In today’s unsure economic times, an increase of number of people around the world are using MLM – short for Multilevel Marketing or Net Marketing – as a means of creating supplemental income or starting a profitable full-time home business.

In fact, over 13 million Americans already participate in MLM, according to estimates by the Direct Selling Association. Together, over 2,000 U.S.-based MLM companies produce yearly sales of more than $28 billion – with a huge chunk of that going to distributors who work out of their homes. In America and around the world, MLM has a great impact on our economies and it provides millions of aspiring entrepreneurs with the chance to run their own home-based business.

What is MLM exactly? How does it work?

In simplest terms, MLM is word-of-mouth marketing. Companies who don’t wish to invest in advertising or full-time sales staff will often choose to recruit home-based distributors to sell their products or services for them. Just imagine how much money they will spend for celebrities just to endorse their products. For some companies, this type of marketing can be much more powerful than traditional, company-paid advertising methods.

The home-based distributors (often referred to as representatives, associates or team members) are then rewarded for spreading the word about the company’s products, as well as finding others who are interested in starting their own MLM business.

How can you get paid?

The large majority of MLM companies pay their distributors a direct commission on every sale they make, plus commissions made by new team members who they’ve recruited, and commissions made by those members’ recruits as well. This type of pay model (or compensation plan) often continues on for multiple “levels” of members – hence the term multilevel marketing.

In general, team members who can create the largest, most successful teams earn the biggest commissions – so it pays to focus on recruiting just as much as selling the products. In addition, companies will often reward the most productive members with bonuses or even funds toward a new car or home.

What do you sell in Multi Level Marketing?

This question might be better answered by the question “what can’t you sell?” The MLM industry produces a wide range of products and services for nearly every traditional market in existence. According to figures from the DSA, the most common MLM products fall under personal care, clothing and accessories – such as cosmetics, jewelry, skin care, and so on. However, MLM covers a wide spectrum of products that can include everything from vacation packages to insurance plans.

Who will be your customers?

Every MLM company has its own system for acquiring customers, but in general they will always separate your potential market into two groups: warm market and cold market. Your warm market represents the people you already know, such as friends, family, coworkers or neighbors, who may be interested in your products or opportunity. Your cold marker represents everyone else – people you have never met or spoken to before.

While approaching your warm market is generally fairly easy, finding cold-market customers usually requires more work and investment. This is generally accomplished by traditional advertising sources such as classified ads, online marketing, or phone leads. Many companies offer unique systems, “co-op ad campaigns” and support to help you generate these customers.

How much does it cost to start an MLM home business? This, too, depends on the specific details set by each MLM company. Some MLM businesses can be started for free, while others may require a full product purchase up to $10,000 or more. On the whole, however, MLM home business start-up costs are generally low, especially when compared with franchise businesses which often require initial costs of $250,000 or more. Many MLM companies may charge only a monthly administrative fee, ranging anywhere from $19 to $99, to remain an active distributor.