In 2024, the business landscape continues to evolve under the influence of technological innovation, globalization, and changing consumer preferences. When thinking about launching a business, entrepreneurs now face a choice between two main models: classic and MLM businesses, which have their own unique advantages and challenges.

In this article, we have analyzed and compared these two business models in depth, highlighting their key differences.

The main differences between MLM and classic business

In the comparative analysis of MLM and the classic business model, network marketing is marked by significant advantages due to its highly effective strategies of interaction with the market. Due to this, multi-level marketing has quickly gained popularity among the business community. Today, almost every large company is implementing referral programs, gradually abandoning traditional methods of doing business.

When choosing between the classical and MLM models for launching your own business, you should take into account several of their fundamentally different characteristics:

  1. Target audience and competition

This factor is a key difference in business model strategies. In a traditional business, sales are made to end users, so the main priority is the product offered to them. Competition here is between the same or very similar products. Thus, companies compete by offering a better price, higher quality and additional product benefits.

In network marketing, your end product is earning opportunities, and your target audience is people who are interested in additional income. The competition comes down to the struggle for the most attractive offer for earnings. Therefore, in the MLM market, you will have to compete with companies that sell completely different products.

  1. Initial investments

To launch a classic online store, it's necessary to have initial capital for website development, product purchasing, warehouse renting, employee hiring, as well as marketing and promotion. All these aspects entail significant financial expenses not only at the initial stages but also throughout the entire business lifecycle.

Starting an MLM company requires even greater initial investments. Besides the costs of product purchasing, warehouse space renting, and promotion, launching a network business demands substantial investments in the development of a quality compensation plan and specialized software. However, despite the higher initial investments, the outcomes and profits MLM companies achieve are significantly higher compared to traditional businesses.

According to research by Direct Selling News, the average profit margin in the MLM industry is between 20%-30% of sales volumes, whereas in traditional businesses, this figure varies from 2% to 10%.

  1. Management

Classic business is based on a hierarchical management structure with clear levels of leadership, distribution of powers, and responsibility. Such a structure ensures organization and control of activities but can lead to bureaucracy and slow down the decision-making process.

Network business is built on a decentralized structure, where each network participant is an independent partner who independently develops a personal team and promotes products. This creates a multi-level structure in which the income of distributors depends on their productivity and contribution to the development of the company.

  1. Profitability

Profitability is a crucial indicator for any business, as it determines its efficiency and the return on invested funds.

In traditional business, profitability largely depends on initial capital investments and ongoing expenses for rent and salaries. Such expenses are usually very high, making the business's profitability lower and often remaining at a fixed level as the company expands due to corresponding increases in its expenses.

In MLM (Multi-Level Marketing) business, a critical aspect of profitability is the income distribution structure, which clearly defines commissions and bonuses for distributors. Profitability here is also influenced by the quality of partner training, their trust and motivation, which contribute to network expansion and sales increase, ensuring the growth of the network company's profitability.

  1. Promotion

Classic business uses both traditional and digital promotion channels to attract customers and increase brand recognition: television, social media, SEO, and content marketing. Companies in the retail or service industries also rely on the attractiveness of their location and the flow of potential customers where they are situated.

The foundation of MLM business promotion lies in personal connections and distributor recommendations. Each network participant acts as a brand ambassador, promoting its products and values to a wide audience through their social networks. This approach enables the attraction of numerous loyal customers and partners from various corners of the world.

Network marketing and traditional business remain the two most popular models of entrepreneurial activity in 2024. The choice between these models should be based not only on income potential but also on your financial capabilities, management skills, and long-term goals.

If you aim to build a fast-growing business with the ability to scale internationally without significant additional investments, MLM is the right path for you. To understand the key aspects of successfully launching a network company or integrating MLM into an existing business, follow the link and receive a free consultation from our experts in chat.