Definition
Multilevel Marketing (MLM): Multilevel marketing (MLM) is a business model and marketing strategy wherein independent distributors sell products directly to consumers, often in non-traditional retail settings such as customers’ homes. Distributors are incentivized to recruit others into the sales force (downline) to sell the company’s products. Compensation is based on both the individual distributor’s sales and the sales of their downline team, creating multiple levels of revenue streams.
Examples
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Amway: A well-known MLM company that offers health, beauty, and home care products. Distributors earn money through their personal sales and by recruiting and training new distributors.
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Herbalife: A global nutrition company that employs an MLM structure. Distributors sell health and wellness products and can earn additional income by building a team of sales representatives.
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Mary Kay: A cosmetic and skincare company that operates through an MLM model. Independent consultants sell products directly and recruit new consultants, earning commissions on the sales of their recruits.
Frequently Asked Questions
What is the primary difference between MLM and a pyramid scheme?
The main distinction lies in the legality and structure of compensation. MLM companies offer a legitimate product or service and allow distributors to make money through direct sales without necessarily recruiting others, whereas pyramid schemes primarily profit by recruiting and often lack a tangible product or service.
Can you make money in MLM without recruiting others?
Yes, though it may be difficult, distributors can make money solely through personal sales to customers without recruiting additional salespeople.
Do MLM companies require initial investments?
Most MLM companies require new distributors to purchase a starter kit or initial inventory. Some also have ongoing costs for inventory, training materials, or membership fees.
Are MLMs regulated?
Yes, MLMs are regulated by consumer protection laws, including the Federal Trade Commission (FTC) in the United States. These laws ensure that the businesses operate transparently and do not engage in deceptive practices.
Related Terms
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Pyramiding: An illegal business model where individuals profit mainly by recruiting others rather than selling a legitimate product or service. Pyramiding schemes are unsustainable and often collapse when recruitment slows.
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Direct Selling: A method where products are sold directly to consumers outside of a fixed retail location, often in a home or online setting.
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Downline/Up-Line: Terms used in MLM to describe the hierarchy of recruitment. Downline refers to the distributors recruited by a distributor, while up-line refers to their recruiter.
Online References
- Federal Trade Commission - Multilevel Marketing
- Direct Selling Association - What is Direct Selling?
Suggested Books for Further Studies
- “Your First Year in Network Marketing” by Mark Yarnell and Rene Reid Yarnell
- “The Business of the 21st Century” by Robert T. Kiyosaki
- “Go Pro - 7 Steps to Becoming a Network Marketing Professional” by Eric Worre
- “Wave 3: The New Era in Network Marketing” by Richard Poe
Fundamentals of Multilevel Marketing: Business Basics Quiz
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