What is MLM?

The term marketing (MLM) refers to a strategy used by some direct sales companies to sell products and services. MLM encourages existing members to promote and sell their offerings to other individuals and bring on new recruits into the business. Distributors are paid a percentage of their recruits' sales. New recruits become the distributor's network or downline and are, in turn, encouraged to make sales to earn money. Many MLM schemes are legal but there are illegal operations that are run as pyramid schemes. Multilevel marketing is a legitimate business strategy that is commonly used by businesses that rely (heavily) on sales to generate revenue. Unlike traditional sales channels, multilevel marketing programs involve the use of networks for sales and to recruit new participants. As such, they're often referred to as network marketing.

Here's how it works. Individuals are brought into the business as contractors, independent business owners, distributors, or direct salespeople. These people are then tasked with selling the company's products and/or services to others, including family and friends. Sales can be done in person or online. They are given a commission for every sale they make

Participants are also encouraged to bring in or recruit others into the program as participants. While they may not be pressured to do so, signing up new contractors provides a financial incentive for participants, who receive a percentage of the sales of their recruits. and their recruits, and of their recruits, and so on. There can be hundreds—even thousands—of participants, depending on the size of a company. Members at all levels receive some form of commission, as long as the chain keeps going. The more layers there are, the more money people can make. Think of it as a pyramid. The person or people at the top earn the most while those who sit toward the bottom earn fewer commission dollars. Relatively few, though, generally earn any meaningful income from their efforts. Although it is legal, multilevel marketing is often controversial. One problem is pyramid schemes that use money from new recruits to pay people at the top rather than those who perform the work. These schemes (and the people behind them) take advantage of others by pretending to be engaged in legitimate multilevel or network marketing. You can spot pyramid schemes by their greater focus on recruitment than on product sales.

An issue in determining the legitimacy of a multilevel marketing company is whether it sells its products primarily to consumers or to its members who must recruit new members to buy their products. If it is the former, the company is likely a legitimate multilevel marketer. If it is the latter, it could be an illegal pyramid scheme.

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