Education Center

Business Expansion: An Overview

Expansion: Five Paths to Business Opportunity:

1. Franchising
2. Distributorships & Dealerships
3. Sales Reps & Agencies
4. Licensing
5. Multi-Level Marketing

The Franchise Relationship
Recommended Links

More about Multi-Level Marketing

Multi-level marketing programs are methods of distribution used by manufacturers to sell products and services directly to retail consumers through distributorship arrangements. Unlike most distributorship agreements, multi-level distributors not only benefit from direct selling; they also receive commissions and bonuses for recruiting other distributors as well as for the selling efforts of the distributors they recruited.

Distributors participating in multi-level marketing programs are required to:

• Purchase a nominal amount of initial inventory for use in sales presentations,and thereafter to maintain sufficient inventory to satisfy customer demand.
• Commit a portion of their time and energy on the manufacturer's behalf in recruiting other distributors.
• Serve as retail selling representatives for the manufacturer.
• Refrain from being a distributor or sales representative for the manufacturer's competitors.
  

Commonly, distributors in multi-level marketing programs begin as part-time distributors and increase the amount of time committed as their sales volume increase. Generally, self-employed individuals operate the distributorship without other employees beyond, possibly, a spouse.

Unfortunately, this form of business expansion is often confused with "pyramid schemes.” The difference is that multi-level marketing is a legitimate and honorable way of conducting business, while pyramid schemes are designed to take advantage of aspiring entrepreneurs and honorable companies.
There are three primary ways to distinguish between a legitimate multilevel marketing program and a dishonest pyramid scheme. These are:

1. The initial payment requirement
   Usually, the initial fee in a multilevel marketing program is minimal, often requiring the new entrepreneur to purchase only a 'sales kit” that is sold at cost. Because pyramid schemes are supported by the payments of new recruits, there is an entry price solely for the right to 'join' ,or there may be other initial costs.
2. The initial inventory purchase requirement
   Multi-level marketing programs do not require distributors to purchase inventory beyond that which is needed to satisfy immediate customer needs. Pyramid schemes generally require the purchase of much larger initial inventories.
3. Re-purchase agreements in the event of termination
   Normally, in the event of termination, multi-level marketing programs provide re-purchase agreements with its distributors whereby the manufacturer will buy back unused and undamaged inventory. Pyramid schemes generally do not have such re-purchase agreements.

The main difference between multi-level marketing programs and other business opportunities is the emphasis placed on selling. The multi-level marketing company continually encourages its distributors to promote its products as well as provides incentives to established distributors to recruit others. Individuals with high levels of energy and who are marketing-directed generally do well in these kinds of opportunities.