businesses

The pillars of MLM businesses are distributors, sponsors, goods and re-purchasable products. A franchise MLM business usually markets the products of the company directly to the consumers and the potential business partners. This is done by means of relationship recommendations and word of mouth marketing. As Barwa says, “MLM Business works through distributor’s word of mouth publicity/ reference and company’s good back-end support to the existing distributors and new ones introduced to the company.” He further says that MLM Business runs on different income plans like Unilevel plans, Binary, Matrix or Hybrid Plans. These are the basic ways to operate an MLM business.

MLM includes a few plans and these are as follows:

  • Unilevel plans: It is the simplest form of compensation plan. It comprises a sponsor and frontline of distributors. A sponsor is the one who hires a line of distributors under him. Frontline distributors are the first level distributors, which are hired by the sponsor directly. This plan encourages the sponsor to hire as many distributors as they can and later encourage the distributors to do the same. In this plan, a sponsor can get commission only up to 5-7 levels of distributors.
  • Binary plan: This plan allows a sponsor to hire only two frontline distributors. Later the distributors can allow two distributors down their line to participate in the hierarchy.  In case if a sponsor hires more than two distributors at the lower level then, the extra distributor will automatically be shifted to the next lower level known as  ‘spillover’.  
  • Matrix plan: It is quite similar to unilevel plan except that it allows the sponsor to hire only a limited number of distributors in the frontline. Like binary plan, if a sponsor hires beyond the limited number, then the distributors will automatically be placed down the line. Matrix plans often have a maximum width and depth.
  • Hybrid plan: It is a compensation plan that generally incorporates more than one income plan to boost sales and earn good commission.

Requisites of taking a franchise of MLM business

It’s a wonderful option for an entrepreneur to start an MLM business as it is easy to operate and generate fast revenues. As per Barwa, “For an aspiring entrepreneur, MLM business is a great opportunity if s/he wants - 

  • Involvement of local identity.
  • Reduced operating cost 
  • Fast and maximum revenue generation
  • To put more local/regional trust on his/her brand.

It is a perfect low investment business that an aspirant can run from home also. It requires an investment that may range from Rs 10,000 to Rs 50,000. However, the financial requirements may differ from company to company. A new entrant has to pay for signing up with the parent company, and also for support and training. Location is not at all a problem in franchising MLM businesses.

Challenges in MLM business

A franchise owner of MLM business has to face a couple of challenges. For instance, inefficiency in supporting the hierarchy of distributors that develops very fast. Secondly, increase in the cost of products can obstruct or slow down the sales and lastly lead to disputes among the leaders (sponsor at the top level of hierarchy). Franchising in MLM business usually collapses due to the depth of the distributor’s hierarchy/royalty income for each distributor.

Though there are certain challenges that a franchisee has to face, but every challenge can be overcome with a solution. As Barwa says, “One can overcome all the above challenges by –

  • Supporting the end user since business develops very fast.
  • Not to increase the prices of product.
  • Resolving the disputes among the leaders. The delay in resolving the dispute can lead to groupism or lobbying, which later can harm the entire hierarchy.”

Conclusion

It can be a golden opportunity for them who want quick success and earn profits instantly. Taking up the best franchise in MLM business is the right option to generate maximum returns on your investment. So, what are you waiting for, Invest in this perfectly low investment business.

Related: Experiencing The Franchise Boom In India

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