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MLM: what is multi-level marketing?

By definition, multi-level marketing (MLM), also called network marketing is a sales strategy in which products or services are sold directly to consumers without going through intermediary retail stores. In most cases, MLM companies sell cosmetics or dietary supplements. These are consumer goods that can be sold to regular customers at frequent intervals.

How does multi-level marketing work?

In multilevel marketing, a direct sales or a B2C (business-to-consumer) company sells products or services to individual sales representatives who often act as their own small business owners. In turn, these representatives focus on selling a product or service directly to consumers, normally without a storefront. The independent distributors within the MLM structure act as sales reps, brand ambassadors or micro-influencers.

Differentiating multi-level marketing from dubious pyramid schemes

The pyramid scheme business model only works if the number of participants grows substantially. Rather than emphasizing actual product sales, these schemes focus on recruiting new participants, whogrow the business by investing their money or working. For example, companies that sell guides on making money with the scheme instead of selling actual products are not only untrustworthy, they’re illegal. As are companies that sell products – often just one product – that are so overpriced that no-one would buy them without an incentive to earn a commission from recruits.

Key terms in MLM/network marketing

In the multi-level marketing or network marketing environment, you’ll often encounter technical terms that sometimes have different meanings to their counterparts in everyday language.

Plan: Listsall the ways salespeople can make money. The plan also shows how compensation changes with sales volume and partners recruited. Reputable companies make the plan as transparent as possible for their employees.

Sponsor: A person who recruits another person into the business.

Recruit or partner: A person recruited into the business by a sponsor. The sponsor earns money from the partner’s sales.

Distributor: Most multi-level marketing organizations refer to their participants as distributors, not sales representatives.

Downline: All the people below a distributor; either members recruited by the distributor or new recruits enrolled by these members. All distributors earn income on the sales of their downline.

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