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Find out how to ethically leverage the multi-level marketing model to grow your online business with actionable tips and easy-to-use WordPress tools.
Multi-level marketing (or MLM) is a powerful way to grow a team of passionate, motivated salespeople for your business.
The premise is simple: Your sales force is compensated for the sales they generate, plus, they receive a cut of the commission of the sales made by others they recruit.
This motivates them to do two things:
- Sell your products directly (as with a standard affiliate program)
- Encourage others to spread the word about your product.
And so your network, and by extension your business, grows and grows like a Mario Bro on mushrooms.
But this effective marketing model comes with some ethical challenges.
Without due care and consideration in setting up your MLM network, you might unknowingly create something resembling a Ponzi or pyramid scheme. Not so great.
Thankfully, it isn't hard to set up a MLM network that respects both your sales force and your customers.
All it takes is some planning, know-how, and a great online tool to manage your MLM network fairly and transparently.
Read on to learn how to create an ethical multi-level-marketing network that keeps customer trust and your reputation intact while also growing your business exponentially.
An Introduction to Multi-Level Marketing
MLM, or free network marketing, is a business model where unsalaried members promote and sell products directly to consumers. These marketers are also actively encouraged to bring in new recruits.
Typically, members will earn a cut of sales made by everyone they've recruited into the MLM business.
When a sales representative at the bottom level makes a sale, everyone above them earns a portion of their income.
It's an incentive to spread the word and encourage a larger network of sellers.
Ethical Issues with MLM
This model has several potential pitfalls. It's important to familiarize yourself with the issues so that you can work to avoid them and create an ethical MLM.
1. Top Heavy Distribution
The biggest ethical concern is that MLMs can sometimes resemble pyramid schemes.
The more levels your MLM has, the more exploitative it will become.
The people at the top of the hierarchy make increasingly more, while the people at the bottom earn very little.
The difference is that MLMs generate revenue from actual product sales to consumers, whereas pyramid schemes primarily make money from the recruitment of more members.
The ethical concern arises when the emphasis is more on recruitment than on selling products. Which can lead to…
2. Predatory Recruitment Tactics
However, keep in mind how these bonuses can influence behavior.
When the focus shifts from product sales to recruitment, you run the risk of your salesforce employing predatory recruitment tactics.
The classic example is a member who is pushed to sign up their friends and family members to the network.
3. Personal Costs for Participants
Participants may be required to purchase expensive starter kits or maintain monthly product purchases to stay active.
This can lead to financial strain without equivalent sales income.
4. Misleading Income Claims
Some MLMs have been criticized for making exaggerated or misleading claims about the potential earnings.
This can lead to people to join (and spend startup money) based on unrealistic expectations.
5. Lack of Transparency
There can be a lack of clear information regarding the business model, compensation structure, and actual success rates of participants.
This makes it difficult for people to make informed decisions.
The Cost of Unethical MLMs
Running an unethical “pyramid” style MLM can do untold damage to your reputation and consumer trust.
You run a very real risk of consumers associating your brand with deceptive or predatory recruitment tactics and exploitation.
Any business success you do obtain from using these tactics will be short-lived, as pyramid schemes are, by nature, unsustainable long-term.
Aside from just being “the right thing to do”, focussing on creating an ethical multi-level marketing network makes good business sense.
How to Create a More Ethical MLM
Now you know the ethical concerns around MLM marketing, you can now turn your attention to addressing them.
Here are actionable tips to ensure your MLM is set up to sustainably grow your business and expand your network without exploiting your partners.
1. Keep The Focus on Sales
The first two ethical criticisms listed above (top-heavy distribution and predatory recruitment) can both be addressed by following this key advice:
📣 Always keep your direct sales as your main incentive over recruitment.
There are a couple of ways you can achieve this, and it's best to apply them both.
- Offer a greater commission for sales and keep recruitments as a “nice-to-have” bonus that won't unduely account for their income.
- Limit the number of levels (or tiers) to your MLM scheme.
For example if you limit it to 3 tiers, recruiters only receive a cut of the people they recruit and the people their recruiters recruit.
By doing this, you prevent participants from focussing on recruitment as a means of passive income.
2. Encourage Ethical Practices
Train members on ethical selling and recruitment practices that respect personal boundaries and relationships.
Include a clause on ethical selling and recruitment in your terms and conditions and reserve the right to revoke participation in your MLM on these grounds.
You can include training as part of your onboarding resources.
3. Run It as a Multi-Tiered Affiliate Program
Traditionally, MLMs require participants to literally buy into the scheme at personal financial risk.
Before ecommerce was a thing, this made sense. After all, the sales people needed to deliver the products to their customers directly. Pre-purchasing inventory was often the only way to ensure they had products on hand to sell.
However, in the age of online sales and drop-shipping, this model can and should be rethought to reduce the financial burden on participants.
By running your MLM as a multi-tiered affiliate program, your sales force doesn't need to purchase inventory upfront.
Instead, they can direct customers to purchase products through their unique affiliate links, with your company handling fulfilment directly.
This approach significantly lowers the entry barrier for new participants and minimizes their financial risk.
4. Be Transparent
Another bonus of running your MLM as an affiliate program is the ease with which you can track sales and commissions data. This ensures transparency and fair compensation.
Participants can see exactly how their efforts translate into earnings, which builds trust and motivation.
With Easy Affiliate, both you and your affiliates can track your clicks and sales in Google Analytics.
This not only helps in maintaining transparency but also empowers your sales force with data to make informed decisions about their strategies.
How to Create Your Own MLM (In 2 Steps)
When used carefully, MLM-style commission levels can push your partners to recruit more people.
With this in mind, let's see how you can add commission levels to an Easy Affiliate network using our WordPress MLM software.
Step 1: Make Multiple Commission Levels
You can add levels to your affiliate network using our Commission Levels add-on.
With this setup in place, an affiliate who recruits a new member will get a cut of this person's commission.
All of the affiliate's “ancestors” (the person who recruited them, and the person who recruited that person) will also earn a percentage.
To activate this add-on, navigate to Easy Affiliate > Add-ons in your WordPress dashboard. Then, find Easy Affiliate Commission Levels and click on Install Add-on:
After activating this software, navigate to Easy Affiliates > Settings. Then, select the new Commissions tab:
Assuming that you've already configured your affiliate network, this page should display the settings for all your new signups.
Now let's create some additional levels.
Click on Add Level. You can now choose how much members will receive after a successful conversion:
Remember, we recommend creating only a few levels to ensure you keep the focus on sales over recruitment.
When you're happy with your commission levels, click on Update Options. You can always repeat the process to create additional tiers.
Step 2: Reward Your Best Recruiters
Even with a WordPress MLM plugin and these payment tiers, you may want to assign unique commission levels to individual users.
This setup can reward your best affiliates or incentivize your underperforming partners to do better.
You'll need to enable the Commission Override setting for the user in question. Navigate to Users > All Users. Then find the username and select its accompanying Edit field:
Next, scroll to the Affiliate Settings section. If it isn't already enabled, select the Is this user an Affiliate? checkbox:
Next, click on the following checkbox: Enable commission override for this user. This adds a new section to this user's profile:
You can now change this person's commission settings by choosing between Percentage and Fixed Amount. Specify the amount to reward this marketer per sale. Once you're happy with your selection, click on Update User.
MLMs may not have the best reputations. However, when you use MLM techniques carefully, it's possible to grow a successful and ethical network to grow your business.
If you opt for this approach, remember to focus on achieving sales rather than simply recruiting as many new members as possible.
You can do this by limiting your commission levels, and giving greater compensation for direct sales as opposed to sales from recruits.
If you own an ecommerce or membership site, running your MLM as an affiliate program is the best way to manage recruits and reward participants fairly.
With an affiliate program MLM:
- Affiliates aren't required to purchase stock
- Both you and your affiliates can track sales and clicks transparently
- Creating and managing multiple levels is straightforward with the Easy Affiliate Commission Levels add-on.
Plus, if you're running your online store on WordPress, Easy Affiliate is the affiliate program plugin for WooCommerce, MemberPress, Easy Digital Downloads and more.
Do you have any questions about how to create a more ethical MLM? Let us know in the comments section below!