If you have been in multi-level marketing, you know that mostly it deals with physical products or goods and only a few MLM companies are dealing with services or virtual products.
The tradition of having direct selling dwelling on physical products is long-standing. Many people find it easier to market physical products than services and vice versa.
However, technology is developing and the world has turned into a global village. In a field that is continually evolving, there is a need to explore more opportunities that can drive the industry further ahead.
Overreliance on selling physical goods has made many people believe that direct selling or network marketing is only designed to sell physical products.
However, this is not always true, as long as the model can work in a service industry and it’s applied within the legal frameworks and structures, it can help expand the business model.
Before we look at whether multi-level marketing can really work in the service industry, let’s first explain what this business model is and its main components.
What’s Multi-Level Marketing?
The Federal Trade Commission defines multi-level marketing as a business model that involves direct selling. In network marketing, a business or company distributes products via a network of distributors.
The distributors earn income based on the sales they make from selling the product themselves and retail sales that are made by recruits of the distributor either directly or indirectly.
Since every member of the multi-level marketing business can earn commissions from sales made by the recruits, it offers an incentive for the members to continue recruiting more and more sales representatives within their downlines.
Direct selling companies don’t usually put their products on store shelves or sell them directly to customers through online stores like you would find with the typical business model.
Instead, MLM companies recruit distributors or salespersons that sell the product. Each recruited individual has an opportunity to recruit other salespersons, and it’s out of this kind of business structure that those who make sales and their recruits make sales earn commissions.
This will allow for the brain to be rewarded and leads and can lead to a great new addiction where the downline is further added.
Why Are Most MLM Companies Product Based
The reason why most MLM businesses have been limited to offering the sale of products and not services are many. First, consumer behavior has played a huge role in this aspect.
In the past, it would be difficult to convince a person to purchase a service because it was intangible. People wanted to see so that they believe. Secondly, there weren’t many services that could be sold using this kind of business model because of the nature of technological advancements at that time.
Today, the growth of the internet has helped in advancing service-based MLM businesses. It’s also easier to manage and administrate the service-based network marketing business with the use of technology than it was in the past.
Thirdly, consumers today are beginning to believe in intangible products like services. They don’t have to see something physically so that they make a buying decision.
MLM in Service Industry
There are various MLM companies that are service based. These companies sell some kind of service that is billable. An example is Primerica that sells insurance and financial services.
Ignite is an MLM company that sells energy supplies while ACN deals with telecommunications. Today, we can have service-based MLM businesses in travel, internet, finance, insurance, telecommunications, software, and apps, among other service products.
Service-based direct selling offers advantages in that a distributor does not have to have a product inventory.
It’s easy to reach a larger geographical area if you do it online depending on the service you are selling. Also, the start-up costs tend to be minimal. Multi-level marketing models can be applied in many service-based products.
A distributor or sales representative just needs to understand the features of the service and how it works. The good thing is that with service based marketing, it is easier to grasp the concept behind the service and be able to explain it to willing buyers.
However, some services like the financial services may be a bit technical to understand, meaning that there may be many sales representatives who do not have the technical-knowhow of the service.
That being said, the business model can pretty work in the service industry and already many MLM companies have begun exploring this untapped area of multi-level marketing.
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