MLM means Multi-Level Marketing. The idea with MLM is to build a marketing organization in a viral manner. The marketer is somehow compensated for recruiting more marketers into the organization. There are many MLM plans in the market today and it didn't begin with the internet. One can even claim that the traditional distribution chain is a kind of network marketing.
When we talk today about MLM we mainly mean recruiting a lot of novice marketers fast. Why fast? The answer to this lies in the dynamics of the MLM plans. Most plans will give the same incentives to all marketers. This creates an exponential phenomena. Lets say every marketer brings in only 2 more marketers. This means that after n iterations you will have (2 to the power of n) minus 1 marketers (i.e. (2^n)-1), a number which explodes exponentially.
Because of this exponential explosion, it is very hard to control such a plan. Due to this difficulty there are many people who consider MLM to be harmful. Our minds as a human beings is used to think linearly, but when we encounter an exponential phenomena we loose most of our intuition and it is very hard for us to come to conclusions and predictions.
The most harsh criticism of MLM comes from people who claim that MLM is just a form of a pyramid scheme. The difference between a pyramid scheme and an MLM is that in MLM the marketer has an actual product to market, while in a pyramid scheme the only product is the pyramid itself. In a pyramid scheme most people lose while only a handful of founders win. If the pyramid of marketers can really make money from the product or service which the company is selling then the company and the MLM scheme has a chance of surviving.
So, how much money should the marketers make in order to sustain the organization? The analysis we should do is simply the "break even" point of the marketing organization, just like in regular economy. There are many MLM plans in the world, each with its own characteristics and "break even" point. As an example, lets analyze an MLM strategy that is called "MLM Matrix plans". In these plans there is a limit to how many marketers each marketer can have directly under him and also a limit to how many levels under the marketer he is making money from.
Lets have D as the number of marketers allowed to be directly under each marketer, and L as the number of levels the marketing organization can be for each marketer. In most MLM plans the marketer is required by the company to buy a minimum amount of its products or services. Lets also assume each marketer is required by the company to pay C dollars to get its products or services. In that case the break point of a full marketing organization per each marketer is: ((D^L)-1)*C.
That means that if the marketing organization of each marketer is earning that amount then the MLM and the company will be stable. Since not all marketing organizations will be full matrix in an MLM we might have a lower "break even" in reality, but this will need a deeper and more complicated mathematical model. This means that the break even point for the whole marketing organization is smaller then ((D^L-1)*C*M where M is the number of marketers.
For further discussion you can visit [
http://cloudphilosophy.blogspot.com/search/label/Economy]my blog
Article Source: [
http://EzineArticles.com/?The-Economics-of-Matrix-MLM-Plans&id=4194068] The Economics of Matrix MLM Plans
