Network marketing attracts the attention of thousands of entrepreneurs from all over the world due to its potential for stable income and the opportunity to build a successful business. However, despite the enormous potential of this industry, many MLM projects face failures right from the start and fail to achieve the expected profits.

In this article, we have discussed what network marketing is and explored the key trends in the MLM market. You will also learn about the factors that lead to failure in MLM business and how to avoid them.

 

What is MLM business?

Network marketing, also known as multi-level marketing, is a modern business model that involves selling a company's products through a network of independent distributors.

Distributors are not employees of the MLM business, they are independent partners. They promote the company and sell products to potential customers, as well as recruit new partners into the project, building their own network structure. Each distributor earns profits in the form of commissions from their own sales and the sales made by the members of their created team.

Using the MLM model allows building a large network of partners and actively expanding the customer base. Brand recognition, sales volume, and consequently business profitability grow even without significant marketing expenses.

Despite some people still viewing MLM projects with skepticism, considering them pyramid schemes, the direct selling market is actively growing. According to Globe Newswire research, in 2022, the network marketing industry had around 121.3 million partners worldwide. MLM projects have become a primary source of income for 10.5 million people.

At the beginning of 2023, the network marketing industry comprised approximately 5,000 active companies involving over 125.4 million people. The global MLM market is estimated to be worth more than 180 billion dollars.

According to Globe Newswire, it is projected that by 2025, the value of the MLM industry will increase to 237.6 billion dollars, with an average annual growth rate of 6.5%. Such growth is expected due to the increasing trust in the network market, high engagement of customers and partners.

 

 

Why is the MLM project not growing and not making a profit?

Starting a new business is always exciting. However, many entrepreneurs overlook the fact that even a highly promising market and a good startup idea do not guarantee success. Not all MLM projects achieve the desired growth. During the market entry period, new companies are most vulnerable, and 10-15% of them close within the first year of existence.

Typically, the failure to achieve the desired outcome and the defeat are associated with common mistakes in building and managing an MLM project:

  • Incorrect product or launch region selection

Your product is the key to success in business. Often, MLM projects launch a product that is already saturated in a particular region. In this case, the audience's needs are fully met, and it becomes almost impossible to interest people in a new company, leading to poor product sales. The same can happen with innovative products when the market and consumers are not yet ready for them. The offered product is the cause of failure in 35% of new projects.

Before launching an MLM startup, it is essential to understand the market. Conduct a detailed analysis of the chosen region: assess the level of demand satisfaction, identify the needs and desires of the target audience, and evaluate growth prospects. By doing so, you will not only determine if the market is ready for your offering but also find ways to improve and refine your product or service.

  • Weak or defective software

The viability of an MLM project heavily relies on the quality and suitability of its software. Insufficient functionality in the software limits the capabilities of the network company and can result in the loss of customer and partner data, commission calculation issues, system failures, and delays. All of these issues lead to user dissatisfaction and, over time, can lead to the project's closure.

To avoid such issues, it is essential to seek assistance from experts. The FlawlessMLM team has years of experience in developing unique software solutions for MLM projects. We offer a comprehensive system of proven tools for effective network business operations, with the ability to adapt to the specific needs of each project.

  • Incorrect calculation of the marketing plan

Entering into MLM without a detailed calculation of the marketing plan can lead to quick failures. Setting excessively high commissions and bonuses may make them impossible to pay and result in business losses. Conversely, offering too low or unfairly distributed compensation at different levels reduces distributor motivation and trust, leading them to leave the project. Moreover, the marketing plan might not comply with legislation, causing issues with law enforcement agencies.

When choosing the type of marketing plan, it is important to understand the specific nature of the product, the characteristics of the target audience, and the financial capabilities of the company. It is necessary to establish commissions and bonuses that are fair and motivating for participants in the network structures at different levels. All payouts should be realistic to ensure that the MLM business generates sufficient profit for effective operations.

  • Underestimation of competitors

Competition in the MLM market is constantly growing with the emergence of new companies and the active development of existing ones. If you have a poor understanding of your competitors or underestimate their capabilities, it can lead to numerous unpleasant surprises and the displacement of your project.

Identify the key players in the market and conduct research on their activities: the market share they occupy and the characteristics of their products. Also, study consumers' attitudes towards them, their marketing plan, promotion tools, and product pricing. Proper analysis will help develop an effective development strategy and even find new solutions to outperform competitors.

  • Communication and motivational gaps

The effectiveness of a network business depends not on the number of distributors but on their level of activity. The absence of a well-coordinated communication system complicates the process of exchanging information and interaction among distributors, reducing their level of engagement. Incomplete understanding of the MLM sphere and the lack of motivational incentives decrease the activity of company partners. As a result, the network structures of your project do not expand but, on the contrary, gradually lose their participants.

Implement communication tools in your MLM project to interact with partners: email, chats, and group meetings for distributor communication, chatbots for quick responses. Create a simple training system for your project participants, introduce special bonuses and rewards for achieving set goals. Understanding their own value and receiving rewards motivates distributors to expand their teams and increase the profitability of the company.

The network marketing industry is thriving and significantly impacting the global economy, creating favorable conditions for business development. However, to create an MLM company that generates profit, understanding the industry and the key components of an effective project is essential. The FlawlessMLM team has successfully launched over 400 different projects over the course of 19 years. We know how to avoid pitfalls when launching an MLM and offer a multitude of solutions:

  • assistance in product selection, region, target audience, and strategy, as well as legal support;

  • development of an effective bonus plan;

  • high-quality software: distributor back offices, automated payouts;

  • integrations with external services, and much more.

If you want to create a network marketing business that will thrive and comply with all the legal requirements of your chosen region, follow the link https://flawlessmlm.com/mlm_consulting. We will not only help you develop a high-quality new project but also integrate MLM into your existing business.