Multilevel Marketing Vs. Franchising

Knowing the differences between franchising and multilevel marketing -- also called MLM or network marketing -- is important when you're choosing the best business model for your background, financing and long-term goals. Running a franchise takes some business acumen to make the business profitable. Network marketing appeals to people with no previous experience in sales or business relationship development, as training is provided by the organization.

Startup Costs

The startup costs for buying a franchise range from a few thousand to millions of dollars, according to "Entrepreneur" magazine. Primarily you’re buying the rights to use the franchise’s branding and marketing as well as its demonstrated abilities to get customers to buy. You also need to buy equipment, hire employees, make payroll and handle accounting in addition to leasing or buying a building where you can house your business. MLM businesses usually require a small cash investment to get started. Some require you to buy a specific amount of products each month and pay a monthly fee for training.

Compensation

The revenue for an MLM businesses comes from two sources: You are paid for any products or services you sell, and you receive a predetermined percentage of the amount made by people you recruited to sell -- your "down line." The more people you recruit to sell, the more money you make from their sales. In a franchise, the business makes money from the direct sale of any products or services customers buy.

Ownership

Building equity in your business is an important aspect of owning a franchise. You own the business, so you can build brand and value in case you want to sell the franchise to another buyer. Since you don’t own anything in an MLM business, you work as a salesman does, making only as much as you or your down line can sell. If you decide to leave an MLM company, you lose everything you’ve built, so you see no return on any initial investment you made.

Competition

In an MLM business, you do not have to limit the number of people you recruit to your down line. While this allows you to build a large sales force, the competition gets fierce if most of your salespeople are selling in the same area. By comparison, the parent company that sells a franchise does research to determine if a market exists for the new business. If so, the company sells you the franchise and gives you an exclusive territory in which it cannot place another of its franchises, helping to eliminate direct competition.

Marketing

Selling products door to door or one-on-one is the hallmark of network marketing, so you must find ways to convince people to buy and also to sell for you as a down line distributor. Finding more distributors for your down line often requires inviting people to a meeting where you introduce the MLM concept to them. Franchises rely on established branding and proven advertising tactics to attract customers. Franchises are more likely to use print and online advertising, press campaigns and promotional tactics to make sales.