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Multi-Level Marketing: Understanding MLM Definition

Last Updated on February 13, 2022 by Matt Zavadil

Multi-level marketing (MLM) is a type of business structure in which participants earn income not only from the sales they generate but also from the sales generated by people they recruit into the business.

This can be a great opportunity for people who want to start their own business, but it’s important to understand how MLM works before you decide whether or not to join one.

In this article, I’ll define MLM, handle whether network marketing companies are pyramid schemes, and take a look at how MLM works.

I’ll also discuss some examples of multi-level marketing companies and give you my opinion on whether or not MLM is a good idea.

What Is MLM (Multi-Level Marketing)?

Multi-level marketing, or MLM, is a type of business structure in which a company rewards its distributors for sales and recruitment efforts.

Under this business model, distributors are not only rewarded for what they sell but also for the sales of their recruits. This creates a downline of distributors beneath them, who also receive commissions on their sales.

How Does Multi-Level Marketing Work?

MLM businesses work by selling their products to consumers. Once these customers have been acquired, the business then recruits new distributors who are paid based on how many products they sell.

The newly recruited distributors are known as the downline of their recruiter and receive commissions from sales made by themselves and their recruits, which can continue several levels deep.

MLM is a commission-based business model, meaning that payments are based on performance rather than salary or an hourly wage.

In this sense, it differs from traditional businesses in which employees get paid set salaries based not on actual performance, but by clocking in like drones.

Is Multi-Level Marketing a Pyramid Scheme?

Multi-level marketing companies have been accused of constituting pyramid schemes because of their similarity to traditional pyramid schemes: both reward participants for recruitment efforts and both require participants to pay upfront costs.

However, multi-level marketing companies differ from pyramid schemes in that MLM businesses are legitimate businesses where independent distributors of the MLM company make money by selling its products and by recruiting others into their downline.

MLM companies that generate at least 70% of their product sales from non-distributors are perfectly legal. The MLM business model has been in operation since the 1920s.

To the people who may think MLM is a pyramid scheme, scam, or any other derogatory term, a statement of fact:

The multilevel marketing MLM business structure has been helping independent business owners earn income with multilevel marketing plans for 100 years now.

The Federal Trade Commission states that MLM is not an illegal pyramid scheme.

Multi-level marketing is legal when it operates as a legitimate business with a primary focus on product sales rather than recruitment.

Is MLM legal?

Yes, MLM is very definitely a legal form of direct sales.

Multilevel marketing companies help multilevel marketing distributors earn income through a compensation plan system that we might use all of the following terms for:

  • MLM strategy
  • Referral marketing
  • Person-to-person sales
  • MLM programs

Examples of MLM Companies

There are many examples of successful MLM companies, including Amway, Herbalife, and Mary Kay.

Here’s a list of 10 additional MLM companies:

  1. Avon Products, Inc.
  2. Nu Skin Enterprises, Inc.
  3. Pampered Chef Ltd. (currently owned by Berkshire Hathaway)
  4. Beachbody
  5. Primerica Financial Services
  6. Melaleuca
  7. World Ventures
  8. ACN
  9. It Works!
  10. Legalshield

These companies have been in business for years and generate billions of dollars in annual sales.

If those names happen to trigger visions of “illegal pyramid schemes”, it’s likely that you’re linking every MLM company with a pyramid scheme based on emotion, not fact.

Here’s a big truth: Most independent representatives in MLM companies don’t know how to operate as professional sales representatives.

The black eye on the industry of multilevel marketing has more to do with the amateurish ways new distributors attempt to market themselves.

They push hard with an MLM strategy designed to try to generate revenue by selling friends and family.

However, the most successful multilevel marketing sales representatives learn how to gain retail customers and downline distributors via professional multilevel marketing strategies.

Understanding Whether MLM is Right For You

Multi-level marketing can be a great opportunity for people who are looking to start their own business or earn supplemental income. However, it’s important to understand that success with MLM requires hard work, dedication, and the ability to sell products or services.

Before you join an MLM company, it’s important to do your research and make sure that the company is legitimate and has a solid track record.

Why Do So Many Network Marketers Fail?

If multilevel marketing offers a legal, valid direct sales opportunity, then why do so many multilevel marketing sales representatives fail miserably to earn a solid income?

They fail for the same reason that most people fail at all types of business ventures.

Lack of planning and lack of proper training is one problem.

The multilevel marketing industry has a bad reputation because so many people join it without any real understanding of what they’re getting into. They think that simply doing a minimum amount of work will be enough to make them successful.

When they don’t earn the income they were hoping for, they give up and blame the multilevel marketing industry itself.

Another problem when it comes to failure in any business is a lack of sales and marketing skills.

Most people in multilevel marketing programs don’t have a clue how to generate leads or sell products or services.

They resort to using outdated and ineffective methods like spamming friends and family on social media, cold calling, or door-to-door sales.

This is one of the main reasons that most people who join a multilevel marketing company never make any money.

Pros & Cons of MLM

Before joining a multilevel marketing program, it’s important to weigh the pros and cons to see if multilevel marketing is a good fit for you.

Multilevel Marketing Pros

  • Ability to own your own business
  • Flexible hours
  • Potential for high-income
  • Opportunity to network with other professionals
  • The potential to earn supplemental income
  • Opportunities for training and support from other distributors

Multilevel Marketing Cons

  • Requires hard work and dedication
  • Can be difficult to find qualified customers if you don’t learn marketing
  • Potential for saturation in certain markets
  • If you don’t succeed, you may lose money
  • The need to invest time and money upfront

Note that I don’t view the last two as real “cons of multilevel marketing”. When you think like a true entrepreneur, you understand that starting any business brings risk. You also understand that you need to work your butt off to succeed in any business, not just multilevel marketing.

Should You Join a Multilevel Marketing Company?

I have no earthly idea if you should join a multilevel marketing company.

Only you know whether the multilevel marketing MLM model is a fit for your life.

And, that brings us to another problem that exists:

Too many people look to others to give them a definitive answer about whether they should start working in direct sales.

Here are the facts:

  • Multilevel marketing MLM isn’t a pyramid scheme
  • You could become one of the most successful independent distributors
  • You could suck inside the MLM industry and lose money/time
  • Network marketing isn’t illegal

Now that you know the Federal Trade Commission doesn’t label multilevel marketing as a pyramid scheme, you can make your decision based only on whether the opportunity to sell your company’s products and build a downline inside a system called multi-level marketing sounds good to you.

In the end, there’s not much risk. Most multilevel marketing MLM companies let you join for peanuts (compared to starting a franchise, local business, or investing in real estate).

Give it a go. Just make sure you invest the proper time, learn how to market online as a professional sales representative, and commit to at least five years before quitting.

If you’re gonna quit before five years or not commit to becoming a pro sales representative and marketer, just stay at your job.

FAQs About Multi-Level Marketing

Why is MLM illegal?

Multilevel marketing MLM is not illegal. It’s not a pyramid scheme. If you think so, you’re misinformed.

Can you make money with multilevel marketing?

Yes. In fact, some people make a fortune in it. The question that you must ask yourself is: will I do what it takes as they did?

Is MLM a pyramid scheme?

No. Pyramid schemes are illegal. Multilevel marketing is not illegal.

Is Multilevel Marketing business illegal?

No.

What is Multi-Level marketing in simple words?

MLM is a sales and marketing strategy that rewards people for selling products or services to other customers. These “downline” customers also earn money selling products or services to other customers.

What’s the difference between multilevel marketing and direct selling?

There are none. Both terms mean the same thing.

Is multi-level marketing a good business?

That depends on you and how you approach it, but multilevel marketing is a legal business model.

How do I advertise in multilevel marketing?

The best way is to learn how to market online.

What is a multilevel marketing product?

A multilevel marketing product is a product or service that you can sell to other customers through your company’s sales network.

What are the advantages of MLM?

The biggest advantage is the potential to earn what you’re worth by selling products and recruiting a team.

Final Thoughts On Network Marketing Definition

I hope you found this post about multilevel marketing MLM definition helpful!

I know it’s not the most exciting topic, but if you take the time to understand the definition and know that it’s not a pyramid scheme, you’ll be better prepared to win inside the industry if you want to.