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What Is Multilevel Marketing (MLM)?

  • Understanding MLM

Special Considerations

The bottom line.

  • Marketing Essentials

What Is an MLM? How Multilevel Marketing Works

business model marketing multi level

Multilevel 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 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 also are illegal operations run as pyramid schemes . This has cast some negative light on legitimate MLM businesses.

Key Takeaways

  • Multilevel marketing is a legitimate business strategy used by some direct sales companies to sell products and services.
  • Existing members are encouraged to promote and sell their offerings to other individuals and bring on new recruits into the business.
  • Participants are paid a percentage of their recruits' sales.
  • Members at all levels receive some form of commission, which means the more layers there are, the more money people can earn.
  • The FTC investigates MLM programs to ensure they don't operate as pyramid schemes, which are illegal.

Investopedia / Alex Dos Diaz

Understanding Multilevel Marketing (MLM)

Multilevel marketing is a legitimate business strategy commonly used by businesses that rely heavily on sales to generate revenue . Unlike traditional sales channels, multilevel marketing programs 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 also are encouraged to 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.

Is MLM Right for You?

Because multilevel marketing plans are commission-based, the participants do not receive salaries. That means that MLM businesses are often best-suited for people with an entrepreneurial spirit, who can set their own goals and schedules, who are good at sales, and who can effectively network with others not only to sell products but to recruit new marketers.

Although it is legal, multilevel marketing often is 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.

Relatively few earn meaningful incomes from their efforts. To some observers, this reflects the characteristics of a pyramid scheme.

You can often spot pyramid schemes by their far greater focus on recruitment than on product sales.

Real-World Examples of Multilevel Marketing

There are a lot of examples of multilevel marketing in the corporate world. The following are just two of the most popular and well-known companies that operate in this sphere.

Amway is a well-known direct sales company that uses MLM to generate revenue. The company, which sells health, beauty, and home care products in more than 100 countries, regularly reports billions of dollars in sales conducted by its independent business owners. This makes it the largest MLM business in the world, by revenue.

Herbalife Nutrition

Herbalife Nutrition is a high-profile MLM company that manufactures and distributes weight-loss and nutritional products. The company argues that most of its revenue is from product sales—not recruitment. It also says it offers members many protections, such as a money-back guarantee, so they will not be stuck with products they could not sell.

There have been multiple lawsuits against Herbalife accusing it of misrepresenting its sales practices, including a settlement reached with the FTC in 2016, under which it had to restructure its business.

Activist investor William Ackman also shed a national spotlight on the company by shorting $1 billion of the company’s stock in 2012. Ackman accused the company of operating a pyramid scheme, backing up his allegations with a bet that the stock price would fall under the weight of the scam. He gave up on that bet in 2018.

What Is MLM, and Is It Legal?

Broadly speaking, multilevel marketing is a sales structure where members of a company are encouraged to recruit new members. Once recruited, this salesperson receives a cut of their recruiter's sales. At the same time, each salesperson profits from the sale of a given product. MLMs are often legal, legitimate businesses whose distributors earn money from the sale of actual products and from commissions on products sold by distributors that they recruit.

Is Multilevel Marketing a Pyramid Scheme?

Multilevel marketing is controversial and often compared to pyramid schemes. While some multilevel marketing operations are legal, others have come under investigation. This typically occurs when the majority of the operation’s profits funnel up to the top, leaving little for the rest of its members.

When an organization focuses primarily on recruitment, rather than selling products, this may also signal that it is operating under a pyramid scheme. Sometimes, members of these schemes will number in the hundreds or even thousands. 

Image by Julie Bang © Investopedia 2019

What Are Some Red Flags to Look Out for an Illegal MLM Pyramid Scheme?

The Federal Trade Commission (FTC) warns people to take note of, and avoid, MLM promoters who:

  • Make extraordinary claims of enormous earning potential
  • Try to persuade people that recruiting others is where the real money lies
  • Pressure people to get involved without learning more about the company
  • Make it clear that an opportunity will be lost unless people get in immediately

Another warning sign is seeing existing distributors who continue to buy products that they can never sell so that they can qualify for some kind of reward.

What Is an Example of Multilevel Marketing?

Avon is an example of multilevel marketing. The company operates under a model where sales are driven through a network of salespeople, through presentations, or one-on-one settings in homes or businesses. Like a number of other multilevel marketing businesses, Avon typically does not operate a fixed retail location. The parent company, instead, provides the tools and resources to entrepreneurs to conduct their business at various locations. This type of business model is also referred to as a direct sales model.

Other examples of MLM businesses include Tupperware, Rodan + Fields, Natura & Co., Vorwerk, Nu Skin, and PM International, among many others.

Multilevel marketing is a legitimate approach to sales, but it does share some characteristics with illegal pyramid schemes. The key difference between MLM and a pyramid scheme is that MLM keeps the focus on sales while pyramid schemes generally focus on recruitment. Even though MLM focuses on sales, earning money is difficult without also being successful at recruiting additional salespeople and thus increasing commissions.

Federal Trade Commission. " Multi-Level Marketing Businesses and Pyramid Schemes ."

South Dakota Consumer Protection Office of Attorney General. " Multi-Level Marketing vs Pyramid Schemes ."

Amway. " ABOUT AMWAY ."

Direct Selling News. " Top Direct Selling Companies in the World ."

Federal Trade Commission. " Herbalife Will Restructure Its Multi-level Marketing Operations and Pay $200 Million For Consumer Redress to Settle FTC Charges ."

CNBC. " Five years after brawl with Icahn, Ackman exits losing bet against Herbalife ."

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Business Partner Magazine

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A Guide To Multi-Level Marketing As A Business Model

May 8, 2021 by Sandra Hinshelwood

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Network marketing business concept

Multi-level Marketing (MLM) or Network Marketing is not new to many. You may be a member, or at least you know someone who is always trying to make you join an MLM company. Often the introduction you get is too enticing, with promises that sound too good to be true. You’ll either find yourself wanting to join in or wary of the entire idea.

However, the MLM business model itself is often misunderstood. Because it involves money, it has had its fair share of scams and schemes in its name. But there’s no doubt that some MLM companies existing are quite successful by following this model. You should always read risk reports from scam checkers online, such as the one for imarketslive , to know if an MLM is legitimate or a suspected scam.

Follow this simple guide to understand how the business model works.

What Is Multi-Level Marketing Business Model?

It’s a marketing strategy or model by companies focused on creating, building, and managing a sales force. The model encourages the existing independent distributors to recruit more distributors. It consists of two or more tiers, and a distributor earns an income from their sales and a percentage from the sales of those they have recruited as an incentive. MLM has been known to work, and these Top Network Marketing Companies are proof of that.

Multi level marketing illustration

Common Terms Used In Multi-Level Marketing

  • Plan: This is a guide on all the ways you can make money through sales. It shows how you’ll be compensated based on the number of people you’ve recruited.
  • Distributor: Most companies use this term to refer to the members instead of salespersons.
  • A Sponsor: This is the person who recruits another to a company/business.
  • Recruit: The person who a sponsor has recruited. A sponsor will earn from a recruit’s sales as well.
  • Upline: This refers to all distributors above your sponsor in the recruitment hierarchy. The upline goes up to the head of sales. All distributors in this line earn a commission from the recruits below them.
  • Downline: These are your recruits and all the people your recruits have enrolled. You earn an income from the sales made by your downline.

Types of Multi-Level Marketing Business Models

There are three main types of MLM business models, and each follows a basic structure where participants fall in different levels and earning from their downline mostly up to two levels down.

Breakaway MLM Business Model

This is the most well-known model, and it follows a process where a team breaks away to form a new team after attaining a certain amount of success. Most large MLM’s prefer this method as it has a reliable and sustainable structure. Within this model, the sales distributors are categorized into sales leaders and salespersons. Each category has different bonuses and percentage commissions paid to them.

It’s possible to start as a salesperson and move up and earn more as you do. Once you are at a level where you qualify for a full bonus, you can break away to form your team. At this point, the only way to make money is by becoming a sales leader.

When you get to this level, you can get as many people as possible to create level one of your business. They’re known as the baseline, and a large baseline helps you increase your commissions. You’ll need to create a good marketing strategy to help you become more successful at this level.

The benefit of using this business model is that it’s been around for a long time, and it has been proven reliable. It also offers a relatively high potential of earning.

Uni-Level MLM Business Model

This business model has many of the participants working on the entry or first level, and the focus is mainly placed on this level. You can have as many people as you can on your first level to earn a commission from their sales. The model is somewhat similar to the breakaway model in that there’s no limit to your downline participants. However, you are limited to the level from which you can earn commission from.

The model has an infinity bonus where you earn between 1-4% more commissions from everyone within the organization. But you’ll need to be in a large organization to make this bonus. Normally, you’ll need to have ten or more upline distributors to fall into the infinity bonus earning category, which can prove to be difficult to achieve.

One major advantage of this model is its simplicity. It’s easier to define it to newcomers. This can increase your chances of successfully recruiting others to join. In return, your income also grows.

Binary MLM Business Model

This is the most recent of all the MLM business models, and it’s quite different from the others. It’s based on ‘legs’ rather than ‘levels.’ It has two legs; the left and the right leg. A leg is the distributor line, and you’ll receive payment from the volume generated from each leg.

The distributors build both legs, but compensation comes from only one leg. The leg with the lower volume is where you’re paid. You’ll need to ensure that both legs generate an equal volume for greater success . This issue makes it an important consideration when you’re choosing a business model .

Using this model also has cap commissions to ensure that they don’t pay out more than they’ve earned.

Final Thoughts

Multi-level marketing remains huge and popular even to this day. The good news is that they are subject to scrutiny and regulations from authorities more than ever. These are only the basics of MLM business models. Still, like any other business, you’ll need to have a good marketing strategy and relentless effort and patience, but you’ll eventually see the rewards.

You may also like: 4 Tips to Consider While Creating Your Marketing Plan for 2021

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MLM: what is multi-level marketing?

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?

Differentiating multi-level marketing from dubious pyramid schemes, key terms in mlm/network marketing, examples of multi-level marketing/network marketing companies.

Tupperware parties and AVON consultants are typical examples of multi-level marketing that most people are familiar with. But how exactly does multi-level marketing work, and how does it differ from traditional direct sales?

This form of marketing, which is also known as network marketing, is a special type of direct sales approach in which products are sold to consumers through an ever-expanding sales network consisting of a few salaried employees and many freelance sales representatives. Participants can recruit interested customers as new sales representatives to generate additional earnings.

In contrast to traditional direct sales, where sales representatives are employed by a company, the multi-level marketing model uses freelance distributors who work full- or part-time. Most of these recruits are satisfied customers themselves, who are offered bonuses, favorable purchase conditions, and high commissions. The idea behind multi-level marketing is to use the distributors’ personal networks for targeted referral marketing , according to the principle: “You’re more likely to believe a friend than an advertising agency.”

Independent distributors are often better brand ambassador s than celebrities are. Like micro-influencers in online marketing, distributors in MLM influence their friends. Word of mouth is as important as it is in influencer marketing or viral marketing .

The term multi-level marketing refers to the different levels within the pyramid-like organizational structure . The company’s sales manager has a small team of salaried employees who recruit freelance distributors, who in turn recruit new partners.

When a distributor makes a sale, they receive a commission . The person who recruited the distributor also receives a partial commission, and their sponsor also gets a percentage of the sale. This principle continues all the way up to the top of the pyramid. Even the CEO should receive a portion of the commission in addition to the actual value of the goods. As a result, distributors at higher levels often generate more income from the commissions on the sales their recruits make than they do from their own sales.

Unlike the hierarchies in a traditional company, the levels in a multi-level marketing model only govern how commissions are shared. Distributors at higher levels have no managerial authority over participants at lower levels. Many distributors are very happy with this flat hierarchy because they feel they have more direct contact with senior management. However, distributors in a multi-level marketing company face much higher entrepreneurial risks than salespeople in traditional direct sales jobs, as commissions are usually their sole source of income.

Most distributors in MLM organizations are highly motivated , even though they often have no formal business training and only receive product and sales training through the company. In most cases, companies use two standard models for rewarding strong performance: Participants who are successful in recruiting new distributors will generate significant passive income through commissions. Successful sellers can also work their way up the ladder and earn higher commissions.

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, who grow 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.

In contrast, a legitimate multi-level marketing company sells high-quality products at cheaper prices than competitors with traditional distribution channels. The commission must make it worthwhile for distributors to participate and can be higher than traditional sales commissions because the company saves on overhead costs for employees, rent, and wholesale margins. Reputable network marketing companies can also be identified by their advertising, which emphasizes products rather than the opportunity to generate passive income by recruiting additional distributors.

Be prepared for holiday shopping season and turn off-line visits into online sales. Learn more about Small Business Saturday and special marketing & promotion ideas for business owners in our Startup Guide article.

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 : Lists all 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.

Upline : All distributors above a member’s own sponsor in the hierarchy. The upline extends all the way up to the Head of Sales. All distributors in the upline earn commission on sales by downline partners.

The most successful multi-level marketing companies in the USA include the following:

Tupperware is one of the best-known MLM companies worldwide. Founded in the USA in 1938, the company has become synonymous with its entire product category – plastic food storage containers – to a level rivaled only by companies with classic distribution channels like Scotch tape or Hoover vacuum cleaners. Worldwide, over 40 Tupperware parties are hosted every minute.

Avon is a cosmetics brand with around 6 million representatives and annual revenue of $5.7 billion. It is one of the largest multi-level marketing companies in the world. In early 2020, Avon Products, Inc. was acquired by cosmetics group Natura & Co, which includes The Body Shop brand.

Herbalife is one of the largest multi-level marketing companies for dietary supplements. Founded in California in 1980, it now has almost 2.3 million independent distributors worldwide.

Amway is the largest network marketing company in the world, with revenue of almost $9 billion. Established in Michigan in 1959, its roughly 3 million representatives sell health, beauty, and home care items in over 100 countries.

Companies like Mary Kay , Nu Skin , Vorwerk, and Young Living also successfully sell consumer goods in the USA using multi-level marketing models.

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Multilevel Marketing (MLM)

It is a marketing approach that depends on a non-salaried workforce selling the company's products and services

Kevin Henderson

Kevin is currently the Head of Execution and a Vice President at Ion Pacific, a merchant bank and asset manager based Hong Kong that invests in the technology sector globally. Prior to joining Ion Pacific, Kevin was a Vice President at Accordion Partners, a consulting firm that works with management teams at portfolio companies of leading private equity firms.

Previously, he was an Associate in the Power, Energy, and Infrastructure Investment Banking group at  Lazard in New  York where he completed numerous  M&A  transactions and advised corporate clients on a range of financial and strategic issues. Kevin began his career in  corporate finance roles at  Enbridge Inc. in Canada. During his time at Enbridge Kevin worked across the finance function gaining experience in treasury, corporate planning, and investor relations.

Kevin holds an  MBA  from Harvard Business School, a Bachelor of Commerce Degree from Queen's University and is a  CFA  Charterholder.

David Bickerton

Previously a Portfolio Manager for MDH Investment Management, David has been with the firm for nearly a decade, serving as President since 2015. He has extensive experience in wealth management,  investments and portfolio management .

David holds a  BS  from Miami University in Finance.

  • What Is Multilevel Marketing?

How Multilevel Marketing Works?

Mlm example.

  • MLM Ways Of Promotion

Pros Of Multilevel Marketing

  • Cons Of Multilevel Marketing
  • Multilevel Marketing Vs. Pyramid Scheme

Multilevel Marketing Vs. Traditional Marketing

  • Key Terms In MLM/Network Marketing

Multilevel Marketing Case Studies

Multilevel marketing (mlm) faqs, what is multilevel marketing (mlm).

Multilevel marketing (MLM), or network marketing, is a marketing approach that depends on a non-salaried workforce selling the company's products and services (that represent the corporate identity and reputation), where the earnings of the participants come from a pyramid-shaped compensation system.

business model marketing multi level

It is affiliate marketing on multiple levels that companies use to encourage current members or distributors to hire new independent distributors to promote and sell their products to other people, where a percentage of the new distributors' profit goes to the existing distributors who brought them. 

This is known as the “downline” of the existing distributors. Businesses that highly depend on sales to earn money adopt this strategy.

Distributors are not employees of the company in the MLM model. They are instead independent business owners that build their distributor networks to assist them in selling things. Such companies rely on this extensive network of independent distributors to earn revenue.

This sector of business is quite active. It is highly responsive to market shifts and mobility. Distributors must thus be trained and given the necessary tools. They will get greater persuasiveness and skill while dealing with the selling or marketing of the business opportunity and the good/service.

Yet, it may be an issue for too many distributors who need a sense of belonging or devotion to the organization. As a result, an MLM organization must plan the training curriculum to supplement the missing aspects of the distributor.

Key Takeaways

  • Multilevel marketing, also known as network marketing, relies on a non-salaried workforce selling a company's products through a pyramid-shaped compensation system, with earnings coming from downline distributors.
  • Multilevel marketing participants sell products and recruit others to join their network, earning commissions from both their sales and those of their recruits. It's a sales-driven strategy with independent distributors, not employees.
  • Multilevel marketing can offer entrepreneurial opportunities but requires careful research and discernment to avoid potential pitfalls and scams.

It works by the following means:

  • The company hires direct sales, distributors, and contractors on a commission base only (No fixed salary) who are responsible for selling and promoting the company products and services to their friends, family, network, and community.
  • Both in-person and online sales approaches are possible. For each sale, a commission is given to them. The higher the number of sales they make, the more money they earn.
  • These participants, in return, can hire new distributors or sales persons below them in a commission-based structure to sell the company's products and services to their network, repeat! There can be hundreds or even thousands of distributors and salespersons.
  • Each individual above a sales representative typically receives a percentage of the income when the sales representative at the bottom of the pyramid system closes a deal. 
  • Instead of receiving hourly compensation in MLMs, sales reps receive tiered commissions at every level. 
  • While finding new distributors is the main objective, the representatives also make money by promoting and selling the company's products, so he gets two sources of income while working as an independent distributor. 

This strategy works well for people who can meet their deadlines, strategies, and goals. Most of the time, these people have an entrepreneurial mindset and are skilled at networking with others to find new distributors and sell products.

Take a nutritional supplement company as an example that wants to make the product available to many people. So the company decided to hire Sara as an independent distributor;

  • Sara, in return, thought of hiring an additional five salespeople on a commission base to help her.
  • For better product distribution, these five distributors each hire five more members. As a result, there are now 30 distributors instead of just five. 
  • Therefore, those five distributors make money by selling the product directly to customers and receiving commissions from sales made through their downline groups.

To better understand how it works, let's imagine a pyramid. In our example, the direct marketing company hired Sara, the first independent distributor. Sara is now at the top of the pyramid.

business model marketing multi level

Sara hired five independent distributors, employed five more independent distributors, and so on. This completes the pyramid on which Direct Marketing Company depends to sell its products.

The key component of the plan is that clients may be more likely to trust friends and acquaintances serving as representatives than strangers selling the products. 

People that use their communities as a source of customers can also discover that their friends and family are eager to support their business.

MLM Ways of Promotion

The stronger your marketing foundation, the more successful you will be in the long term, so you must search for several effective ways to promote or market MLM products or services. But first, let's check how you are going to profit from MLM.

Revenue streams:

The business may refer to you as an independent "distributor," "participant," or "contractor" if you enroll in an MLM program. Most MLMs state there are two main streams of revenue:

  • The first is the direct selling of the distributor of the product or service. Distributors who use direct selling do not use intermediaries in the supply chain and instead sell to customers directly.
  • The second is the commission paid from other salespersons whom the participant hired to sell the product.

Participants who have been recruited (as well as those that the recruit recruits) are referred to as one's downline distributors in the organizational structure of MLM firms.

When a distributor has a large downline, he can earn enough commissions (extra income) on the sales of the teams in his downline without the need to promote or sell the products and services himself, and that’s why existing distributors are motivated to expand their downline team, it is all about the commission-based revenue. 

MLM products can be promoted in multiple instances:

  • Fairs : People coming to you is the greatness of events! People approach your booth and enquire for further information about your services and products, which are a thousand times preferable to pursuing individuals or approaching strangers.
  • Online or physical events : If your business belongs to the mass market, you can go to almost any event and get many customers. But, if your product line belongs to a specific segmentation, you should participate in the events that your target market will attend.
  • Social media marketing : Social networking will allow you to disseminate information about your brand, company, and all other important information that is vital for your circle and will aid in growing your MLM business. 
  • Influencer marketing : Join social groups or business networks to engage with more people and get referrals. Increase your chances of connecting with new clients by selling to a wider community or collecting referrals from these contacts. 

There are effective multilevel marketing businesses, and several people have successfully started their distribution channels. Here are some significant MLM business benefits that get plenty of interest.

1. Great opportunity for business owners

This is great potential for business owners and entrepreneurs. Starting an MLM business is simple and inexpensive. 

You can either create your own product/service and sell it through MLM strategy or quickly become a distributor for a business and earn a percentage by selling its services and recruiting people.

2. Cost Effective 

It allows you to reach a vast consumer base with little cost and effort in a large geographical area. 

Because it works in several layers of independent distributors, the company does not need to pay fixed salaries to the participants. They profit from sales commissions, which keeps MLM's sales expenses relatively cheap.

3. Flexible Schedule 

Participants in this marketing have complete control over their working hours. The work time can be adjusted to suit the needs of both the customer and the distributor. In brief, one can work from anywhere and at any time in the MLM business.

4. Soft skills development

This is a sales technique that supports the participant's communication skills growth. 

You develop personally from giving many presentations and working with many different customers face-to-face. A side benefit of MLM is hence personal growth. 

Cons Of Multilevel Marketing  

Several reasons have marked MLM business as a failed method of gaining money, and people are now looking to explore alternatives. Below is a summary of several drawbacks.

1. Little Income

This generates relatively little income compared to traditional companies. Making money for the participants in MLM is more challenging because of the intense competition among the companies.

Another obstacle for the participants is their challenge in hiring new salespersons and purchasing these products.

2. Slow growth rate 

It takes time for such businesses to turn a profit and succeed. Conducting presentations and recruiting people to join your organization takes time. This, however, fails to ensure that the work succeeds in its goal. Either people accept the proposal or reject it.

3. Lack of training and support 

This only requires participants to be qualified. Additionally, the businesses do not give the participants any special training. This leads to a workforce that is underequipped.

To succeed in business, one needs to be knowledgeable about company strategies and shifting market values. A company's backbone is its skilled employees, so the company will suffer greatly if this condition isn't met.

In the industry, there are numerous Multilevel Marketing companies. However, there are several scams involved in this industry. People are wary of such scams and are hesitant to work for them.

Multilevel Marketing vs. Pyramid Scheme

At first glance, distinguishing between an MLM and a  pyramid scheme  might be difficult.

MLM and Pyramid Schemes may look the same when talking about growing the business by recruiting multiple layers of participants in a pyramid system. But in reality, a multilevel marketing business and a pyramid scheme are not the same.

MLM can be considered a legal, legitimate business model, but pyramid schemes are shady, illegal scams that use money from downlines to pay the people at the top.

The goal of MLM is to sell products. The idea of MLM is that the larger the network of distributors, the more products/services the company can sell.

Unlike MLM, the pyramid scheme focuses only on recruitment rather than sales. There may be a low-value product, or no actual product at all to sell, nor a real investment with a pyramid scheme.

Be wary of scams:

The Securities and Exchange Commission (SEC)  has taken emergency action to stop illegal pyramid schemes that violate federal securities laws, including schemes disguised as MLM programs. Look for the following signs of a pyramid scheme:

  • No genuine product or service, promises of high returns in a short time period, easy money, or passive income.
  • No demonstrated revenue from retail sales.
  • Buy-in required.
  • Complex commission structure
  • Emphasis on recruiting.

Depending on your company's goals, either traditional marketing or network marketing is a viable choice, and each works completely differently. Let's discover the difference between the two methods:

A) Multilevel marketing

Multilevel marketing swiftly takes over the corporate world. Nowadays, almost every significant business has affiliate referral and compensation programs. 

And this not only expands the market for your products but also enables you to sell more and generate more revenue.

Every MLM participant is considered an owner. They are all paid on commission. Unlike typical businesses, MLM firms establish and manage their sales force by recruiting and inspiring individual distributors to sell their products and attract other distributors.

B) Traditional Marketing

Would have never even considered this a few years ago. Many business owners are now abandoning their conventional business methods and entering the multilevel marketing industry.

In a wholesale or retail business, the owner recruits staff and pays them a fixed salary to promote their products/services. Regardless of how many products employees sell, they get paid the same amount.

Key terms in MLM/network marketing

In the MLM industry, you will frequently meet technical terminology that has distinct meanings from their daily language counterparts.

Lists all of the several methods salesmen may generate money. The plan also demonstrates how pay varies with sales volume and the number of partners recruited. Reputable organizations make the plan as clear to their staff as feasible.

A person who hires another individual into the company.

Recruit or partner: An individual recruited into the business by a sponsor. The sponsor profits from the partner's sales.

3. Distributor

Most multilevel marketing companies refer to their members as distributors rather than sales agents.

4. Downline

Everyone beneath a distributor, whether members recruited by the distributor or fresh recruits registered by these members. Every distributor earns money from the sales of their downline.

All distributors in the hierarchy above a member's sponsor. The chain of command runs up to the Head of Sales. Upline distributors receive income on sales made by downline partners.

The MLM is a legal marketing technique that aims to expand the market for its products and services. Even though MLM is restricted by a slow growth rate and lack of personnel training, it still is one of the most preferred methods of marketing for the growth opportunities it offers.

The following are some of the top US multilevel marketing businesses:

  • Tupperware  is one of the most well-known MLM businesses in the world. The company, established in the United States in 1938, has reached a degree of brand recognition for its whole product category — plastic food storage containers — that is only rivaled by businesses with traditional distribution methods, such as Scotch tape or Hoover vacuum cleaners. Every minute, more than 40 Tupperware parties are held across the globe.
  • Avon  is a cosmetics brand with around 6 million representatives and $5.7 billion in annual revenue. It ranks as one of the biggest MLM businesses in the world. Avon Products, Inc. was purchased by Natura & Co, a cosmetics company that also owns The Body Shop brand, in the early 2020s.
  • Herbalife  is one of the biggest dietary supplement multilevel marketing firms. It was started in California in 1980, and as of this writing, there are approximately 2.3 million independent distributors worldwide.
  • Amway  is the world's most extensive network marketing business, with about $9 billion in annual revenue. Over 3 million distributors sell health, beauty, and home care products in over 100 countries. The company was founded in Michigan in 1959.

Using these strategies, businesses like Mary Kay, Nu Skin, Vorwerk, and Young Living also sell consumer goods successfully in the USA.

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Since the plan needs endless recruiting to sustain money, a pyramid scheme fails when its recruitment attempts are unsuccessful. Individual distributors may have difficulties inside an MLM before it completely fails.

According to the 70% rule, at least 70% of all products sold must be purchased by non-distributors; an MLM must abide by this requirement to be compliant—that is, legal and not a pyramid scheme.

Therefore, most of a company's products need to be purchased by customers outside the company rather than farther down the distribution chain or by the distributors themselves stockpiling inventory. However, it's quite challenging to verify whether an MLM is compliant.

Depending on their income, individual marketers or distributors must pay taxes. The distributor is responsible for handling tax filing, and rules require independent earners to make quarterly tax payments.

Therefore, distributors in this industry are responsible for their taxes, and the MLM company is not liable for managing their tax situations.

An automated MLM software system is used to build, manage, and grow these businesses without complications. With a module-by-module strategy, this software system provides more than 100 capabilities to manage the business.

This software is ideal for maintaining business flow because it has a high-end transaction system and security.

Other names for an MLM program include network marketing software, direct selling software, etc.

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What Is Multi-level Marketing And Why It Matters In Business

Multi-level marketing (MLM), otherwise known as network or referral marketing , is a strategy in which businesses sell their products through person-to-person sales. When consumers join MLM programs, they act as distributors. Distributors make money by selling the product directly to other consumers. They earn a small percentage of sales from those that they recruit to do the same – often referred to as their “downline.”

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The difference between multi-level marketing and pyramid schemes

Many equate multi-level marketing with sometimes fraudulent and often illegal pyramid schemes.

However, individuals who invest in MLM can make money through sales alone without the need to recruit others.

Multi-level marketing also incorporates high-quality products that serve a purpose – the classic examples being Avon and Tupperware.

Pyramid schemes, on the other hand, rely on income being derived by recruiting as many people as possible.

The quality of the product is also low, overpriced, or simply doesn’t work.

Furthermore, pyramid schemes do not offer the possibility of inventory buy-backs and are not backed by research into consumer demand.

Whatever the marketing strategy , it is important to understand that the presence of a pyramid selling structure does not automatically make it illegal.

The reality is that MLM businesses are the same as any other; their success or failure is dependent upon finding, attracting, and then selling to a target market.

Examples of successful multi-level marketing businesses

Home, health, and beauty company Amway is the largest MLM company in the world, with close to $9 billion in annual revenue.

A landmark ruling in 1979 confirmed that Amway was a legitimate business and not a pyramid scheme.

The aforementioned Tupperware is perhaps the most well-known example of a successful MLM company.

With annual revenue of $2.26 billion and almost 3 million distributors, their line of durable kitchen products are synonymous with food storage and are much sought after. 

Companies such as Digital Altitude and Tecademics are also using multi-level marketing .

They sell business systems to entrepreneurs that teach them how to market their own companies while also receiving income from referrals.

Advantages and disadvantages of multi-level marketing

Multi-level marketing is well placed to take advantage of the surge in popularity of freelancing and the gig economy.

If businesses do their product research properly, then MLM can also leverage word-of-mouth advertising and increase recruitment levels. 

Multi-level marketing also gives each distributor the flexibility and empowerment of growing their own “business” as they recruit more and more people in their downline.

Disadvantages

Because of the association with pyramid schemes, businesses that employ multi-level marketing strategies should expect closer scrutiny from regulatory bodies.

The stigma that still surrounds multi-level marketing amongst consumers also means that businesses might find it difficult to sell their products.

Resistance might also be met when businesses ask their distributors to buy large amounts of a product without the guarantee that it will be sold.

Furthermore, the freelance nature of MLM means few entitlements such as insurance or paid vacations.

These factors mean that, to some extent, MLM businesses are at the mercy of their distributors to make a profit.

Case Studies

  • Herbalife is a global nutrition company that employs MLM to sell a range of health and wellness products, including supplements and meal replacement shakes.
  • Distributors, known as Herbalife Independent Members, earn commissions on product sales and can build teams of distributors beneath them.
  • Herbalife has faced legal challenges and regulatory scrutiny regarding its MLM practices.
  • Mary Kay is a well-known cosmetics and skincare company that operates through MLM.
  • Independent Beauty Consultants sell Mary Kay products and can recruit others to become consultants as well.
  • The company is famous for its pink Cadillac incentive program for top-performing consultants.
  • Nu Skin specializes in personal care and anti-aging products, employing MLM to market its offerings.
  • Distributors are compensated through product sales and can earn bonuses by building and leading sales teams.
  • Nu Skin has faced legal issues related to its MLM practices in the past.
  • Young Living is a prominent MLM company in the essential oils and wellness industry.
  • Distributors, called Young Living members, sell essential oils and related products, earning commissions on sales.
  • The company emphasizes the benefits of essential oils for health and well-being.
  • Usana Health Sciences focuses on nutritional supplements and personal care products.
  • Independent Associates sell Usana products and can recruit others to join the MLM network.
  • The company emphasizes science-based nutrition and quality products.
  • Advocare offers nutritional and wellness products through MLM.
  • Distributors, known as Advocare Independent Distributors, sell products and can earn commissions by building a downline organization.
  • Advocare has gone through significant restructuring and legal issues related to its MLM model.
  • Oriflame is a cosmetics and beauty company operating in more than 60 countries.
  • Consultants, or Oriflame Brand Partners, promote and sell beauty products and can sponsor others into the business.
  • The company places a strong emphasis on natural ingredients and eco-friendly practices.
  • Scentsy specializes in fragrance products, particularly wax warmers and scented wax bars.
  • Independent Scentsy Consultants sell products and can recruit others to become consultants.
  • Scentsy’s MLM model centers around home fragrance and personalization.

Key takeaways

  • Multi-level marketing involves an individual consumer deriving an income from selling a company’s products. The consumer also derives a percentage of the sales income from consumers who they manage to recruit in their downline.
  • Multi-level marketing is not a pyramid scheme if it features high-quality products and doesn’t rely on recruiting others to make money.
  • Multi-level marketing gives consumers the freedom and autonomy of running their own business, but it comes with attached stigmas and extra scrutiny.

Key Highlights of Multi-Level Marketing (MLM):

  • Definition : Multi-Level Marketing (MLM), also known as network or referral marketing , is a sales strategy where businesses distribute their products through person-to-person sales by individuals who act as distributors. Distributors earn income by selling products directly to consumers and receiving a percentage of sales from those they recruit into their “downline.”
  • MLM allows distributors to earn money through product sales without solely relying on recruiting others.
  • Quality products are a hallmark of legitimate MLM companies, whereas pyramid schemes often involve low-quality or non-existent products.
  • Pyramid schemes focus on income generation through recruiting, while MLM emphasizes selling actual products.
  • Amway is the largest MLM company globally, with nearly $9 billion in annual revenue, and has been recognized as a legitimate business.
  • Tupperware, a well-known MLM company, generates annual revenue of $2.26 billion and boasts millions of distributors.
  • Companies like Digital Altitude and Tecademics use MLM to sell business systems to entrepreneurs and generate income from referrals.
  • MLM aligns with the gig economy and freelancing trends.
  • It leverages word-of-mouth advertising and encourages recruitment.
  • Distributors have the flexibility to grow their own “business” by recruiting others.
  • MLM businesses may face closer regulatory scrutiny due to associations with pyramid schemes.
  • Stigma around MLM can make product sales challenging.
  • Distributors may be required to purchase significant amounts of inventory with no guaranteed sales.
  • MLM lacks certain entitlements like insurance and paid vacations, relying on distributors for profitability.

Is MLM a pyramid scheme?

Multi-level marketing is a form that follows a pyramidal structure, where people at the top bring in more affiliates, which might also affiliate others.

Multi-level marketing can effectively outsource a salesforce, one of the most expensive cost centers for most companies.

However, when the multi-level scheme’s main aim is to bring more affiliates in, you get illegal schemes rather than enable the underlying product to find more distribution.

In short, the main distinction between legal and illegal multi-level marketing is whether there is a foundational product that gets sold or if the scheme becomes the main product.

In the latter case, changes are the multi-level marketing scheme might be illegal.

What is an example of multi-level marketing?

Take the case of a software company that invites other affiliates to sell its software and gain a percentage of the sales as a result.

These affiliates are incentivized to build their affiliates’ teams which can distribute the product in a much broader market. One example is Herbalife.

For a multi-level marketing scheme to work and be legal, it needs to emphasize creating an affiliates’ team to sell the underlying product to potential customers.

When affiliates are prompted to be the primary customers purchasing the underlying product, multi-level marketing can turn awry and into illegal schemes.

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Multi Level Marketing (MLM) explained

Multi Level Marketing MLM definition - Toolshero

Multi Level Marketing: this article provides a practical explanation of  Multi Level Marketing , also known as MLM . The article contains a general definition of the Multi Level Marketing structure, a comparison to pyramid schemes and practical examples. Enjoy reading!

What is Multi Level Marketing?

Multi Level Marketing (MLM), often (mistakenly) associated with pyramid marketing, is a commissions based business model in which these type of companies build a network of people who commit to sell their product or service. In this business model, existing distributors are encouraged to recruit new distributors. They then get a percentage of their recruits sales.

These recruits are said to be the downline of the distributor. The distributors also make money through the direct sales of products to customers. The products being marketed using this approach are mainly health related, as well as beauty and home care products.

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This business model is an appealing business proposition for many people. It offers them an opportunity to become part of a large system for distributing products to consumers. In contrast to a person who starts a business with nothing, participants of this model immediately have access to support from the supplier of the products. They sometimes also offer training courses. That way, the participant can relatively easily build their own network of customers.

In practice, this business model mostly occurs in the direct sales of products or services from home. Independent representatives supply the products to end users. It is called multi-level because of the aspect of multiple levels.

MLM meaning

To clarify, MLM meaning Multi Level Marketing, is an abbreviation. This is also a name for a more intuitive term: network marketing. A company uses a network of distributors to increase sales of products and with that profit.

The network of distributors under the company can, in turn, recruit their own distributors to increase their personal profit within the overall MLM company profit. Each distributor or representative has the option to re-of-multi-level-marketing.

History of Multi Level Marketing (MLM)

The first forms of these this business model companies arose in the US in the 1940s. Back then, there was a lot of demand for care products and companies were trying to figure out how to reach potential customers via network marketing.

The idea of lots of distributors in a large network was born. The concept proved to be highly successful. Soon, other companies started using the method as well. Even conventional companies switched to what was then a new approach to marketing. In later years, the concept gradually spread to Canada, Europe, and finally Asia.

Financial compensation plan in MLM

Every company that uses this business model creates its own compensation plan. The common element between all these types of companies is that the remuneration plan consists of two potential revenue flows.

The first form of remuneration is paid by the company to the representatives in the form of commissions on their own sales. The second form of remuneration is paid based on the sales made by the other distributors in the main representative’s network.

As mentioned earlier, the network under a main representative in the  organisational hierarchy  are called downline distributors.

Effectiveness

MLM distributors are expected to sell the products directly to end users based on word-of-mouth advertising and referrals. They are also expected to actively try to recruit others to join the company’s distribution chain as fellow salespeople.

In practice, most recruits lose money when entering such a model. Nevertheless, participants are encouraged to stick with the pyramid philosophy because it promises significant returns. The statistical improbability of that has been pointed out numerous times, for instance on the  Federal Trade Commission ‘s website.

Multi Level Marketing vs pyramid scheme

Not every Multi Level Marketing proposition is a legitimate business opportunity. Pyramid schemes are often employed as a means of fraud. This involves deliberately taking the money of people who aren’t paying attention.

Pyramid structures are also dependent on recruiting people who are then labelled as distributors of a product or service. As is the case with legitimate MLMs, a pyramid scheme offers the opportunity to earn money by recruiting and signing up more distributors. They are also remunerated based on performance levels of the downline.

The difference between an MLM program and the pyramid schemes described above is that the first mentioned is legal, while pyramid schemes are not. In many countries participation in a pyramid scheme is a criminal offence that may make you end up in prison.

However, it can be difficult to distinguish between the two, particularly for people looking for business opportunities.

The reason why pyramid schemes are often illegal is due to the following. The sole purpose of pyramid schemes is to take people’s money and use it to recruit more victims.

The purpose of MLM companies is the marketing of products. The theory behind this is that the larger the distributor network is, the more products the umbrella company will sell via network marketing.

Recognising pyramid schemes

Regular MLM companies make sure that no high start-up costs are involved with becoming a distributor. Illegal pyramid schemes, on the other hand, often require this. They often ask people to invest a lot of money.

These costs are called stock costs. If it’s a legitimate initiative, the company will always buy back unsold stock. Illegal pyramid schemes won’t do that.

In the case of pyramid schemes, there’s also more of an emphasis on recruiting new distributors instead of selling to end users. This makes it clear that the initiative is mainly aimed at the money brought in by new distributors.

Is Multi Level Marketing a good idea?

Many companies using this model have poor reputations. This is due in part to them frequently being associated with the illegal pyramid varieties. It is true that MLM distributors have a relatively high failure rate.

However, there are a number of things that make the negative reputation of legitimate initiatives sometimes negative for an ungrounded reason.

First is the fact that there’s a lot of bad information going around about these initiatives. The failure rate in private business is pretty high to begin with. Secondly, it’s easier to walk away from a company that distributors have only invested 50 euros in, than from a company that required 5,000 euros of start-up investments.

It’s also true that many of these opportunities are poorly presented. When recruiting distributors, it’s usually about making easy money, rather than distributors thinking it’s a good product or believing in the marketing model.

The truth is that these companies operate like any other business. An MLM initiative can succeed or fail. The most important aspects are that new distributors have their own marketing strategy , find the right target audience, and create their own market.

Examples of succesful Multi Level Marketing companies

Herbalife Nutrition Ltd.  is probably the most well-known MLM program of them all. This often-talked-about multi-level business produces and distributes a range of food supplements that are said to help with weight loss and better health.

The complete network of Herbalife consists of over 500,000 distributors. Herbalife’s activities have been investigated numerous times. This major company has also been taken to court a number of times. Businessman William Ackman  accuses the company of using pyramid scheme methods. Herbalife on the other hand claims that the majority of its revenue comes from the sale of products, not recruitment. It claims to offer plenty of protection to distributors, for instance with a money-back guarantee. This means new members won’t be stuck with lots of unsellable products.

Other companies using the commissions based MLM model are also frequently the topics of court proceedings. The legal claims against these businesses are often related to the following:

  • Emphasis on recruitment over sales
  • Similarities to illegal pyramid schemes
  • Price fixing
  • Extortion and back-room deals
  • Secret compensation packages
  • Exploiting personal relationships
  • Complex and unusual compensation strategies
  • Cult-like techniques groups are exposed to in order to increase enthusiasm

Tips for becoming successful with multi-level marketing

Success in MLM depends on several things. If you’re considering joining such an initiative, keep the following in mind.

Find a company that’s a member of an association like the Direct Selling Association. They require member companies to be ethical.

Choose a service or product you’re actually interested in. If you can’t get excited about a product, it’s going to be difficult getting others to be the same. Consumable products generally perform well. If someone likes the product, they’re more likely to come back.

Look into the history and the remuneration scheme of the company. It’s important to understand how the company makes its money. It’s also important to observe the recommended marketing techniques carefully.

Treat your own business like a real company. Despite claims from ambassadors, it’s not a success story for everyone. As with any business, MLM requires motivation, proper marketing strategies, and innovative ideas. The success of these structures, or any other business, is dependent on the work put in by the person behind it.

Multi Level Marketing advantages

Starting these initiatives can be a good idea if it’s done properly. It offers a number of advantages compared to other business opportunities:

Financial advantages

Keep the information about golden castles in the sky in mind when starting an MLM initiative. Like any other business, it takes hard work and  vision . It can become successful if sufficient time and effort is put in. The effort you put in, will make you earn more money.

Many people are active in direct selling in addition to their regular jobs, earning them a bit of extra money.

Flexible hours and work locations

DDirect selling meets many people’s needs. MLM enables distributors to work from wherever they want and when they want. This offers members the freedom to plan their own day, depending on existing priorities  and responsibilities.

Relationships

One characteristic of these initiatives is that it’s mainly about building networks. This puts members in touch with a group of like-minded people with the same goal. For people moving to a new place, for example, it’s a good way to meet new people.

Multi Level Marketing (MLM) is a business model in which MLM companies build a network of distributors that sell products or services for them. New distributors joining this type of business model initiatives are given a stock of products to sell, and they’re expected to recruit new distributors themselves. They are then given a percentage of the proceeds of members recruited by them: the downline.

MLM opportunities are often associated with illegal pyramid structures. Illegal pyramid schemes are intended to use someone’s money to recruit other distributors. The products or services they have to purchase for this turn out to be worthless, and new members are stuck with the consequences. A regular MLM company does not require an unreasonably high start-up investment and will always buy back unsold stock from distributors.

Despite their poor reputation, there are also success stories. Herbalife Nutrition, for instance, is one of the largest MLM players in the world, earning thousands of people passive income. However, Herbalife hasn’t gone unnoticed on the enforcement radars.

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Now it’s your turn

What do you think? Are you familiar with the explanation of Multi Level Marketing (MLM)? Would you consider an MLM opportunity if you were presented with one? Have you ever bought products or services from a distributor? Or are you part of an MLM chain yourself? Do you have any other tips or additional comments?

Share your experience and knowledge in the comments box below.

More information

  • Bloch, B. (1996). Multilevel marketing: What’s the catch? . Journal of Consumer Marketing .
  • Koehn, D. (2001). Ethical issues connected with multi-level marketing schemes . Journal of business ethics, 29(1-2), 153-160.
  • Nat, P. J. V., & Keep, W. W. (2002). Marketing fraud: An approach for differentiating multilevel marketing from pyramid schemes . Journal of Public Policy & Marketing, 21(1), 139-151.

How to cite this article: Janse, B. (2020). Multi Level Marketing (MLM) . Retrieved [insert date] from Toolshero: https://www.toolshero.com/marketing/multi-level-marketing-mlm/

Original publication date: 05/10/2020 | Last update: 09/19/2023

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Ben Janse

Ben Janse is a young professional working at ToolsHero as Content Manager. He is also an International Business student at Rotterdam Business School where he focusses on analyzing and developing management models. Thanks to his theoretical and practical knowledge, he knows how to distinguish main- and side issues and to make the essence of each article clearly visible.

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Multi-level marketing (MLM) is a business model that uses contractors to promote the company’s products or services. Rather than using a traditional salesforce, multi-level marketers such as Amway, Herbalife, Shaklee and others employ third parties as a kind of external salesforce.

These individual members are compensated in two ways: commissions from selling products directly and commissions from the sales of the members they’ve recruited. The commission from their recruits is called a “downline,” and it’s usually the most lucrative element of a multi-level marketing company’s compensation structure, making it valuable to recruit productive members.

While they often get a bad rap, multi-level marketing companies are a legitimate business type that is recognized as legal. They’re a popular structure for businesses that rely heavily on sales to consumers, and they use the power of a salesperson’s social network to move – some might say foist – products.

Multi-level marketers need a motivated salesforce, and they’re looking for contractors, direct sales people and others who want to be independent business owners to sell their products.

MLMs structure their compensation system to encourage sales but also the recruitment of other salespeople. While the compensation structure differs from company to company, MLMs generally offer a commission to their contractors for selling products as well as a commission on the sales of those they’ve recruited into the organization.

The compensation from the sales of recruits can be highly lucrative. This downline encourages the recruitment of new salespeople but also encourages the sponsor to manage and even mentor the new recruits so that they can bring more compensation. If those recruits then recruit others into the organization, it can create a powerful downline.

So in MLMs, those at the top of the sales organization can reap significant rewards, while those near the bottom may earn little or nothing, or may even lose money. While an MLM may seem like a way to make easy money, there are much better ways to make passive income .

Pros and cons of MLMs

While MLMs are often derided, they’re a legitimate business structure with advantages and disadvantages to the organization and the third-party salesforce.

Investing in MLMs

If you’re thinking about participating in an MLM, you should understand the costs and potential benefits of doing so. An MLM’s plan should give you all the relevant information to make a decision, but it may not. Here are some things to watch out for if you’re investing in an MLM.

You’ll often need to make some kind of investment to participate in the MLM. Some may charge modest start-ups fees, require minimum inventory levels or sell training and sales leads.

Depending on which MLM you’re working with and their requirements, it can take substantial money to get going. For example, AARP surveyed MLM participants and found that:

  • About 66 percent of MLM participants invested less than $1,000 for all inventory purchases, training, and materials during the period they were involved with the MLM.
  • Around 24 percent spent between $1,000 and $4,999.
  • About 11 percent paid $5,000 or more.
  • A further 23 percent did not remember how much they invested.
  • Only four individuals reported spending over $50,000.

And those investments don’t guarantee your success, but neither does working a huge number of hours. Participants who put in significant hours both lost money and also earned the most, according to an AARP study (chart below).

MLM definitions

MLMs use many terms that are common to them, but that are less typical in most businesses. Here are some of the key terms that you might encounter when dealing with an MLM.

  • Plan: The plan lays out how salespeople can earn money in the organization, including on their sales and from those they recruit into the MLM. It also details minimum investments that a recruit needs to make and other relevant information to participate.
  • Sponsor: A sponsor is a distributor in the MLM company who recruits another into the organization, trying to create a profitable downline.
  • Recruit/Partner: This is a contractor who has been recruited into the MLM organization by the sponsor.
  • Distributor: A distributor may sound like a fancy title, but it’s what many MLMs refer to their salespeople as.
  • Downline: The downline is the people a sponsor has recruited into the organization as well as those they’ve recruited and so on, but the ability to earn commissions on a downline may be capped at a certain number of levels by the MLM. Downline also refers to the compensation that a sponsor receives from the sales commissions of their recruits.
  • Upline: The upline is the salespeople above the recruit in the organization, all the way to the top, and a portion of a salesperson’s commission flows to the upline.

Those are some of the most typical terms you’ll find as you research MLMs.

The legality of MLMs and pyramid schemes

MLMs are a legal business organization type, but if they’re structured incorrectly, accidentally or on purpose, they can be considered pyramid schemes, which are illegal.

  • MLMs make money through the sales of legitimate products to the general public as well as people in the organization. Compensation to those in the business is based on sales.
  • Pyramid schemes rely on recruitment to drive money through the organization rather than sales. New recruits may be forced to pay significant money to participate or may be required to invest significant nonrefundable money in inventory to take part. One typical sign is whether the reward for recruiting new members is more than selling products.

Sometimes it can be difficult to distinguish between a legitimate MLM and a pyramid scheme, because fraudsters obscure how you’re compensated and how the organization is structured. The Federal Trade Commission (FTC) regularly investigates MLMs and seeming pyramid schemes to see if they are fraudulent and then shuts them down if they’re illegal.

MLM examples

Multi-level marketers offer many different products and are some of the most well-known brand names in the marketplace. Here are some of the most popular MLMs and key facts about each.

Amway is the world’s largest multi-level marketer, and it reported sales of $8.9 billion in 2021, a gain of 4 percent from the prior year. Amway charges $76 annually to be an IBO (independent business owner) and does not require members to buy products or services to become or remain an IBO. Amway reported other key facts about its membership:

  • “In 2021, 33 percent of all U.S. registered IBOs had no reported sales, did not sponsor another IBO, and did not earn any compensation from Amway.”
  • “62 percent of all U.S. registered IBOs in 2021 received a payment from Amway in at least one month for sales that occurred during 2021.”
  • The Top 1 percent earned $87,901 (average) and $55,264 (median)
  • The Top 10 percent earned $14,537 (average) and $4,645 (median)
  • The Top 50 percent earned $3,414 (average) and $631 (median)”

Herbalife is a publicly traded company known for its protein shakes and other nutritional products. There is only one required purchase, an initial distributorship kit, which costs $94.10.

Herbalife reported other key figures in 2020 about its first-year distributors, who number about 30,000:

  • The top 50 percent earned more than $201 in a month.
  • The top 10 percent earned more than $1,246 in a month.
  • The top 1 percent earned more than $5,913 in a month.

For all other U.S. distributors, which numbered about 60,000 in 2020, the results were:

  • The top 50 percent earned more than $264 in a month.
  • The top 10 percent earned more than $3,305 in a month.
  • The top 1 percent earned more than $16,213 in a month.

The Federal Trade Commission (FTC) settled a long-running dispute with Herbalife in 2016 over what the FTC called the company’s deceptive business practices. The FTC alleged that Herbalife led potential distributors to believe that they could earn substantial money. As a result, Herbalife agreed to restructure its business and pay $200 million to compensate consumers.

Tupperware is another publicly traded company, and it’s well-known for its eponymous line of food storage containers and cookware. Tupperware charges a fee for their basic business kit, which can range from $15 for the all-digital kit to $119 for the deluxe version with products. But then you’re also on the hook for minimum purchases every few months to remain an active distributor. So you’ll have to keep selling to overcome that hurdle, or you can do what many MLM distributors do and use the product yourself if you can’t sell it.

Avon is well-known for its line-up of cosmetics, and it’s one of the oldest companies on this list. You’ll need to put up a little bit of money to get started with a welcome kit, which includes some basic cosmetics, brochures, bags and order forms.

Avon has been hit with numerous lawsuits in the past decade, including suits that have alleged that the company has discriminated against pregnant women, used talc-based products that contained asbestos and misled investors about its success in China and Latin America.

Mary Kay is also known for its cosmetics and its flamboyant founder Mary Kay Ash. As a distributor, you’ll receive a 50 percent discount on the full retail price of your products and you sell the product for full retail price and pocket the difference. Of course, if you like the product, you can also sign up as a distributor and buy it for yourself.

Mary Kay discloses the following facts about its Canadian operations, which should more or less reflect its operations in the U.S.:

  • In 2020, 84.8 percent of its consultants were not eligible to earn commissions, because they had not invited at least one other consultant into the organization.
  • About 13.4 percent of consultants earned an average commission of $255 in 2020.
  • Independent sales directors, about 1.7 percent of all consultants, earned an average of $24,084 in commissions in 2020.
  • Independent national sales directors, about 0.044 percent of all consultants, earned an average of $151,032 in commissions in 2020.

Bottom line

MLMs provide a legitimate way for people with real sales ability to make a lot of money, but most people who participate in them won’t enjoy that result and end up losing money. It may cost a lot of money to participate in an MLM, and if you’re not really careful, you may wind up taking part in an illegal pyramid scheme. So it’s important that you understand the risks and fully research any MLM that you’re considering investing your time and money into.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

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MLMs vs. Pyramid Schemes

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A multi-level marketing firm (MLM) is a company that sells products through a network of independent distributors, who are rewarded both for sales and for recruiting more distributors.

If you’re an MLM participant and you sign up additional salespeople, you’ll typically receive a cut of the inventory purchases or sales made by the recruits, as well as a cut of any additional participants signed up by their recruits, and so on, potentially through multiple levels of distributors—hence the “multi-level” name.

But the chances of making a profit in an MLM are very slim, and many participants end up losing money. Here’s what you should know before you become involved in one.

Key Takeaways

  • An MLM participant sells products through a network of independent salespeople and also makes money by recruiting other participants.
  • The business structure of MLM schemes is extremely similar to that of an illegal pyramid scheme.
  • The difference between a legitimate MLM and pyramid scheme is that a pyramid scheme is a scam in which you make almost all of your money through recruitment.
  • There are many other ways to make money that offer the opportunity promised by MLMs, without their drawbacks.

In an MLM, salespeople (known as “distributors,” “contractors,” “participants,” or other titles depending on the jargon of individual companies) buy products from a company, then try to sell them to customers at home, at work, or in other non-retail locations for a marked-up price.

Downline Distributors

What sets MLMs apart from other types of direct-selling companies is the emphasis on recruiting other salespeople. If you’re in an MLM, you are encouraged to recruit other salespeople, who are referred to as your “downline” distributors. You then get to claim part of the commission generated by your downline, and in turn, pay some of your commissions to those “upline” from you.

Upfront and Ongoing Fees

Typically, MLMs require new recruits to pay registration fees and buy inventory or training materials to get started. These costs can range from a few hundred dollars to thousands of dollars a year.

Emotionally-Charged Sales and Recruiting Events

MLM events are often emotionally intense gatherings, with a similar atmosphere to religious festivals, designed to encourage distributors to continue with the company even in the highly likely event that their sales efforts haven’t yielded a profit.

Because they don’t operate retail locations, MLM participants often focus their sales and recruiting pitches on their existing social networks such as friends and family, or members of churches or other organizations they belong to.

Examples of MLMs

Amway, one of the most well-known MLM companies, has been around since 1959 and was at the center of an FTC decision that helped to distinguish legitimate MLM companies from illegal pyramid schemes. Other large MLMs include Herbalife, Mary Kay, and Avon. Today, MLMs sell mainly household and beauty products and nutritional supplements.

Roughly 7.3 million Americans generated $42.7 billion in direct sales in 2021, up from $29.9 billion in 2011, according to data from the Direct Selling Association (DSA), a trade group representing the MLM industry.

The DSA counts sales to MLM participants together with those outside the MLM and classifies them all as customers because “Many of those involved in direct selling join because they enjoy the products or services—and then choose to sell and share with their friends and families,” Ginger Greenberg, a spokesperson for the DSA, wrote in an email to The Balance.

Can You Make Money Participating in an MLM?

The chances of making money if you join an MLM are remote at best, according to several independent analyses.

For example, public documents from Herbalife, a large MLM company that sells nutritional supplements, have shown meager earnings from most participants. Among the one in five distributors in 2015 who successfully built a downline of distributors below them, 95.5% took in an average of $627.55 that year. They could have made that by working 1.7 hours per week at a job paying the federal minimum wage of $7.25 an hour. That’s according to an analysis by William Keep, a marketing professor at the College of New Jersey and an expert on MLMs, which he published on investing news website Seeking Alpha.

Only a tiny fraction, 0.65% of those who built a downline, reported taking in $100,000 or more. Herbalife declined to comment.

Average MLM earnings are meager compared to the time invested—amounting to 67 cents an hour, a 2018 survey of MLM participants by personal finance website MagnifyMoney found. And that was before taking expenses into account.

The picture gets even more bleak if you tally the financial costs. Only one MLM participant out of 250 actually makes a profit, according to Jon Taylor, a consumer advocate and researcher whose work is published on the Federal Trade Commission website.

One Person’s Experience

Alanda Carter, a training designer from Houston, learned about the dismal prospects of making money in MLMs the hard way in 2016 when an acquaintance persuaded her to become a “coach” at Beachbody, an MLM that sells nutritional supplements. She had just been laid off and had been diagnosed with breast cancer, so she was looking for a flexible job opportunity that would allow her to work around her medical appointments.

Carter found that expenses mounted quickly, but sales, not so much. In addition to paying around $20 for a back-office fee, she had to buy $99 worth of protein shakes every month to remain eligible to receive commissions. She paid Beachbody for sales training, a customer relationship management system, and she bought Facebook ads.

By 2019, Carter only had made five or six sales, for a net loss of $20,000, to say nothing of the time she had spent—around 10 hours a day, seven days a week. She ended up drinking most of the shakes herself.

"You never have worked so hard in your life to get so little in return,” Carter said.

Carter now hosts a podcast called “Hey Hun, You Woke Up!” where she discusses the dark side of MLMs with other former participants. Beachbody did not respond to a request for comment.

Carter’s experience is a common one for MLM participants, according to Douglas M. Brooks, a Massachusetts lawyer who represents former distributors in lawsuits against MLM companies. 

“If someone comes to me and says, ‘Hey, there's an MLM that I'd like to join, what do you think?’ I'm going to say, ‘Don't do it.’ And there's a better than 99% chance that I'm giving good advice,” Brooks said.

An illegal pyramid scheme is a company that recruits distributors, just like an MLM would. But in the case of a pyramid scheme, participants can’t really make money selling a product or service; rather, they mainly make money by recruiting new distributors to join under them.

A pyramid scheme is an illegal form of fraud, and you can be sent to prison for operating one.

A pyramid scheme can be purely financial, involving selling financial investments, but also can involve selling a product. Those at the top of the sales pyramid get rich by recruiting the lower-ranking members of the organization, who pay into the scheme in hopes of collecting rewards that rarely materialize.

In a classic pyramid scheme, investors pay to join, sending money up through the pyramid in hopes that they, in turn, will be paid by their own recruits. But sooner or later, the pool of potential recruits dries up, and those at the “bottom” of the pyramid who paid into it without signing anyone else up will lose out.

Whether a company is an illegal pyramid scheme or a legal MLM hinges on whether it’s mainly getting its income by selling a product mostly to the public (a legitimate MLM), or whether it’s mainly moving money from the vast majority of mostly-failing distributors toward the tiny percentage of successful people at the top (pyramid scheme).

You may notice that the definitions for MLMs and pyramid schemes are extremely similar. 

Because MLMs tend to be secretive about their finances, it’s hard to tell from the outside, without the aid of court-ordered disclosures, whether a company is a pyramid scheme or not, Keep said.

Example of a Pyramid Scheme

Many MLMs have operated for years or decades only to be found to be pyramid schemes and shut down. AdvoCare, a company selling nutritional supplements, operated as an MLM for 25 years. It had celebrity athlete endorsements from the likes of NFL quarterback Drew Brees, and won awards from the DSA, the trade group representing the MLM industry.

In 2019, the Federal Trade Commission sued AdvoCare, accusing it of being a pyramid scheme in which the vast majority of distributors either made no money or lost money. The company ultimately reached a settlement where it had to return $149 million to former members and stop operating as an MLM.

The DSA said anyone joining a direct-selling company should “investigate further and ensure the company is focused on selling a legitimate product and/or service as opposed to earning income only through inviting others to join the company.”

AdvoCare did not respond to a request for comment.

“Any MLM may be tempted to operate an illegal pyramid scheme because doing so will create more wealth more quickly for the company and top distributors, relative to operating a legal MLM,” Keep said.

Despite the downsides of MLMs, they have continued to draw in thousands of participants. About one in 13 U.S. adults have joined an MLM at some point or another, according to one AARP survey.

There is a chance, however slim, of getting rich as an MLM distributor. In a 2021 survey of 156 MLM participants by the AARP,  three individuals—one of whom said he founded the company—reported profits of $100,000 or more over their careers.

And MLMs offer a low barrier to entry—pretty much anyone can do it—as well as the flexibility to set your own hours, which traditional full-time jobs lack.

There is no shortage of criticism of multi-level marketing companies.

Participants Make Very Little to No Money

The main criticism of MLMs is that most participants don’t make much money.

Too Similar to Pyramid Schemes

Critics also say the business model is inherently predatory because of its similarity to a pyramid scheme—it’s too hard for the general public to tell the difference. They share a problem in that they both lure participants in with grand claims that are rarely delivered.

They Can Damage Relationships

Some participants risk more than money, finding that the constant hustling of friends and family that MLMs encourage is off-putting and damaging to personal relationships. For example, Carter said during her time with Beachbody, she recruited her 86-year-old mother-in-law—thinking she was doing her a favor—which she now regrets. “I am horrified that I did that,” she said. “It’s really shameful.”

She said she lost one friendship and saw things grow tense with several others after she sold them products. She even started fighting with her husband, accusing him of not being supportive enough of her business venture.

Carter’s experience isn’t uncommon. “The problem, in general, is that the activity of recruiting people into MLM schemes is socially and psychologically unacceptable to most people in our society,” Brian Bloch, a former business professor at the University of Auckland in New Zealand, wrote in a 1996 paper. “MLM is fraught with some really nasty human relations issues.”

Alternatives to Joining an MLM

Given the poor average monetary returns for time invested in MLMs, almost any job will probably pay better than joining one.

Remote Jobs

If you need flexibility, look for work-from-home options on job-hunting sites. Telecommuting has become more common since the COVID-19  pandemic hit, so there are more legitimate options available these days—although be careful that the job posting isn’t an MLM recruitment pitch in disguise.

“Gig economy” jobs such as driving for a rideshare or food delivery service can also give you the ability to set your own hours.

Start Another Type of Small Business

For more entrepreneurial-minded people who don’t mind taking risks and working extremely hard, starting a non-MLM small business is an option. Many can be established with minimal startup costs.

Keep said it’s a good idea to assess your skill set and either find a way to make it useful to someone else who will pay you to do it, or learn new skills to improve your career options. Both paths will likely pay off better than an MLM, he said.

Frequently Asked Questions (FAQs)

Is multi-level marketing illegal.

Not unless it’s a pyramid scheme, in which high-level participants in the organization get rich by scamming lower-level recruits. If a business makes money mostly by recruiting people rather than mostly by selling products to the public, it’s an illegal pyramid scheme. If the company makes money also by selling products to consumers, it’s a legal MLM.

It’s incredibly hard for an average person to determine whether any given MLM company meets the criteria for being a pyramid scheme.

Are all multi-level marketing companies pyramid schemes?

In the eyes of the Federal Trade Commission, there is a difference between a legitimate MLM that sells products to end-user consumers, and a pyramid scheme that takes in money mostly by recruiting new salespeople. However, the two are extremely similar and in practice, it’s very difficult to tell an MLM from a pyramid scheme from the outside.

Federal Trade Commission. “ Multi-Level Marketing Businesses and Pyramid Schemes .”

Heidi Liu. (2018). “ The Behavioral Economics of Multilevel Marketing .” Hastings Business Law Journal , 14 (1).

Aja Radan. “The Truth About Lies.” St. Martin’s Press, 2021.

William W. Keep & Peter J. Vander Nat. (2014). “ Multilevel Marketing and Pyramid Schemes in the United States: An Historical Analysis .” Journal of Historical Research in Marketing , 6 (2), pp. 188-210.

Direct Selling Association. “ Direct Selling in the United States 2021 Industry Overview .”

Seeking Alpha. “ Herbalife: Distributor Earnings Disclosure Statements .”

Magnify Money. “ Survey: Vast Majority of Multilevel Marketing Participants Earn Less Than 70 Cents an Hour .”

Consumer Awareness Institute. “ The Case for and Against Multi-Level Marketing (Appendix) ”

Letticia James, NY Attorney General. “ Don’t Get Caught in a Pyramid Scheme .”

Federal Trade Commission. “ FTC Sends $149 Million in Refunds to People Harmed in Alleged AdvoCare Pyramid Scheme .”

AARP. “ AARP Study of Multilevel Marketing: Profiling Participants and their Experiences in Direct Sales .”

Brian Bloch. (1996). “ Multilevel Marketing: What’s the Catch? ” Journal of Consumer Marketing , 13 (4), pp. 18-26.

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An economic model of multi-level marketing

Yaniv reingewertz.

Department of Public Administration and Policy, School of Political Sciences, University of Haifa, Haifa, Israel

Associated Data

All relevant data are within the manuscript.

This paper offers an economic model of the operation of multi-level marketing (MLM) firms in competitive and non-competitive markets. The model takes a recursive approach to analyse decision making at the distributor level in order to understand basic issues in the MLM market and firm structure. Specifically, it is shown that under reasonable assumptions MLM firms will have a limited structure. In cases where commissions increase with the number of levels, MLM firms will include no more than six to nine levels in equilibrium. In cases of fixed commissions, market conditions dictate a cap on the number of distributors. These conditions imply a limited “multi-level” structure. They also imply that the revenues of the median distributor are mainly a result of direct sales and not a result of commissions. The model also suggests that MLM firms will only arise where marketing costs are substantial, and that it is primarily individuals with small outside offers who choose to become distributors. Finally, the model provides a formula that calculates market prices for a monopoly MLM firm.

1. Introduction

Multi-level marketing (MLM), also called network marketing (NM), is a business method used by some direct sales firms whereby individual distributors are encouraged to recruit new distributors. Distributors are paid a commission both on their own sales and on recruitment or sales made by their recruits, creating a multi-level marketing structure. This method became popular in the twentieth century, with companies like Amway, Avon, Herbalife and Nu Skin among the most well-known examples. Multi-level marketing is a multi-billion-dollar industry which amounts to roughly 1% of retail sales in the US [ 1 ]. A 2018 survey found that 7.7% of the US adult population had participated in at least one MLM organization during their lifetime [ 2 ]. This industry also manifests high growth rates in developing economies.

Multi-level marketing has garnered a considerable amount of criticism, partly on normative grounds [ 3 – 7 ]. Some of the criticism comes from the fact that some MLM firms have been determined to be operating as illegal pyramid schemes [ 1 ]. Another criticism stems from the use of allegedly unethical sales tactics by some of these firms (see, e.g., [ 4 , 5 ]). At the same time, scholars suggest that MLM firms can operate without being defined as pyramid schemes. Possibly the biggest difference between a legal MLM firm and an illegal pyramid scheme is that legal MLM firms, unlike pyramid schemes, rely mostly on sales to consumers outside the MLM [ 1 , 8 , 9 ]. Note that the existence of some sales to consumers is not enough to protect MLM firms from pyramid scheme charges.

Multi-level marketing is a general term which describes a multitude of firm structures, all multi-level in nature. Each MLM firm has a unique compensation plan for its distributors, including various bonuses and commissions, which usually depend on the distributor’s level within the firm. These compensation plans can be classified based on two criteria. The first is the way commissions are paid, and specifically, whether commissions (or bonuses) are paid based on sales or recruitment [ 1 ]. The model presented in this paper differentiates between these two types of commissions, thus allowing for a general discussion of MLM firms. The second criterion which differentiates between MLM firms is the existence of horizontal and vertical restrictions on the multi-level structure. These restrictions limit the number of distributors in each level (horizontal restrictions) or the number of levels (vertical restrictions). By doing so they create four general plan structures: uni-level, binary, matrix, and breakaway, where the uni-level and binary plans are the most common types [ 10 ]. The uni-level plan imposes no restrictions on the number of distributors in each level, and no restrictions on the number of levels, while the binary plan allows for only two distributors in each level [ 11 – 13 ]. The matrix plan typically restricts the number of distributors in each level to between 2 and 5, while also limiting the number of levels [ 10 ]. Finally, the breakaway plan ensures restrictions on the number of levels by disconnecting distributors from their upline distributors once they reach a certain network size. The model presented in this paper imposes no restrictions on the number of distributors, and thus represents the uni-level plan. This is done in order to allow as much flexibility and generality as possible. The model can be extended to allow for restrictions on both the number of levels and the number of distributors in each level.

Despite the size of the MLM industry and the complexity of its business model, multi-level marketing is under-studied in both economics and marketing. In particular, there have been very few attempts to provide an analytical framework to discuss the way MLM firms operate. Such an analytical framework is needed if one wishes to understand the business activity of MLM firms and whether regulatory intervention is needed. The purpose of this paper is to offer such an analytical framework, via an economic model which takes a recursive approach to analyse the optimizing behaviour of a potential MLM distributor. The model helps answer several key questions relating to the design and implementation of MLM–specifically, how many levels an MLM firm will include and whether promises of an almost-infinite multi-level structure are warranted; why MLMs are present in some markets but not in others; how the fee structure of MLM firms is being determined; and why low-skilled workers tend to join MLM companies. Finally, I analyse the case of a monopoly MLM and show how market power affects prices in an MLM market.

The main contribution of this paper is to explain and model the operation of MLM firms from an economic standpoint. Specifically, I take a recursive approach which connects market fundamentals at the lowest-distributor level to the operation of the entire MLM system. This approach does not require assumptions about diffusion processes and does not model network structure, other than the number of levels.

The main finding suggests that MLM firms will tend to have very few levels. Indeed, under reasonable assumptions the number of levels will not exceed nine, and probably even six. Under such conditions the earning potential of the typical distributor from recruiting further distributors is quite limited. This proposition is consistent with the findings of the few empirical studies found in the literature [ 14 – 16 ]. The model also suggests that marketing costs dictate the ability of MLM firms to operate and expand. In competitive markets, the fees paid to MLM distributors depend on marketing costs borne by non-MLM firms. This puts a cap on both the number of levels within the MLM firm and the fees it pays its distributors. The model also explains which populations are more likely to be attracted to this business opportunity, and suggests that these mainly consist of individuals with a relatively small earning potential. This finding helps explain the rapid penetration of MLM firms to markets in developing countries. Finally, the paper discusses the case of a monopoly MLM and shows that while it offers a questionable business opportunity for distributors, it poses less of a threat to consumer welfare compared to standard monopolies.

2. Related literature

Within the marketing and economics literatures, only a few papers deal with issues directly related to multi-level marketing firms. One of the key questions which was explored is the difference between legal MLM firms and (illegal) pyramid schemes. [ 1 ] suggest a key difference between MLMs and pyramid schemes, and show that MLMs are based on sales to consumers outside the firm while pyramid schemes rely mostly on purchases within the pyramid structure. Still, in real life some pyramid schemes disguise themselves as MLM firms [ 16 ]. [ 17 ] shows that non-rational agents are willing to participate in pyramid schemes and also discusses differences between MLM firms and pyramid schemes. Another related paper [ 18 ], deals with the relationship between MLM levels, focusing on behavioural or social interactions and how they are translated into sales.

Several papers from the exact sciences provide insights into the operation of MLM network structures. [ 13 ] offer a physics model for the operation of MLM firms, and show that network growth is not unlimited. [ 19 ] and [ 20 ] use network theory to describe how MLM firms evolve through time and the structure they take. Finally, [ 12 ] take an axiomatic approach to study different reward mechanisms available to MLM firms. They suggest that geometric rewards mechanisms satisfy several desired properties of MLM networks. The economics literature has also addressed the more general issue of network structures. see, e.g., [ 21 – 23 ]. The limitation of taking a physical network approach is that it does not deal with economic incentives and market structure. This is why [ 13 ] find that the number of levels in the MLM firm can be as high as 30.

This paper is most closely related to [ 24 ], who provide a model of MLM firms which captures several attributes of this market. Their focus is on the firm level and they do not model market and firm structure and market equilibrium. In addition, they do not try to estimate the number of levels in the MLM firm. I contribute to this literature by providing an economic model which is recursive in nature. The model focuses on multi-level marketing firms, analyses the incentives faced by the distributor, and provides a competitive equilibrium outcome using a recursive approach which best fits the MLM structure. The model allows us to answer ongoing questions in MLM firm and market structure.

Most of the literature on MLM firms is theoretical in nature, and the empirical literature on these firms is very thin. One strand of this literature shows that MLM distributors tend to come from low socio-economic backgrounds [ 25 ]. For example, [ 15 ] survey a sample of lowest-level distributors in a Japanese MLM firm. They find that 90% of these distributors were women who worked part-time in MLM activity. [ 26 ] also address descriptive features of MLM participants; they show that demographic homophily influences network structure (see also [ 27 ]). [ 28 ] find that the highest penetration rates were achieved in counties comprised of large affinity groups such as religious communities and Hispanic populations. The second strand of the empirical literature documents the low earnings of most distributors in the MLM industry [ 29 ]. [ 16 ] report that the average yearly earnings of distributors in two big MLM firms are about $700. [ 14 ] analyse the case of FHTM–an MLM firm which was found to be operating as a pyramid scheme in Montana. They analyse the diffusion processes of the firm and suggest that the maximum penetration was 1% of the population, and that 94% of participants did not make profits. [ 30 ] provide similar results, suggesting that only 6.5% of distributors earn commissions on recruitment. [ 31 ] suggest that roughly 50% of distributors lose money, roughly a quarter break even, and another quarter make some profit. [ 25 ] analyses three MLM firms and concludes that most distributors do not earn profits.

This paper is also related to three other strands of the literature. First is the literature on consumer referrals [ 31 , 32 ]. This literature is also related to the issue of consumer rebates (see, e.g., [ 33 ]). In fact, commission fees in multi-level firms can be thought of as paying customers for consumer referrals. The main difference is the multi-level structure, which is not present in consumer referrals. In addition, MLM firms offer a business opportunity, whereas consumer referral bonuses are usually more limited in scope. Second, the paper has some links to the literature on firm hierarchy. Multi-level marketing creates a hierarchical structure with potentially many levels, at least in the marketing activity of the firm. [ 34 ] shows how a specialized acquisition of knowledge creates hierarchies, where production workers solve the easy tasks and upper-level management deals with more complicated tasks (See also [ 35 ] for empirical findings on firm hierarchies). This model is consistent with the standard MLM structure, where distributors take the place of production workers. [ 36 ] suggest that labour-intensive industries will include firms with flatter hierarchies than those in capital-intensive industries, because workers can open their own firm and compete with the existing firm. Moreover, [ 37 ] report that hierarchies are in fact becoming flatter over time. While MLM firms, which supposedly have steeper hierarchies, would seem to be an exception to this finding, the model which is presented in this paper suggests that this is not necessarily the case.

Finally, the paper is also related to the principal-agent literature, since the incentive structure of MLM firms essentially entails a contract between a principal (the upper-level distributor) and an agent (his downline distributor). [ 38 , 39 ] consider the delegation of power and responsibilities within the firm through a principal-agent framework. They suggest that in cases where agents have an informational advantage over their principals, there will be greater decentralization. This is potentially the case in MLM firms where distributors supposedly have more knowledge regarding their marketing activity. While the principal-agent framework is very useful for the study of MLM firms, the specific structure of these firms is not explored in this literature. Nor, to the best of my knowledge, has there been any discussion regarding how the principal-agent model may be used to explore MLM network structure.

3. The model

3.1 mlm in competitive markets.

To understand the structure of MLM firms, let us lay out a simple economic model of the operation of a multi-level marketing firm. I will focus on the distributor, and examine how distributors operate depending on their level within the organization. For simplicity and generality, I will assume a uni-level structure. The analysis can be extended to other structures, such as the binary and matrix types. In both the binary and matrix plans there are more constraints on the multi-level structure of the firm, resulting in smaller firm sizes compared to the uni-level case. In this regard our model allows for more flexibility, more levels, and more distributors in each level. I assume that the distributor must divide his time between two different work activities: marketing the product to potential customers, and recruiting new distributors (e.g., through seminars, home visits and conventions). I assume also that the distributor can engage in only one of those activities–recruitment or sales–at any given time. I later relax this assumption (see Section 3.3.2). Let t denote the fraction of time he devotes to sales, and 1-t the fraction of time he devotes to recruitment.

Assuming separability between sales and recruitment may seem a bit strong at first glance, since in real life the efforts of a distributor to sell the product may bring him new recruits, and vice versa. However, this is a simplifying assumption which doesn’t affect the main results of the model. This is because in the model the activity of the MLM structure depends on the behaviour of the lowest-level distributors. The lowest-level distributors, by definition, do not engage in recruitment. Being a lowest-level distributor means that you will not be able to recruit distributors, and since people in our model are rational these distributors will not engage in futile activity. Therefore, the influence of sales on recruitment and vice versa does not affect the behaviour of the lowest-level distributors.

The assumption of separability between sales and recruitment also makes sense since the two activities are directed to two different segments, where the first are people interested in buying and using the product, and the second are people looking for a business opportunity. It is worth noting that the model deals with legal MLM firms which do not rely on sales to distributors. Indeed, many MLM firms expect new recruits to purchase the product for their own use. However, if these recruits are not really interested in using the product than these purchases just mean they are left with lower profits.

Sales by the distributor are denoted by Q i and are a function of time spent on sales– t . Sales of each downline distributor j are denoted by Q j . The existence of distributor j depends on 1− t i of distributor i (1-t_i is the time distributor i dedicate to recruitment), since without the recruiting efforts of distributor i , there will be no distributor j and Q j will be zero.

Subscript i denotes the level of the distributor, which takes the values zero (for the upper-most distributor) to I (total number of levels, also the level number of the lowest-level distributor). Distributors in the same level have the same incentives and constraints. I note here that the model does not impose conditions on the number of distributors in each level, and does not focus on this issue. As noted above, the model takes a recursive approach and deals with the lowest-level distributors, which affect all other levels. Assuming perfect competition means that the price is fixed hence the number of distributors in each level does not affect the price. I assume Q i is concave with respect to t ( d Q d t > 0 , d 2 Q d t 2 < 0 ), and that Q j is concave with respect to 1-t .

The distributor sells the product at the market price, P , and pays the MLM firm a cost of C (the wholesale price). I assume that the market for the product is perfectly competitive. In competitive markets the demand faced by each distributor is unlimited at price P . I will later deal with non-competitive markets where distributors can affect the price. Finally, the distributor receives a commission or fee, α , on sales made by his downline distributors. Equally, the distributor must pay a similar fee on his own sales to his ‘upline’ distributors. In some cases fees come in the form of a higher wholesale price, but the principle remains the same. A change in how I model fees does not affect the results. The exact structure of these fees is described below.

The earnings of a distributor at level i , denoted by π i , are given in Eq 1 :

The first right-hand-side term represents the distributor’s profits from his own sales, calculated by subtracting the wholesale price, C , and fees to up-line distributors, i β α , from the market price, P , and then multiplying that result by the quantity sold.

I allow for a general structure of the commissions, depicted by i β α . To clarify this notation, let us take two cases, which are described and analysed below (Sections 3.1.1 and 3.1.2). In the first case beta equals one, hence the distributor must pay a fee of α to each distributor up-line from him. This is a simplifying assumption which also holds true in some MLM firms. In the second case beta equals zero, hence the distributor needs to pay only a fee of α for each unit sold. To illustrate the differences between these two cases let us take an example of a distributor who has two distributors above him. In the first case he would need to pay 2 αQ and in the second case he would only need to pay αQ . This difference in the structure of commissions dictates stark differences in the structure of the MLM network, as described in Sections 3.1.1 and 3.1.2 below.

The second term on the right-hand side represents the distributor’s profits from recruiting downline distributors, namely the sum of the fees paid to him by each downline distributor. This term also depends on beta and the number of levels above the distributor. For simplicity and tractability I assume separability of Q i and Q j —that is, time devoted to sales does not help in recruiting downline distributors, and vice-versa. This assumption simplifies the model and is plausible if the business opportunity of becoming an MLM distributor is not linked to the consumption of the products of the firm. This is arguably the case in legal MLM firms which do not rely on sales within the MLM network [ 2 ].

3.1.1 MLM with increasing commissions

The general formula for the distributor’s profits is given by Eq 1 , where the parameter beta allows different commission structures. For the sake of concreteness, I assume here that beta equals one. This creates a commission structure which depends on the level of the distributor. Each distributor pays a commission of α to each of the distributors above him. Thus, a distributor at level i pays commissions of iαQ . This assumption more closely matches some MLM firms, but admittedly not others. This new commission structure is given in Eq 1A below, which is a variant of Eq 1 :

Where the distributor’s earnings denoted by π i are a function of direct sales (first right-hand-side term) and commissions from downline distributors (second right-hand-side term).

Previous studies (e.g. [ 20 , 24 ]) modelled the MLM firm as having a potential to reach an infinite number of levels. This assumption, while appealing, ignores the dependency of upper-levels distributors on the business activity of lower-levels distributors. These interrelations, which are the result of marketing commissions paid by downline distributors to upline distributors, dictate a hierarchical structure and therefore call for a recursive approach. Under this approach the earnings of each distributor depend on the earnings of the lowest-level distributor, via the fees paid to upline distributors. This dependency means that the decisions of each distributor depend on the decisions of downline distributors. This is why a recursive approach is needed.

Due to the hierarchical structure described above I assume a finite number of levels (See S1 Appendix for a model with an infinite number of levels). To analyse this model I take a recursive approach, starting from the distributor at the lowest level. This distributor joins the MLM firm if he can make earnings which are equal or greater than his outside offer. This condition creates a restriction on the number of levels and therefore affects all his upper-levels distributors.

Let us look at the lowest-level distributor, who by definition is unable to recruit additional distributors. He has the following earnings function (taken from Eq 1A , but without earnings accruing from downline distributors):

I continue to assume that the product is sold in a perfectly competitive market; i.e., that its price is fixed. This means that the price is determined by the market and not by the firm. Let us assume that this competitive price is equal to C+m , where m is the unit marketing cost of non-MLM firms, and C is the unit production cost (including managerial costs and financing), which is assumed to equal the wholesale price of the product for the MLM firm. Notice that the price in the market is dictated by production and marketing costs of non-MLM firms. This is a plausible assumption because if marketing costs of MLM firms are higher than those of non-MLM firms they will need to charge a higher price than non-MLM firms to recover these costs and would therefore be unable to compete in the market. Therefore, in competitive markets, marketing costs of MLM firms are bounded by the marketing costs of non-MLM firms.

To deduce the behaviour of the lowest-level distributor, I equate the earnings of this distributor, equal to [ m − Iα ] Q i ( t ), to what he would have earned through his outside option (I take the earnings depicted in Eq 2 and substitute P = C+m). The outside option is assumed to be either a full-time position in a non-MLM firm or self-employment, and is denoted by wL ( w for hourly wage, L for hours of work). An equation between earnings through multi-level marketing and the outside option is a condition for equilibrium in the labour market in the presence of an MLM firm, and is depicted (after rearrangement) in Eq 3 :

Eq 3 provides a formula to calculate I –the number of levels of the MLM firm. The number of levels is positively associated with marketing costs, but negatively associated with the commission fee and the outside option. In fact, marketing costs dictate the number of levels in equilibrium, conditional on commission fees. This is the first interesting result of the model, which implies that MLM firms will be larger (i.e., will include more levels) in markets with higher marketing costs. This is the case because the MLM firm has to compete with standard firms, and having more levels means a smaller margin for the downline distributor.

Another interesting result which stems from Eq 3 is the negative link between the size of the commission fees and the number of levels. Having larger fees means that the earnings of the low-level distributors are lower, and they essentially allow for less levels in the MLM structure.

It is important to elaborate regarding the link I find between commission fees and the number of levels (or the number of distributors in the second version of the model; see Section 3.1.2). While some may consider this finding trivial, there are several reasons it should be noted. First, previous literature has failed to acknowledge this link (see, e.g. [ 24 ]). Second, it is important to be able to offer specific estimates of the number of levels MLM firms will have, especially given the elevated earlier estimates for the number of levels in the literature (see, e.g., [ 13 ]). Finally, from an applied perspective, there is value to correcting the common wisdom in the public and policy arenas, where this link has not previously been recognized.

Now that we know the number of levels, let us see how a distributor at level I-1 –that is, the second-lowest level–decides on his time allocation. He will maximize the following condition:

Which yields the following first-order condition:

I assume a Cobb-Douglas production function where Q i = t 0.5 (and, respectively, Q j = (1− t ) 0.5 ). The Cobb-Douglas production function is probably the most commonly used production function in economics, and has been found to accurately describe production conditions in many industries [ 40 – 42 ]. I then substitute P = m+C , m = Iα + wL / Q (from Eq 3 ) and maximize Eq 4 for the distributor at level I-1. This produces the following equation:

That is, a distributor at the second-lowest level dedicates more time to direct sales, t , and less time to recruitment when his outside offer is larger. On the other hand, he dedicates less time to sales and more to recruitment when fees are larger.

Performing the same maximization for distributor I-2 , I get

Recursively, the general formula is:

In other words, time spent on sales, t , declines as one moves up the levels (for example see Eq 7 vs. Eq 6 , where the denominator includes the term 4 α 2 instead of α 2 ), so that distributors at the top levels devote more time to recruitment compared with their downline distributors. This result is the opposite of the result obtained for the non-recursive model (see S1 Appendix ). Time spent on recruitment is negatively associated with the outside offer, and fees negatively affect time spent on sales (and increase time spent on recruitment).

3 . 1 . 1 . 1 Comparative statics . I can demonstrate the importance of marketing costs through an example using Eq 3 and parameter values taken from the US. Assume that the outside offer, wL , equals the minimum wage in the US ($7.25 per hour or $330 for a 44-hour work week). Assuming an outside offer which equals the minimum wage is consistent with the empirical observation that most MLM distributors work part-time [ 15 , 16 ]. I take the number of average weekly working hours from the BLS, and Q equal to $10,000. It is difficult to estimate a reasonable value for Q, which is the weekly quantity sold by one distributor with t = 1. This quantity depends on the distributor’s marketing ability and the level of competition in the market. Therefore, our choice of Q = 10,000 is somewhat arbitrary. Nevertheless, since in reality most distributors work part-time and don’t earn much [ 15 , 16 ], it is probably a fairly large number, thus conservative from our point of view (i.e. it will result in an upper-bound estimate for the number of levels).

Table 1 presents the number of levels under various parameter values. I explore three magnitudes of marketing cost margin (10%, 20% and 30%), and two different commission fees (5% and 3%). Commission fees of 5% are the case in some MLM firms, e.g. Herbalife. Tupperware offers commissions which range from 4% to 8% for the manager level. As can be seen in the table, the model predicts that MLM firms will have a very limited “multi-level” structure with a 10% marketing cost, having one or two levels. Under a 5% fee the multi-level firm has no more than six levels, and with a 3% fee the maximum number of levels is nine. I note that our estimates are an upper bound for the actual number of levels in such cases. This is because our estimate for sales ( Q ) is large and that of the outside option ( wL ) is low. Choosing a larger outside option or a lower level of sales will reduce the number of levels. These striking results suggest that MLM firms will have a relatively modest number of levels in equilibrium, and that distributors will derive most of their revenues from direct sales, as there will be few downline distributors below them.

Note: m is marketing cost as a percentage of the total cost. α is the commission fee. w L Q is the outside offer divided by revenue from quantity sold. The number of levels is rounded.

In our model, which focuses on the distributor level, commission fees are taken as exogenous, as they are set by the MLM firm. Nevertheless, Eq 3 can hint at the size of these fees: in order to increase profits, the MLM firm may want to lure more distributors by increasing fees, but it may also want to increase the number of levels in the firm, which means lower fees (since both are capped by marketing costs). In the example given above (with an outside offer the size of the minimum wage), if fees are 10%, the number of levels is very small. This implies that commission fees are essentially capped by the marketing margin. This result helps to explain the size of commission fees in MLM firms.

As mentioned above, Eq 3 can also help explain why MLM firms are usually found in markets that entail high marketing costs, such as beauty and wellness [ 16 ]. These large marketing costs allow for more levels, which is the prime condition for a successful MLM firm. Eq 3 can also explain the rapid penetration rates that MLM firms achieve in developing countries. Since the outside offer is negatively related to the number of levels in the firm, our model predicts that MLM firms will have more levels in poor countries, where the outside offer (i.e., a salary in a non-MLM firm) is fairly small. This also explains why many distributors are poorly educated or come from low socio-economic backgrounds, conditions that are associated with a lower outside offer.

3 . 1 . 1 . 2 A motivating example . To provide an example which will illustrate the applicability of the model, I pick the case of Fortune High Tech Marketing (FHTM) in Montana [ 14 , 43 ]. I will focus on the issue of the number of levels that this MLM company had, and discuss the connection between this example and our model.

FHTM was founded in 2001 and was officially closed in 2014. Our analysis is based on its operation in Montana during the years 2006–2010. FHTM is a rare case where a rich dataset exists which describes the number of distributors, net earnings by distributor and other data which can help calculate the number of levels within the MLM firm. This rich dataset is a result of legal proceedings which found FHTM to be an MLM firm and a pyramid scheme and resulted in the shutdown of the firm. While this firm was found to be an illegal pyramid scheme, I believe we can still learn something from its multi-level structure. Data from this lawsuit is analysed by [ 14 , 43 ], providing several key numbers and insights:

  • The total number of distributors in Montana was 3,737, but only 1,689 were able to recruit downline distributors, and only 223 had net earnings above zero.
  • Each distributor was allowed to recruit three downline distributors directly below him. Other recruits would form another level below him.
  • Only distributors who recruited three downline distributors qualified for bonuses (these were termed Qualified Representatives, or QR). Therefore, distributors in the lowest level did not qualify for bonuses.
  • The maximum net earnings for the most successful distributor amounted to $240,500.
  • The FHTM business opportunity gave much emphasis to recruitment, as most commissions were recruitment-based.

According to [ 43 ], having five levels of qualified distributors (or six levels overall) will allow the highest-level distributor to receive $125,610 in recruitment bonuses alone. Having six levels of QR will allow him to receive $406,275 in recruitment bonuses (see Vander-Nat 2013, Table 6 and Table D5 in Appendix 2). Thus, since the actual net earnings of the person at the highest level were 240.5 thousand dollars (less than the earnings of the highest-level distributor when there are six levels), we can conclude that FHTM had five levels of QR while operating in Montana, or six levels if we include distributors who were not qualified to receive bonuses.

Another way of reaching the same conclusion is by comparing the number of distributors receiving positive net earnings (223 distributors) to the potential number of distributors in an MLM firm where each distributor recruits exactly three downlines. These numbers are 121 distributors for five levels and 364 distributors for six levels. Assuming that distributors who had zero net earnings or below were not able to have downlines, I reach again five levels of Qualified Representatives, or overall six levels.

Finally, note that the FHTM case may not be representative of the MLM industry, since it was declared a pyramid scheme, and since its rewards to distributors were mainly recruitment-based. Nevertheless, if MLM firms such as FHTM which reward recruitment to a large extent create a network structure of no more than six levels, it is hard to believe that MLM firms which focus less on recruitment will be able to form larger networks with more levels.

3.1.2 MLM with fixed commissions

One of the key assumptions of the model described in Section 3.1.1 is that commissions increase as the distributor falls further down the MLM structure. For example, a distributor in level 5 will pay commission fees of 5 αQ and a distributor in level 6 will pay 6 αQ . While some MLM firms operate in such a way or using a similar scheme, others do not. MLM firms can have different schemes, and may not impose higher commission rates on lower-level distributors.

To more closely model such firms, the model is modified so that the commission rate is constant across levels. This is depicted in Eq 9 , which is a variant of Eq 1 , where beta equals zero:

Having beta equal zero has two important implications: first, the commission paid by the distributor to his upper-levels recruiters is independent of the level the distributor is in. Second, the distributor’s revenues from downline distributors faze-out the larger the distance between him and the downline distributor.

I continue to focus on the lowest-level distributor, who has no downline distributors. This distributor has the following entry condition, which compares his outside offer to his earnings in the MLM firm:

Equating the outside offer to the MLM earnings, which is the equilibrium condition in this market, gives the following condition:

First, notice that the condition described in Eq 11 does not impose any direct restrictions on the number of levels. This means that MLM firms which have commission rates which are independent of the level can have a large number of levels. However, this condition imposes a restriction on the quantity that the distributor needs to sell in order to stay in business. In this version of the model only people who are able to sell at least Q * will accept the MLM opportunity. This condition restricts the size of the MLM since quantity sold depends both on the demand for the product and on the ability of each distributor to market and sell the product. Note also that the quantity sold may depend on the level of the distributor, as low-level distributors may find it harder to find new customers. Taking this into account will imply having a more limited MLM structure.

I take two specific examples in order to illustrate this point, using real-life data. The first example uses Herbalife, one of the biggest MLM firms in the world. Herbalife’s most-sold product–its Formula 1 shake–is priced at roughly $38 (on eBay, retrieved August 4, 2019). According to Herbalife’s documents (the compensation plan), a distributor can expect a $9 profit for each product sold. If we plug this number into Eq 11 (instead of P − C − α ), and assuming W = 7.5 and L = 194, we get Q* = 162, and monthly revenues (Q*P) of $6,156. I use the federal minimum wage ($7.5) and average work-week of 44 hours a week (194 hours a month) based on estimates by the Bureau of Labor Statistics. In other words, the condition described in Eq 11 implies that a full-time distributor of Hebalife must sell products worth at least $6,156, making a monthly profit of at least $1,458, if he is to find participation in the firm profitable. This condition sets a maximum for the market share of Herbalife, since distributors who are unable to sell at least 162 units a month will not remain active. Hence, under this version of the model the limit to the MLM growth is not described by a cap on the number of levels, but rather by a cap on the number of distributors who will find it beneficial to pursue this business opportunity.

One can take another illustrative example from Tupperware, another MLM firm. Tupperware’s most-sold product is the Wonderlier bowl set, priced at $35 (retrieved from Tupperware.com , August 4, 2019). According to the firm, distributors can expect a profit of 25%, or $8.75 in our case (Source: order.tupperware.com/coe-pdf/oppkit-0914.pdf). Plugging these numbers into Eq 11 gives very similar results to the Herbalife case: Q* = 166, revenues of $5,810 and minimal (full-time) distributor’s profits of $1,453. The similarity between these two examples (profits of $1,458 for Herbalife and $1,453 for Tupperware) is striking, but not surprising–both firms need to recruit (potentially similar) distributors and therefore need to offer similar profits.

3.2 Extensions

3.2.1 mlm firms with asymmetric information.

In the previous section 1 assumed that individuals have symmetric information. Specifically, I assumed that individuals know their level in the MLM structure, and hence their earnings potential. Thus, lowest-level distributors know that they will not be able to recruit additional distributors and focus on sales rather than recruitment. This assumption is in line with the findings of a lab experiment which showed that providing individuals with more information on potential earnings does not change the appeal of the MLM business opportunity [ 44 ]. However, assuming symmetric information may not be realistic in real-life scenarios, where the number of levels is not common knowledge [ 45 ]. Moreover, some MLM firms, or more exactly some distributors, suggest to new recruits that they will be able to recruit many downlines below them, regardless of the current number of levels in the MLM. The issue of asymmetric information is tightly linked to the assumption of rationality. Rational agents working under asymmetric information will form accurate expectations regarding their ability to recruit downline distributors. However, if individuals are not rational, they might be more susceptible to these promises.

In this section 1 will allow for asymmetric information and behaviour which implies bounded rationality. I will assume that lowest-level distributors believe they have the ability to recruit downline distributors. Hence, their profit equation is identical to that described in Eq 1A . I analyse here the case with increasing commissions (Section 3.1.1). Analysing the case with constant commissions (Section 3.1.2) gives similar results–asymmetric information pushes more people to become distributors, and they earn lower profits compared to the case of symmetric information (results available upon request). In order to derive the condition for equilibrium in this market I will proceed in two stages. First, the lowest-level distributor will maximize Eq 1 –to decide how to divide his time between recruitment and sales. This maximization yields t*, which is the (thought to be) optimal share of time devoted to sales. Note that t* is thought to be optimal by the distributor, but is not optimal since the (lowest-level) distributor is in fact unable to recruit downline distributors. In the second stage, this distributor checks whether his earnings as a distributor are greater than the outside offer ( wL ). Thus, the condition for equilibrium in this market is depicted in Eq 12 :

Rearranging Eq 12 and plugging in P = c+m , gives the following condition:

Where θ = E [ ∑ j = i + 1 I Q j ( t j , 1 − t ) ] Q . Eq 13 is very similar to Eq 3 , with θ being the only difference. This parameter captures the effect of asymmetric information, or bounded-rationality, on the number of levels. It is larger if the expected sales of downline-distributors are greater than the actual sales by the distributor. In other words, higher (irrational) expectations by lowest-level distributors will yield more levels in the MLM structure.

When distributors have non-rational expectations regarding recruitment success they are more likely to engage in recruitment. These additional recruitment efforts are not optimal from the point of view of the distributor, since they come at the expense of time devoted to sales, and they do not bring sufficient earnings accruing from fees from downline distributors. For example, the lowest-level distributor will engage in recruitment despite his inability to recruit downline distributors. This leads to more recruitment efforts and more levels. However, it has another effect which is to reduce earnings by the entire MLM structure, since distributors are over-recruiting. Thus, while getting an MLM structure with more levels, it is also a structure with smaller earnings for each distributor. Finally, as mentioned above, this structure characterises an equilibrium with individuals with asymmetric information. The existence of such an equilibrium in the long-run means that these individuals acquire no information as time goes by. However, if their recruitment efforts continue to be unsuccessful, it seems unlikely that they will not learn from this information. Hence, the persistence of these recruitment efforts require a substantial deviation from rationality which is a very strong assumption.

3.2.2 Incorporating risk into the model

In the previous parts of the model, I assumed that as a business opportunity, becoming a distributor is not riskier than the outside option. However, distributors are usually self-employed, and being self-employed could be considered riskier than being a salaried worker. Hence, becoming an MLM distributor is potentially riskier than the outside option. Thus, it is worthwhile to explore whether incorporating risk into the model changes its results.

The simplest way to incorporate risk into the model is to add it to the entry condition of becoming a distributor. This condition equates the earnings of the distributor to the outside option. If becoming a distributor is riskier than the outside option then people will demand higher earnings as distributors compared to the outside option, so that they will be compensated for the excess risk. This risk premium is denoted by R and the full entry condition is described in Eq 14 :

where the earnings of the distributor are similar to Eq 2 . I analyse here the case with increasing commissions (Section 3.1.1). Analysing the case with constant commissions (Section 3.1.2) gives similar results–the risk premium pushes Q* up, and fewer distributors will enter the MLM firm in equilibrium. These earnings now need to be higher or equal to the sum of the earnings of the outside option ( wL ) and the risk premium R. In equilibrium the right- and left-hand sides of Eq 14 are equated. After plugging in the marketing costs ( P − C = m ) and looking at the lowest-level distributor, I get Eq 15 :

As can be seen in Eq 15 , the number of levels goes down with the risk premium. In other words, incorporating risk into the model leads to having fewer levels in equilibrium. The effect of the other parameters of the model on the number of levels is similar to the previous results of the model.

3.3 A monopoly MLM firm

Until now I have assumed that the MLM firm operates in a competitive market. However, some MLM firms claim to have a unique or innovative product, making the case of a monopoly potentially more relevant [ 16 ]. [ 46 ] find that MLM distributors in Malaysia do not perceive MLM products to be more innovative than products of competing non-MLM firms. In addition, even if the product itself is not a monopoly, the business opportunity the MLM firm is offering may be considered as such, at least if other MLM opportunities are not present. In what follows I analyse the case of a monopoly MLM firm, using the case where commission rates vary by level (as in Eq 1A ).

3.3.1. Distributors compete under a fixed price

Even if the product is manufactured by a monopoly MLM firm, the existence of many distributors (some at the same level as others) means that they compete with each other. Therefore, for now I assume a fixed price which is a result of perfect competition between distributors. The market price will be determined by the marginal distributor–i.e., the distributor at the lowest level. In equilibrium, this distributor has zero economic profits. In other words, his revenues from selling the product have to equal his outside option, which I assume to be the minimum wage. Note that this distributor has no downline distributors, by definition. The zero profit condition is given in Eq 16 :

Therefore, the equilibrium price is given by:

Essentially, market price is positively affected by the wholesale price, upline fees, and the attractiveness of the outside offer. It is also positively affected by the number of MLM levels in the firm. Finally, it is negatively associated with the quantity sold, or more exactly, with the ability of the distributor to sell large quantities.

The price offered by this marginal distributor, which is the distributor at level I, includes fees paid to upline distributors. This means that upline distributors are able to offer lower prices, since they pay lower upline fees. The reason they do not choose to do so is that in our model, the quantity sold depends on time devoted to sales. These distributors cannot increase the quantity sold without increasing t . Therefore, they adopt the price of the distributor at level I . If we compare the results of this model to the fully competitive case (Section 3.B), we see the price is the same in both models (The price formula in Eq 10 equals the price of the competitive case (C+m) after plugging in m using Eq 3 ). In other words, this model is no different from the competitive model. This result is due to the competition between distributors in this model, and the limits to how much each distributor can sell (i.e., the fact that his sales depend on t ). Since this case of a perceived monopoly is in effect a competitive market and thus does not provide new insights, let us move to another case of monopoly, where both the firm and each distributor have market power.

3.3.2. Allowing market power within the MLM firm

Here I assume that each distributor can sell as much as he wants ( Q doesn’t depend on t ). This will be the case if, for example, internet sales are a possibility. This case gives an advantage to upper-level distributors, as they have fewer fees to pay and can therefore charge lower prices without compromising their profits compared to downline distributors. This is why I now analyse the decision making of the uppermost distributor. I assume that in addition to the monopoly power of the MLM firm, each distributor has market power–the ability to set his own price. The maximization problem of the uppermost distributor (where i = 1 ) is given by:

The first-order condition with respect to P generates the following condition:

In other words, price is determined by production costs, price elasticity of demand and an MLM-specific expression (the first, second and third terms of the right-hand side of the equation, respectively). The first two terms are similar to the standard monopoly formula–price margin over cost is inversely proportional to the elasticity of demand. The third term on the right is an additional component which is related to the MLM structure. Here, an increase in α , the commission fee, reduces the monopoly price. This happens because the price charged by the uppermost distributor influences the prices charged by his downlines. This gives him an incentive to lower his price, thus allowing lower prices and higher sales by his downline distributors who will pay him fees. This price reduction, in turn, depends on the number of levels in the firm and on the elasticity of demand. In other words, a monopoly MLM firm will charge a lower price compared to a standard monopoly.

4. Additional concerns

This section deals with additional concerns regarding the validity of the model and sketches directions for future research. Specifically, the model abstracts from four important business aspects: risk, self-purchase, time discounting and bounded rationality. I will discuss each aspect independently and show that the model is conservative in nature, i.e. it provides an upper-bound estimate regarding the number of levels the MLM firm will have in equilibrium.

The business opportunity of becoming an MLM distributor doesn’t come without risk. The to-be distributor has to invest time and money in order to start selling products. This is especially so for people without background in marketing who want to become distributors. While risk is indeed a potentially important factor, adding it to the model shouldn’t necessarily change the model in a significant way. One can add a probability of failure into the profit equation and thus add uncertainty regarding earnings and profits. To the extent that becoming a distributor is riskier than the outside option, adding risk into the model would increase the profits needed to persuade the distributor not to take the outside option. Therefore, the number of distributors, and hence the number of levels, is projected to be lower when risk is incorporated into the model. In that sense the model’s estimates for the number of levels in the MLM firm is an upper bound, since it does not take into account risk and uncertainty.

Some MLM firms force their distributors to buy the product for self-purchase. While the model abstracts away from such a condition, adding it wouldn’t affect the results much. Forcing the distributors to buy for self-purchase would lower their earnings and thus make this business activity less appealing. This condition, all else equal, will also work to lower the number of distributors and the number of levels.

Another simplification of the model is its static nature. All earnings are received simultaneously and the time dimension is not discussed. In reality, though, earnings are received over several periods. Moreover, earnings by downline distributors will probably take more time to materialize compared to earnings from the distributor’s own sales. An easy fix to this issue is to introduce a discount factor to the earnings which are the results of downline sales. This discount factor will reduce the incentive to recruit downline distributors and will therefore result in fewer levels. In other words, dealing with time discounting will also lower the number of levels the model predicts.

Finally, the model assumes rational agents working to maximize their earnings potential. To the extent such an assumption is incorrect the model will be able to deliver realistic estimates of actual MLM firm structure only in the long run. If agents are indeed only partially rational, they might be more easily persuaded into exploring the MLM business opportunity. In that case the MLM might be comprised of more levels and include more distributors, at least in the short run (see Section 3.2). However, keeping the MLM firm at these elevated levels will mean continually recruiting additional entrants, to replace past distributors who weren’t successful (or recruiting irrational agents who do not learn over time). The long-run equilibrium will collapse back to our estimates since the number of boundedly rational agents who enter the business despite lack of earnings potential will run out with time. It is also worth noting that such boundedly rational agents may dedicate more time to recruitment at the expense of direct sales, leading to lower income and lower fees to upline distributors. In other words, we will end up with more distributors, more levels, but not necessarily higher profits.

5. Conclusions and policy implications

This paper presents an economic model which analyses the operation of an MLM firm in a competitive market. The model analyses the distributor level and assumes that distributors seek to maximize their earnings, and that they may choose how to divide their time between direct sales and the recruitment of downline distributors. The model focuses on the lowest-level distributor, whose behaviour recursively affects the behaviour of upline distributors. Finally, I analyse the case of an MLM firm with market power at both the firm and distributor levels.

The model provides us with several interesting observations. First, it predicts that MLM firms will have only a small number of levels in equilibrium. An upper-bound estimate suggests that a typical MLM firm will include up to nine levels, and possibly no more than six levels. This result is very far from the promises of many of these firms, which boast of their “multi-level” structures. The empirical evidence provided by the literature seem to be in line with this prediction. This small number of levels means that the business opportunity provided by becoming an MLM distributor is not as appealing as it might sound. In fact, the median distributor should expect most of his earnings to come from direct sales and not from commissions from his downline distributors. The second version of our model reaches similar conclusions, but instead of a cap on the number of levels it puts a cap on the number of distributors. I provide a simulation for the first version of the model as well as motivating examples based on actual data for both versions of the model.

Second, the model explains why MLM firms tend to concentrate in industries with high marketing costs: distributors engage in marketing activity, and if marketing cost in non-MLM firms is small the MLM firm will find it hard to compete. The model also explains how marketing costs are linked to the size of commission fees, and the fact that MLM firms seem to offer fees similar in magnitude. Where spending on marketing is low, it is not possible to charge large commission fees. This constraint caps the size of commission fees.

At the individual level, the model shows that individuals with a small outside offer will find the opportunity to become an MLM distributor more appealing. Such individuals are likely to include poorly educated populations in developed countries, as well as the majority of the population in developing countries. This explains the fast penetration rates of MLM firms in developing countries. Since these populations may be less informed about the potential weaknesses of the MLM business model, our findings highlight the need for government regulation to ensure that these distributors are not taken advantage of.

The model also analyses cases of monopoly, first of the MLM firm and then at both the firm and distributor levels. A monopoly MLM firm appears to be no different to an MLM firm operating in a competitive market, since distributors compete against each other. For the second case, that of a monopoly distributor, we can reach the surprising conclusion that MLM monopolies might charge lower prices compared to standard monopolies. While these prices are still higher than those found in competitive markets, this result suggests that monopoly MLM firms pose a smaller threat to consumer welfare compared to standard monopolies. From a policy perspective, it appears that MLM firms pose a greater threat to their distributors’ welfare than to consumer welfare.

Supporting information

S1 appendix, acknowledgments.

I would like to thank Roni Reingewertz, Aviva Wiernik, Stacie Bosley, Yakov Bart, Daniel Spiro, Kent Grayson, William Keep, David Genesove, Eitan Gerstner, Moti Michaeli, Yair Antler, Meira Ben Gad and Ohad Cohen for valuable comments and suggestions.

Funding Statement

The author received no specific funding for this work.

Data Availability

X

The Ultimate Guide to Multi-Level Marketing

The Ultimate Guide to Multi-Level Marketing

Post Highlight

Multi-level marketing is an appealing business model because it enables people to earn a living while doing what they enjoy. However, MLM comes with its share of risks, so it’s important to understand how to avoid those pitfalls and make the most of your opportunity. Fortunately, we have put together some important points that will help you understand the concept. Read on to discover more! #TWN

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When you think about multi-level marketing , you may think about the dozens of "get rich quick" schemes that are cropping up everywhere. But there's a lot more to this business model than just getting in on the ground floor with an opportunity for success. Many of the most successful MLM companies have been around for decades and have proven themselves time and time again. With the right strategy, knowledge, and dedication, your company can become a multi-million dollar business in no time at all. Follow these simple steps and learn everything you need to know about marketing and succeeding in MLM now!

What is MLM?

Multi-level marketing (MLM) is a  business model  where a company distributes goods and services in return for compensation. The company's main product is usually a monthly subscription or an item that the consumer can use or consume. An MLM company typically offers several different levels of compensation, with the sale of their products as well as recruitment commissions from sales made by people in the network they recruit.

What is Successful Multi-Level Marketing?

There are many aspects to successful multi-level marketing. Some of these include having a team of individuals, who are willing to work hard for you, researching your potential customers, understanding how your market operates, and making sure that you're doing everything legally possible to make money without breaking any laws. But how do you know if you're  succeeding at multi-level marketing ? It's not always easy to tell if you're succeeding when there are so many variables involved! You'll have to be patient and understand that there will be times when things don't go according to plan. But with the right strategy, knowledge, and dedication, your company can become a multi-million dollar business in no time at all!

How do you get started in MLM?

The first step to success in multi-level marketing is to get started. The best way to do this is by finding a company that seems like the right fit for you. If you're interested in starting an MLM, there are several things you should consider when deciding on which company to join. These include:

Business model:  What kind of business model does your company have?

Leadership team:  Is the leadership team experienced and knowledgeable about the industry?

Success rates:  What products or services does the company offer, and how successful are they?

Company size:  Does the company have a large number of participants or just a few thousand?

Cost of entry:  How much money will it take to get started with your opportunity?

After you've found a suitable opportunity, it's time to start building your downline. It is where your participation in the business starts!

Types of Multi-level Marketing Companies

The first step to marketing in MLM is understanding the different types of multi-level marketing companies. There are two primary types: network marketing and direct selling. Network marketing is when you build your team and   recruit others to achieve success together. While direct selling is when you individually market your product or service to people who already know who you are.

The Four Basic Steps to Successful Marketing

There are four basic steps to marketing. These four steps include choosing what to sell, deciding on a marketing plan, implementing the marketing plan, and tracking your success. The first step is choosing what you want to sell. It can be anything from a product or service that you know will work well to a certain niche. It might also be products that are in demand, and people have a difficult time finding them. The next step is setting up your marketing plan. With this plan, you will decide how much money you think the business will make and what type of money you need to succeed. The third step is getting ready for launch day by implementing the marketing plan. With this step, you'll start advertising and doing everything else needed for launch day so that your business is fully prepared when it opens its doors for the first time. The final step is measuring your success by giving yourself benchmarks throughout each month so that when your business begins to take off, you're already prepared for success!

What are the best ways to market your business?

To succeed in a multi-level marketing business, you'll need to market your company. In the beginning, you'll be doing this part-time while you build your business. Eventually, as your company grows, marketing will become more of your main focus. Here are some tips to get you started:

  • Find ways to differentiate yourself from other companies
  • Create a unique point of view that sets you apart from the competition
  • Offer a different product or service than your competitors
  • Focus on customer service and quality over quantity
  • Conduct professional communication with potential customers
  • Build relationships with people who can help bring in new customers

Target those most likely to buy from your company

  • Be proactive in reaching out to potential buyers and offering them a free sample or free trial
  • Invite bloggers and influencers in your industry to write about how great you're doing

Tips for succeeding in MLM

Have a plan.

Before you start your business, you need to have a clear idea of what your goals are and what's possible for your company.

Set up a business plan

Your business plan will help keep you motivated and focused on the long-term goal of being successful in your business. It will also provide you with everything you need to know about marketing and success.

Find out where the market is

If you're looking for people who want to join an MLM company, it helps to do some research first. You can find the right place by asking around or conducting interviews or focus groups with people in your local area.

Have something unique to offer

Don't just offer something that everyone else is offering in a similar capacity because this is how people spot a scam so easily! Instead, find something that no one else is doing yet or that has never been done before and make it happen! Something unique could be anything from creating new products (through development or manufacturing) to providing new services (such as therapy) or even partnering with other companies for joint ventures.

If you enjoyed reading this article, we have two more for you. Click on the link below to explore!

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What is Multi-Level-Marketing (MLM) | Everything You Need to Know

What is Multi-Level-Marketing (MLM) | Everything You Need to Know

What is Multi-level-Marketing (MLM)

Multi-level marketing (MLM) or also known as network marketing is a business strategy used by direct sales companies to encourage “distributors” or “independent business” owners to recruit others into their business or downline.

Distributors or independent business owners are paid a percentage of their recruits’ sales or their referrals into the business. It’s a controversial marketing strategy and business practice that is highly criticized and often looked down upon from other people due to the fact that a vast majority of people who join MLM companies end up losing money.

The Multi-Level Marketing Business Model

The multi-level marketing business model can get pretty complicated but it’s actually quite simple. Most are typically made up of either “distributors” or “independent business owners”. The two terms are used interchangeably.

People are typically referred by someone into the business with common sales tactics such as asking you to:

  • Start your own business
  • Be your own boss
  • Promising unlimited income potential
  • Promising financial freedom
  • Making your own hours
  • The ability to help others

People inside MLM’s make money in one of two ways:

  • Commission from sales made by the business owner
  • Commissions from people who they referred to start their own business under them

People who refer others into the “business opportunity” build what is commonly known as a downline.

Below is an example of what a downline looks like.

multi level marketing

All these people are considered business owners and had to pay some sort of money to join the network and get started. A common issue with MLM companies and opportunities lies in determining whether it’s legitimate or simply just hype.

Is Multi-Level Marketing a Scheme

‍A common preconceived notion about multi-level marketing is that it’s some sort of scam or a scheme. One of the major reasons this is, is due to the fact that over 99% of people who join an MLM lose money.

Although the FTC has ruled that MLM business models are legitimate businesses, their business practices and recruiting methods are highly controversial. They tend to exploit minorities, people who are in dire financial need and people who are very young.

They tend to make wild income claims without much substantiated evidence and usually focus on getting you to buy into the “mindset” mentality.

It’s not to say that all MLM companies are scams. If you have ever thought about joining an MLM company or organization, it’s very important that you understand the compensation structure, the commission levels and all the associated risks with joining one.

Common Multi-Level Marketing Terminology

One of the most unique and obvious things about multi-level companies is the terminology that is often used to either recruit people or introduce them to the business. Some of the most common terminology being used that you might hear if you are ever approached by someone from the MLM company include:

  • Business opportunity
  • Passive income
  • Business owner
  • Independent distributor
  • Commissions
  • Compensation Plan
  • Distributor Kit

These are some of the most common terms that will be thrown around by someone who either works for an MLM company or is trying to get you to join one.

Examples of Multi-Level Marketing Companies

One of the most controversial and well known multi-level marketing companies is Herbalife. They are one of the most high-profile multi level companies around and they are even public on the stock market. They sell weight-loss and nutritional products with over 750,000 global distributors.

There have been numerous public lawsuits against the company and its business practices over the years but the FTC has ruled them legitimate. Investor William Ackman, who originally exposed the company and accused them of operating a pyramid scheme was the main person who brought them to the spotlight.

Checkout more of the full story here. 

They still operate to this day while the complaints and lawsuits continue to reign in.

The Legitimacy of Multi-Level Marketing Companies

This article is a rip on multi-level marketing companies, rather an attempt to simply give you more information as to how they operate and things to consider if you have ever been approached by someone who wanted to give you more information about a “business opportunity”. 

There may be MLM companies who have legitimate operations with business models that don’t rely primarily on the recruiting component in order to make money. They are just very few and far in-between.

Check out the mini-documentary about MLM’s below. It may help to give you a bit more insight into their culture, business practices and expectations.

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Multi-level marketing is a diverse and varied industry, employing many different structures and methods of selling. Although there may be significant differences in how multi-level marketers sell their products or services, core consumer protection principles are applicable to every member of the industry. The Commission staff offers this non-binding guidance to assist multi-level marketers in applying those core principles to their business practices.

1.   What is direct selling? What is multi-level marketing?

Direct selling is a blanket term that encompasses a variety of business forms premised on person-to-person selling in locations other than a retail establishment, such as social media platforms or the home of the salesperson or prospective customer.

Multi-level marketing is one form of direct selling. Generally, a multi-level marketer (MLM) distributes products or services through a network of salespeople who are not employees of the company and do not receive a salary or wage. Instead, members of the company’s salesforce usually are treated as independent contractors, who may earn income depending on their own revenues and expenses. Typically, the company does not directly recruit its salesforce, but relies upon its existing salespeople to recruit additional salespeople, which creates multiple levels of “distributors” or “participants” organized in “downlines.” A participant’s “downline” is the network of his or her recruits, and recruits of those recruits, and so on.

2.   Under Section 5 of the FTC Act, what is an MLM with an unlawful compensation structure, which is sometimes called a pyramid scheme?

The most widely-cited description of an unlawful MLM structure appears in the FTC’s Koscot decision, which observed that such enterprises are “characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of the product to ultimate users.” In re Koscot Interplanetary, Inc. , 86 F.T.C. 1106, 1181 (1975). 1

1 This document is focused specifically on MLM practices that may violate the FTC Act. It does not address other types of unlawful structures that do not involve the right to sell a product or service, such as chain referral schemes (sometimes called “chain letters”) and Ponzi schemes. 

3.   How do MLMs with unfair or deceptive compensation structures harm consumers?

An MLM compensation structure that incentivizes participants to buy product, and to recruit additional participants to buy product, to advance in the marketing program rather than in response to consumer demand in the marketplace, poses particular risks of injury. Where such an unlawful compensation structure exists, a participant is unlikely to be able to earn money or recover his or her costs through selling product to the public. In such circumstances, participants will often attempt to recruit new participants who will buy product, and pressure existing recruits to buy product, with little concern for consumer demand. Where an MLM has a compensation structure in which participants’ purchases are driven by the aspiration to earn compensation based on other participants’ purchases rather than demand by ultimate users, a substantial percentage of participants will lose money.

4.   How does the FTC distinguish between MLMs with lawful and unlawful compensation structures?

At the most basic level, the law requires that an MLM pay compensation that is based on actual sales to real customers, rather than based on mere wholesale purchases or other payments by its participants. In evaluating MLM practices, the FTC, in accord with established case law, focuses on how the structure as a whole operates in practice, and considers factors including marketing representations, participant experiences, the compensation plan, and the incentives that the compensation structure creates. The assessment of an MLM’s compensation structure is a fact-specific determination that the FTC makes after careful investigation.

5.   How does the FTC treat personal (or internal) consumption by participants in determining if an MLM’s compensation structure is unfair or deceptive?

Product that is purchased and consumed by participants to satisfy their own genuine product demand – as distinct from all product purchased by participants that is not resold – is not in itself indicative of a problematic MLM compensation structure. For example, the final order entered in FTC v. Herbalife permits the payment of compensation based on personal consumption, subject to specific limitations and verification requirements. However, the FTC’s law enforcement experience has shown that MLM participants may buy product – and recruit or pressure other participants to buy product – for reasons other than their own or other consumers’ actual demand, such as to advance in the marketing program.

This issue, like all issues concerning the evaluation of an MLM’s compensation structure, is fact-specific and usually involves a comprehensive analysis of a variety of factors. It is worthwhile, however, to highlight two topics that the FTC is likely to consider when evaluating an MLM’s payment of compensation that is premised, in part, on participants buying product that is not resold. First, the FTC staff is likely to consider whether features of the MLM’s compensation structure incentivize or encourage participants to purchase product for reasons other than satisfying their own personal demand or actual consumer demand in the marketplace. Second, the FTC staff is likely to consider information bearing on whether particular wholesale purchases by business opportunity participants were made to satisfy personal demand. The persuasiveness of this information in any particular case will depend on its reliability.

The FTC’s case against BurnLounge provides an example. BurnLounge argued that its participants bought product packages consisting of sales websites and music-related merchandise because they wanted to use the merchandise. When BurnLounge’s product packages were untied from the business opportunity, however, monthly sales of these packages plummeted by almost 98 percent. At most, actual demand was responsible for only a small minority of package sales, and BurnLounge was found to have an unfair or deceptive compensation structure. 

6.   Is it still correct, as stated in the 2004 “FTC Staff Advisory Opinion – Pyramid Scheme Analysis,” that “the amount of internal consumption in any multi-level compensation business does not determine” whether the FTC will consider the MLM’s compensation structure unlawful?

Yes. Personal or internal consumption – meaning product participants purchase and consume to satisfy their own genuine product demand – does not determine whether the FTC will consider an MLM’s compensation structure unlawful. As noted in the answer to question 5, when evaluating the issue of participants’ internal consumption, the FTC staff is likely to consider, among other factors, both (i) whether features of the MLM’s compensation structure incentivize or encourage participants to purchase product for reasons other than satisfying genuine demand; and (ii) information bearing on whether purchases were in fact made to satisfy personal demand to consume the product. When evaluating MLMs, the FTC focuses on how the structure as a whole operates in practice and considers factors including marketing representations, participant experiences, the compensation plan, and the incentives that the compensation structure creates.

The 2004 letter should not be misconstrued as suggesting that an MLM can lawfully pay compensation on wholesale purchases that are not based on actual consumer demand by characterizing such purchases as “internal consumption.” The 2004 letter itself does not support such a construction, nor do subsequent judicial decisions. For example, the court in BurnLounge held that, notwithstanding the defendants’ characterization that participants bought packages for “internal consumption,” the compensation paid on such purchases was not tied to consumer demand for the merchandise in the packages; instead, the opportunity to advance in the marketing program was the major driver of package purchases. Similarly, in granting a preliminary injunction against Vemma Nutrition Company, the court rejected the argument that individuals who had joined as business opportunity “Affiliates” only wished to purchase product for their own consumption, finding that this claim was “not based in fact.”

7.   What is “inventory loading”? Do buyback provisions cure inventory loading?

“Inventory loading” is a term that may be used to describe a participant’s wholesale product purchases that are made in an attempt to advance in the marketing program, rather than made to satisfy actual consumer demand in the marketplace for those products. Just as MLMs involve a variety of structures and products, payments that participants make to advance in the marketing program rather than to purchase product to satisfy actual consumer demand can take many forms, such as expenditures to purchase inventory.

As in any business opportunity, it can be a beneficial practice if an MLM allows participants to return unsold product to the MLM because the ability to return product can decrease the risk of losing money for participants who take advantage of that policy. Allowing participants to return product, however, does not in and of itself shield an unfair or deceptive compensation structure from law enforcement. As a general matter, money-back guarantees and refunds are not defenses for violations of the FTC Act. Even where such policies are offered, dissatisfied participants may not seek a refund for a number of reasons, including because they are unaware of their right to a refund, the refund process is too complicated or obscure, or they blame themselves for not being able to sell the product.

8.   Does the FTC Act require MLMs to retain sales receipts?

No, there is no such requirement. However, as discussed above, to comply with the FTC Act, the compensation structure of an MLM must be based on actual sales to real customers. Thus, documentation of actual sales to real customers provides relevant information concerning an MLM’s compensation structure.

There is no single method for creating and retaining such documentation. Different MLMs employ a variety of approaches to demonstrate that their product is sold to retail customers, including collecting retail sales receipts created by participants; having retail customers buy product directly from the company, rather than from a participant’s inventory; and having product users sign up with the company as customers who are not participating in a business opportunity. Other MLMs use other approaches or a combination of approaches.

The most persuasive documentation is obtained through direct methods and used to verify that retail sales are made to real customers. Documentation obtained through indirect methods – such as policies requiring participants to attest they have sold a certain amount of product to qualify to receive reward payments – are less likely to be persuasive, with unsupported assertions being even less persuasive.

9.   Are there specific federal statutes or regulations enforced by the FTC that relate to multi-level marketing?

The FTC enforces a variety of laws and regulations relating to advertising, marketing, sales, billing, privacy, data security, franchises, and business opportunities, among other topics, that apply or may apply to MLMs. Helpful information for businesses interested in these topics is available at the FTC’s Business Center .

10.   Are MLMs subject to the FTC’s Business Opportunity Rule?

As stated in the Business Opportunity Rule’s Statement of Basis and Purpose, the Commission crafted the Rule to avoid broadly sweeping in MLMs. It did so by tailoring the definition of business opportunity to exclude certain types of business assistance common to MLMs. 76 Fed. Reg. 76816, 76824 (Dec. 8, 2011). It is important to note, however, that the Rule does not explicitly exempt MLMs from coverage. As with any other business entity, the determination whether an MLM would be a business opportunity to which the Rule applies would have to be made on a case-by-case basis.

11.   The FTC has proceeded case-by-case in evaluating whether the claims or conduct of multi-level marketers violated Section 5 of the FTC Act. Why?

In many areas, the Commission undertakes case-by-case law enforcement, which can offer significant benefits when compared with prescriptive rulemaking or legislative action. For example, a case-by-case approach allows the FTC to address bad actors engaged in a specific harm, without directly affecting an entire industry. This approach also limits the potential unintended consequences that can result from one-size-fits-all industry standards in statutes or regulations.

12.   Are orders obtained as a result of FTC enforcement actions, such as the ones entered in FTC v. Herbalife and FTC v. Vemma Nutrition Co. , binding on the industry?

Orders obtained through settlements of FTC law enforcement actions are not binding on the entire industry. Such orders, however, can be useful to MLMs that are not bound by them. Industry members may choose voluntarily to follow the provisions in these orders or to consider the provisions in developing their own practices and procedures. All industry members have an obligation to follow the law, and the provisions in FTC orders may provide guidance and insights to help them do so.

13.   How should an MLM approach representations to current and prospective participants?

An MLM’s representations and messaging concerning the business opportunity it offers must be truthful and non-misleading to avoid being deceptive under Section 5 of the FTC Act. An MLM’s representations about its business opportunity, including earnings claims, violate Section 5 of the FTC Act if they are false, misleading, or unsubstantiated and material to consumers.

Although whether representations are deceptive is a fact-specific inquiry, below are some guiding principles.

  • A company must have a reasonable basis for the claims it makes or disseminates to current or prospective participants about its business opportunity. A “reasonable basis” means objective evidence that supports the claim. If a company lacks such objective supporting evidence, the claims are likely deceptive.
  • Some business opportunities may present themselves as a way for participants to get rich or lead a wealthy lifestyle. They may make such representations through words or through images such as expensive houses, luxury automobiles, and exotic vacations. If participants generally do not achieve such results, these representations likely would be false or misleading to current or prospective participants.
  • Business opportunities may also claim that participants, while not necessarily becoming wealthy, can achieve career-level income. They may represent through words or images that participants can earn thousands of dollars a month, quit their jobs, “fire their bosses,” or become stay-at-home parents. If participants generally do not achieve such results, these representations likely would be false or misleading to current or prospective participants.
  • Even truthful testimonials from the very small minority of participants who do earn career-level income or more will likely be misleading unless the advertising or presentation also makes clear the amount earned or lost by most participants. (For more information on this topic, see the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising .)
  • In addition, a hypothetical earnings scenario – such as “if you recruit 30 people who each sell $1,000 of product each month, you will earn $1,500 a month” – may imply that the assumptions made ( e.g. , the number of people recruited, the amount sold by each recruit) are consistent with the actual experiences of typical participants. If the assumptions are not, the earnings scenario likely would be false or misleading to consumers.
  • An MLM’s compensation structure may give its participants incentives to make representations about the business opportunity to current or prospective participants. As a consequence, an MLM should (i) direct its participants not to make false, misleading, or unsubstantiated representations and (ii) monitor its participants so they don’t make false, misleading, or unsubstantiated representations.

14.   What are some elements of a successful MLM compliance program?

An MLM’s compliance program should ensure that the MLM accurately represents the business opportunity it offers, both through its own marketing materials and messaging and through the representations its participants make to current or prospective participants. In addition, an MLM’s compliance program should ensure that compensation paid by the MLM is based on actual sales to real customers, rather than based on wholesale purchases or other payments by its participants.

15.   How does the FTC consider compliance with industry self-regulatory standards in its assessments of MLMs?

The FTC has long supported industry self-regulation as an efficient way to secure consumer benefits and promote a robust and competitive marketplace. MLM self-regulation may create these same types of benefits.

Belonging to a self-regulatory organization, however, does not shield MLMs engaged in unfair and deceptive practices from FTC law enforcement action. Under appropriate circumstances, the FTC can and will bring law enforcement actions against companies that claim to follow self-regulatory guidelines but in practice do not. Similarly, the FTC can and will bring law enforcement actions against companies that, despite following such guidelines, nonetheless violate the FTC Act.

16.   Beyond law enforcement, what activities does the FTC undertake with respect to multi-level marketing?

As in many other areas, the FTC periodically meets with consumer groups, industry representatives, and other stakeholders to learn more about evolving practices and concerns. Also, the FTC has issued and updates consumer and business educational materials. In addition, the FTC’s Bureau of Economics has devoted and continues to devote its research expertise to issues relating to direct sales and multi-level marketing. These various efforts can provide valuable insight to inform the FTC’s investigations of MLMs, which involve fact-specific and comprehensive analysis of multiple factors.

17.   What should stakeholders do if they believe the claims or other conduct of multi-level marketers may be unlawful?

The FTC welcomes fraud reports from any individuals who have concerns about the conduct of a multi-level marketer. Concerned individuals can report a multi-level marketer at ReportFraud.ftc.gov .

18.   Are the answers in this document legally binding?

No, this is an FTC staff business guidance document. It does not necessarily represent the views of the Commission or any Commissioner and is not intended to, and does not, create any rights or obligations with respect to the Commission, the FTC staff, or the public.

The Comprehensive Guide to Building a Successful MLM Company

Whether you’re starting a multi-level marketing (MLM) company from scratch or mapping out strategic growth plans for an already established MLM, there are seven essential focus areas that drive to be successful. From business plans and compensation structure through MLM software platforms and marketing strategies, here’s a comprehensive look at what you need to consider, prioritize, and accomplish along your road to success. 

How do you define MLM success?

Worldwide, MLM companies are a $180 billion industry, with nearly 120 million people working as independent sales representatives. Today’s MLMs sell a wide range of products and services, everything from cosmetics, home goods, and clothing through wellness products, financial services, and utilities. And while every MLM company is different, there are some common key performance indicators (KPIs) that will help you gauge if your company’s direct selling is successful. 

The first metric is related to the company’s structure and ensures that sales practices meet regulatory compliance requirements. In the U.S., FTC regulations require MLM companies to pay compensation to sales representatives based primarily on retail sales, not wholesale purchases or downline recruiting. MLMs that adopt a multi-level business structure but rely on sales to newly recruited representatives rather than retail sales to end customers are known as pyramid schemes and fail to meet FTC guidelines. 

The second KPI MLM companies share is, not surprisingly, a financial one related to revenues and profits. The basic revenue calculation – the sales price of a company’s product or service multiplied by the amount sold – combined with expense management will determine profit margins. Monitoring revenue totals, with expenses (including taxes) subtracted out, tells you the amount of profit that is hitting the company’s bottom line. 

Related:  Everything You Want to Know About MLMs and How They Make Money

People metrics are the third important success measure for MLM companies. MLMs succeed when their sales representatives succeed – and MLM organizations grow when they are able to expand their sales networks. As an industry, direct selling companies see high turnover rates among sales representatives.  Half of MLM representatives drop out within the first year. This makes rep recruiting and retention important KPIs when gauging success. In fact, when an MLM company can improve representative retention by just 10 percent, the company’s  revenue grows an estimated 49 percent  over ten years. 

With these MLM success metrics in mind, it’s time to dive into the seven essential focus areas for building a successful MLM company. 

successful mlm company people working

1. Develop (or refine) your products or services.

For most MLM founders, the company starts with a passion for a product or service and a desire to share it with the world. But believing in a product isn’t enough. Invest time and resources to research and quantify the market opportunity whenever it’s time to develop a new product or service.

For MLM companies, determining the potential market opportunity for a new product or service is two-fold. The product must appeal to customers, and it must also be something that inspires representatives to advocate for and sell. Start by identifying products and services that can be differentiated from other similar offerings. Potential product differentiators can include quality, performance, design, or features. (Of course, being first to market with a unique product is a differentiator! But expect competition to follow and think about how your product offering will stand out for the long-term.)

Never assume that the product you love will automatically translate into market appeal. It’s important to research customer needs, interest levels, and willingness to purchase. This type of market research can be accomplished through a mix of formal research methods, such as surveys, focus groups, and product testing, and informal outreach like customer or sales representative interviews. Remember, you’re not only gauging interest levels, but you also need to determine how much your customers are willing to pay.

Typically, in order to cover the costs of marketing and the multi-level compensation plan model, an MLM should aim to offer products and services priced at a five times margin over the cost of goods. It’s critical to understand the value your potential target customers place on your product or solution and then to accurately estimate the number of potential customers. This is where you’ll want to dive deep into defining and understanding your target customer segments (see focus area 5 below). When you have an idea of how many potential customers there are, estimate the market penetration percentage you can realistically expect to achieve in years one, two, and three. Then, continue to assess the market opportunity as it evolves through changing buyer needs, market forces, competitor actions, and your own organization’s performance.

2. Make (or refresh) your business plan.

Most of the time, success doesn’t just happen. It results from careful strategic planning and execution. Successful MLM companies need to have a detailed three- to five-year business plan that is constantly referenced and updated. A good business plan serves as a roadmap whether you’re launching a new MLM business or growing an existing one. 

Your written business plan should outline your vision for the company’s future, its purpose, and goals. Then, it should lay out the objectives and actions you need to take to get there. An MLM business plan is a living document, always detailing a plan for at least the next three years and always evolving based on results and changing market conditions. 

Much like the steps outlined for product development, your business plan involves research and number-crunching to determine the resources you’ll need to achieve the sales and revenue goals you set. When creating or refreshing your company’s business plan, include target revenue, customer, and sales objectives for at least the next three years. These objectives should be challenging without being unrealistic. For example, you’ll need to know how many sales representatives you need to recruit – and how long it takes to onboard them – in order to achieve the sales objectives. Over time, as you have more results, you will be able to refine your projections and make them more precise. 

No matter what, sales forecasting is always a mix of art and science. Whenever you can, base your projections on past results and a data-based analysis of the future. Don’t stop at high-level totals. Break your sales objectives down by sales teams and representatives, factoring in levels of experience, local market conditions, and competitive forces. You should also incorporate insights about average transaction values for both new and repeat customers. By taking a detailed approach, you’ll be able to see where the team is outperforming or under-performing and help to take the guesswork out of making process, product, or pricing decisions down the road.

Related:  The Road to Better Sales Forecasting

As part of your business plan, always have a plan for rapid scaling in the case of higher than anticipated customer demand. You never want to miss an opportunity for exponential growth. Think through supplier, manufacturing, and logistical needs to determine what it would take to scale at 10, 100, or even 1,000 times the pace outlined in your initial plan. Knowing what you would need to do enables you to act decisively and quickly capitalize on opportunities – and provides peace of mind that you have a map to follow. 

3. Determine (or revisit) your compensation plan structure.

An MLM company’s compensation plan is a critical component in reaching both short- and long-term goals. While it’s not something you want to change frequently, it is important to monitor and manage the plan over time to ensure it continues to effectively deliver on its three primary purposes: to recognize, reward, and incent desired sales representative actions and behaviors. 

MLM compensation plans must balance the company’s pricing structure for its products and services along with the behaviors the company needs from its sales representatives. In fact, determining the right compensation plan to fit your company’s unique needs is one of the most important decisions MLM company leaders make. Effective compensation plans incentivize and reward the sales representatives your company will depend on to grow. But, if your compensation plan pays too little or is difficult to explain, it will have a direct impact on recruiting, retention, sales volume, and your overall bottom line. 

The compensation plan defines how your organization’s sales representatives will earn income through a combination of commissions on their direct sales, overrides on a percentage of their downline’s sales, or bonuses as they achieve levels and ranks. MLM compensation plans are based on the company’s multi-level structure, which is called the genealogy. As representatives join your company, they connect into the organization based on the representative who sponsored them. The new representative’s sponsoring rep is called an “upline” because the relationship appears above them in the organizational hierarchy. Then, as the new representative builds her business, she will also recruit representatives, creating a new “downline.” The inter-connected structure resembles a family’s genealogical record and provides the map for determining how and when representatives are eligible for compensation for particular sales based on where they sit within an upline or downline.

Related:  MLM Genealogy Trees – and How They Grow

Based on the underlying genealogy, the company’s compensation plan defines who will be compensated and how much they will earn. There are five basic types of MLM genealogy behind the majority of MLM compensation plans. The basic difference between these payout structures is how they define the number of representatives included in the genealogy’s “width” and “depth.”

  • Binary:  A binary structure is focused on two downlines, which means the plan has a fixed width of two representatives, while its depth is unlimited. In other words, a representative enrolls two people, known as a two-leg downline. Each representative then enrolls two people, with the structure continuing in two-person tiers. The compensation is based on the sales volume generated in each of the legs, with representatives typically earning the majority of their compensation based on the lower-earning leg of their downline, which is called the “pay leg.” A binary structure is intended to encourage teamwork between the downline legs in order for representatives to optimize their earning opportunities.
  • Matrix:  Matrix plans have fixed widths and fixed depths, which provide MLM companies with more control over compensation payout volumes. For example, if a company adopts a 3×9 matrix plan, each level is made up of three representatives, up to a maximum depth of nine levels. By limiting the number of people in a downline, matrix plans are designed to encourage representatives to strategize on the placement of the reps they sponsor as a way to maximize both payout amounts and downline growth.  The company determines the structure based on its strategic goals and the market opportunity for the products and services it sells. A matrix structure can be any width and depth, such as “4 x 7” or “3 x 9.” In a 3 x 9 matrix, the sponsoring representative’s first level – also known as their frontline – is three representatives wide. From there, each level below multiplies out in threes, up to a maximum depth of nine levels.
  • Unilevel:  Unilevel structures are simple. The width is unlimited, meaning representatives can sponsor as many people as they want. When determining payouts, unilevel plans limit the downline’s depth. For example, a unilevel plan may pay a 5 percent commission per level to a depth of five levels. Unilevel compensation plans typically reward sales representatives based on how many levels they have beneath their frontline, with representatives achieving ranks within the organization based on recruiting and sales volume. As a result, unilevel structures are an appealing option for MLM companies with large numbers of part-time sales representatives.
  • Stairstep breakaway:  Used by early MLM companies, breakaway plans enable representatives who achieve defined personal and group volumes to “break away” and start their own lines. Along with being more difficult to explain to new representatives, the breakaway structure can cause representatives to be primarily self-focused as they work toward the breakaway goal. After that, it may be hard for them to shift gears to focus on their downline’s success as the way to continue to achieve higher ranks and rewards within the organization.
  • Hybrid:  Today, most MLM compensation plans take a hybrid approach, paying compensation based on both a placement genealogy and a sponsorship genealogy to better align with their strategies and growth goals. For example, a company may opt for a hybrid combination of binary and unilevel plans, with payouts for initial sales volumes based on a binary structure and payouts for ongoing sales volume based on a unilevel structure.

In addition to basic commission structures, MLM compensation plans also include additional earnings opportunities for bonuses and rank promotions. These types of programs provide MLM companies with additional options to incent and reward specific sales behaviors, such as recruiting representatives, selling certain products, or increasing retail sales. Ranks or bonuses can also be designed to reward representatives who actively support their downlines while remaining active in their own business. 

Of course, compliance is a critical consideration when building or refreshing MLM compensation plans. According to FTC regulations, MLM compensation must focus on retail sales to customers who are not part of the company’s genealogy structure. Both compensation and bonus plans must reward reps for retail sales, with bonuses and ranks designed to build a healthy retail customer base. Consulting with an attorney who specializes in the MLM industry is a best practice to ensure your company’s compensation plans don’t raise any regulatory red flags. An MLM attorney can also provide valuable guidance on product regulations, product label requirements, and international expansion. 

Related:  MLM Compensation: How to Build the Best Plan for Your Business

4. Choose (or evaluate) your MLM software. 

The next crucial area of focus is your company’s MLM software, which should function as the backbone of your technology platform. Not only does the right choice of software enable your company to grow and scale through vital business-building tools and capabilities for your sales team, but it also streamlines your back-office functions, increases the accuracy of commission and incentive payouts through automation, and helps you address compliance requirements. 

In other words, your MLM software impacts every part of your business – back-office, representative experience, and customer experience. Choosing – or evaluating your current software – is critical to ensure that field sales representatives have access to vital sales tools like replicated websites, e-commerce sales capabilities, live and social selling options, customer profile management, and a mobile app. Via a representative portal, your MLM software also streamlines business management for the sales team with online ordering, sales, customer and genealogy reports, and commission statements. 

For the corporate back office, focus on MLM software functionality that automates and integrates your business, including field and customer management, lead management, inventory management, shipping fulfillment, payment processing, and commission calculations and payouts. You’ll also want it to have robust reporting capabilities, so you’re able to easily access and analyze the data you need to make strategy decisions. 

Look for an MLM software provider that has extensive direct selling software expertise and industry experience. Your goal is to establish a partnership with an MLM software provider that meets your company’s current needs and is able to adapt and expand functionality as you need it. Regular software enhancements are a must to ensure you can keep up with market expectations and optimize what technology can do for your business. Choose an MLM software provider with a proven track record of innovation and a regular cadence for enhancements provided at no additional cost. 

Ongoing, accessible user support is another important consideration. The best MLM software providers will offer access to dedicated, live support specialists who understand the MLM industry and your company. Be wary of providers who offer an executive or sales rep as your support contact. That’s a red flag that often results in slow and incorrect responses. You and your team should be able to reach out to talk with dedicated support specialists whenever you need to, via phone or live online chat. 

Related:  What Type of MLM Software Support Should You Expect?

Like any major business investment, cost is always an important consideration. When it comes to determining what you should pay for MLM software, look for pricing that’s based on the features you need right now, with a significant amount of functionality that can be “turned on” down the road as your company needs it. This way, you’re not paying for capabilities you’re not using, but you can be confident that the provider will be able to deliver advanced features as your company grows.

Expect to pay money upfront. If an MLM software provider offers to “take a risk” and cover the upfront costs, you should think twice. They will likely need to make up the cost somewhere else, such as fewer upgrades, hidden extra costs, or reduced user support. For high-quality MLM software that fits your business, expect to pay between $20,000 and $35,000 in upfront costs.

You should also seek to pay flat rate hosting fees, without additional hosting fees per order or per sales representative. This type of fixed monthly hosting fee means you’re able to establish a budget without running into surprise software expenses. Flat-rate monthly hosting fees should usually fall in the $3,000 to $4,000 range – and include ongoing support, service, and regular upgrades. 

Related:  How to Find the Right MLM Software at the Right Price

5. Map out your marketing. 

Marketing is essential to MLM success – and it starts with a deep understanding of your target markets. With your business plan as a starting point, create detailed profiles of your ideal customers and representatives – the more details, the better. Tap into external research, like focus groups and rep and customer interviews, as well as data available through your MLM software platform. You’re looking to create profiles that include both demographic and psychographic attributes. 

  • Demographics, such as age, gender, ethnicity, marital status, education levels, and income, define who your target audiences are.
  • Psychographics, like attitudes, interests, values, hobbies, and spending habits, complement the demographics to help explain why your target becomes a customer or representative. 

With your target audiences in mind, define – or refine — your brand. A strong MLM brand can be an extremely valuable asset for your company, helping to propel awareness, sales, and customer loyalty while establishing credibility among potential sales representatives. 

An MLM brand is more than a logo. Think of your brand as your company’s personality as your target audiences perceive it. Every experience and interaction impact their perceptions and add – or detract – from your brand’s value. That means consistency in messaging, tone, and visuals is key. From in-person events and online interactions, through website, product, and service experiences, it all adds up. The cumulative impact of positive experiences will build increased recognition, purchase preferences, and long-term loyalty. When companies consistently present their brand, they  achieve 33 percent higher revenues , on average.

Related:  6 Essential Steps to Building a Strong MLM Brand

Today, web experience is one of the most important elements of an MLM company’s marketing and brand strategy. Your website is often the first experience that customers and sales representatives have with your brand. That makes the design, capabilities, and user experience essential focus areas.

Your MLM software will be at the center of your web strategy, enabling you to create and deliver online experiences that support your brand and are tailored for the audience. The first step is building or refreshing your corporate website, considering branding, look and feel, content, and functionality. Once you have your corporate site, your MLM software platform should make it easy to create replicated websites for each MLM sales representative. 

A replicated site is built around the brand guidelines you set but provides a unique URL and the flexibility for representatives to customize what’s featured on their site. This way, each representative is able to have their own personalized website to help them build their business, but it’s also connected to your back end MLM software capabilities like payment processing, shipping fulfillment, inventory management, and reporting. In addition, replicated websites ensure brand consistency by providing formatting, product descriptions, and images for the sales representatives to use. 

Pay special attention to the e-commerce capabilities available through your MLM software platform. Today,  70 percent of Americans  are shopping online, and they have high expectations. Make sure your MLM software is keeping you ahead of the curve with capabilities like shop-by-category functionality, personalized product recommendations, the ability to carry your branding through to the customer’s shopping cart, and the option to tag products to highlight best sellers, new items, discounts, and pre-orders as customers shop.

In addition, along with customer-facing replicated websites, your MLM software should also provide robust rep portal capabilities, including business-building tools for sales representatives. For example, through your representative portal, sales reps should be able to access customer profile data and genealogy views, manage their inventory, view commission statements, and run reports in real-time. 

6. Be strategic about recruiting.

The secret to MLM success isn’t just about selling your products and services. Recruiting and retaining successful MLM sales representatives is equally important. As you build and refresh your company’s strategies, recruiting and retention should be considerations in nearly every decision you make.

Your sales representatives and potential sales representatives are key customer segments. Do your homework to understand both the demographics and the psychographics – or what makes them tick – so you’re able to create a profile of the ideal representative for your company. Then, turn that knowledge into powerful recruiting and retention strategies. 

Build in tools and support to help representatives tell your organization’s story and articulate the opportunity of becoming a sales representative. For example, feature click-able access to the details about who you’re looking for, what the role is, and the potential for success on your corporate and replicated representative websites. Make it easy for interested customers to take action by enrolling online, including promoting the opportunity as people shop by offering promotional incentives when they enroll.

But don’t stop there. Take a strategic approach to your representative onboarding experience, which lays the groundwork for sales success. Research shows that organizations that deliver standardized onboarding programs achieve  62 percent greater productivity  and 50 percent higher retention rates. Integrated, ongoing training pays off, too. When companies offer comprehensive training, reps earn more, the company achieves higher profit margins, and retention rates increase. Seven in ten people who work for organizations that provide training to enhance sales and marketing skills say it influences their decision to stay. Notably, this number jumps to nine in ten for those in the Millennial generation.

7. Get growing. 

Growth is a focus of MLM companies, no matter how long they’ve been in business. In today’s fast-paced, quickly changing marketplace, companies have to be prepared to adapt and pivot in order to achieve growth goals. As a result, the ability to access and analyze data is imperative. Your MLM software should bring all of your data – customer, sales, representative, inventory, and more – together. Set up automated reports to keep your finger on the pulse of your business. 

At some point, you will likely want to evaluate opportunities to expand your business into international markets as a way to grow. On the surface, with the MLM sales model providing a cost-efficient way for introducing a company and its products into a new market, expanding internationally may seem like a no-brainer. However, each market is unique, and the cultural, language, and currency differences must be carefully assessed. You’ll also want to understand the different regulatory requirements and the available technology infrastructure. To help you evaluate international opportunities, tap into the expertise of your MLM software provider, and seek the advice of an experienced MLM attorney.

Related:  Should MLM Companies Do Business Internationally?

One of the most powerful growth strategies for any MLM is the ability to drive repeat purchases. The MLM sales model creates strong, personalized relationships between sales representatives and their community of customers. Make sure you’re making the most of these relationships by creating memorable customer experiences that strengthen loyalty. There’s a tangible benefit for your bottom line. Loyal customers are  five times more likely  to make repeat purchases and nine times more willing to try new products. And when you’re able to increase customer retention by just 5 percent, your company can expect to  boost revenues by 25 to 95 percent .  

The road to MLM success almost always comes with unexpected turns and obstacles. ByDesign can help you along your company’s journey. With 20 years of experience in the MLM industry and lessons learned while serving more than 1,000 clients over the years, our MLM software solutions can help you optimize your operations and focus on growth. Learn more at  ByDesign.com  or  contact us  to schedule a mlm software consultation today. 

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Additional Articles about Achieving MLM Success:

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  • The 5 Best Practices to Follow for MLM Success
  • Do You Have the Right MLM Software for Your Reps? A Technology Assessment Tool

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Unveiling the World of MultiLevel Marketing: A Complete Guide

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By Jacob Maslow

December 10, 2023

Have you ever heard a friend rave about an exciting business opportunity that seems too good to be true? They talk about flexible hours, working from home, and the potential to earn big – all through multi-level marketing (MLM). It’s likely you have, as MLMs have woven themselves into the very fabric of our social networks. But what lies behind the glossy facade of MLMs? This blog post will delve into the world of multi-level marketing, unraveling its complexities and highlighting key points you need to know:

  • Understanding MLMs : We’ll explain multi-level marketing and how it differs from traditional business models.
  • The Pros and Cons : Not all that glitters is gold. We’ll explore the benefits touted by MLMs and balance them with the often less-discussed downsides.
  • Personal Stories : Hear from real people who’ve been on the front lines of MLMs – the good, the bad, and the unexpected.
  • Making an Informed Decision : Armed with knowledge, you’ll be better equipped to decide if participating in an MLM is right for you.

Stay tuned as we unpack the multi-layered world of MLMs in a straightforward and insightful way. Whether you’re considering joining one or just curious about the buzz, this post is for you.

What is Multi Level Marketing (MLM)?

Multi-level marketing (MLM) is a distinctive marketing strategy employed by some direct sales companies. It’s characterized by a tiered structure where salespeople, or ‘distributors’, not only sell the company’s products but also recruit new salespeople.

Earnings in MLM come from direct sales to customers and a percentage of the sales made by the recruited team members, forming a hierarchy of multiple compensation levels.

History and Evolution of MLM

The history of MLM can be traced back to the 1940s, beginning with companies like California Vitamin Company and Tupperware, this period marked the emergence of a new sales model that leveraged personal networks for product distribution.

Over the years, MLM has evolved, adapting to technological advancements and changing market dynamics. Today, MLM is a global phenomenon, with companies operating in diverse sectors from health supplements to beauty products.

How Does MLM Work?

business model marketing multi level

The MLM business model revolves around a network of distributors who sell products and recruit new distributors. Each distributor earns a commission on their sales and sales made by their network of recruits.

This hierarchical structure forms various levels of distributors, each earning according to their level and sales performance. The model emphasizes personal selling and network building.

Understanding the Compensation Plan

Compensation in MLM is complex and varies from one company to another. Generally, it includes two types of earnings: direct sales commission and recruitment commission.

Distributors earn a percentage of their sales and a smaller percentage from their recruits’ sales. Some plans also include bonuses for reaching sales targets or advancing in rank within the company’s distribution network.

The Legal Landscape of MLM

The regulatory environment for Multi Level Marketing (MLM) varies significantly across different countries, but these regulations have common themes. These typically include:

  • Disclosure Requirements: MLM companies often must provide clear and transparent information about their compensation plans, business models, and earnings prospects. This transparency is crucial for potential distributors to make informed decisions.
  • Prohibition of Misleading Practices: Regulations frequently prohibit MLM companies from making misleading claims about potential earnings, the effort required for success, or the benefits of their products. This is to prevent the exploitation of uninformed recruits.
  • Product Sales Focus: To distinguish themselves from pyramid schemes, legitimate MLM companies must focus on selling products or services rather than primarily on recruiting new distributors. The income of distributors should primarily come from sales to end consumers.
  • Return and Refund Policies: Many jurisdictions require MLM companies to have reasonable return policies. This allows distributors and customers to return products for a refund, ensuring that products are not oversold or misrepresented.
  • Non-Exploitative Practices: Regulations aim to protect participants from being exploited. This includes ensuring that joining fees are reasonable and distributors are not pressured into purchasing excessive inventory (“inventory loading”).

Distinguishing Between MLM and Pyramid Schemes

Understanding the distinction between legal MLM and illegal pyramid schemes is essential for legal compliance, financial safety, ethical business practices, and avoiding participation in fraudulent, unsustainable activities that can lead to significant financial losses. Let’s learn about the differences in detail:

Advantages of MLM

Let’s delve into the advantages of Multilevel Marketing (MLM), uncovering the beneficial aspects and opportunities that attract individuals to this distinctive business model.

Flexibility and Independence

MLM allows individuals to work at their own pace and on their schedule, offering a significant degree of flexibility. This particularly appeals to those who must balance work with other commitments like family or education.

Additionally, MLM participants operate as independent contractors, giving them the autonomy to make business decisions and grow their enterprise in a way that aligns with their personal goals and lifestyles.

Low Start-Up Costs

One of the appealing aspects of MLM is the relatively low barrier to entry in terms of financial investment. Unlike traditional businesses that may require significant capital for start-up costs like inventory, premises, and staff, MLM typically involves a much smaller initial investment, often limited to purchasing a starter kit or a small inventory of products.

This makes MLM accessible to individuals who may not have the resources to start a traditional business.

Income Potential

MLM offers a unique income opportunity where earnings are derived from personal sales and the sales made by the recruited team. This structure can potentially lead to significant income for those who excel in sales and team building .

The more extensive and productive the network, the greater the potential for earning through commissions and bonuses, which can be especially lucrative at higher levels of the MLM hierarchy.

Personal Development

Many MLM companies invest heavily in training and development programs for their distributors. These programs often cover a range of skills, including sales techniques, communication, leadership, and personal management skills.

This focus on personal growth can be beneficial in conducting MLM business and personal and other professional areas of life. It’s an opportunity for continuous learning and self-improvement.

Challenges of MLM

Let’s explore the key challenges faced in Multilevel Marketing (MLM), offering insights into the various hurdles and difficulties that participants often encounter in this unique business model.

Market Saturation

In MLM, market saturation challenges arise when too many distributors try to sell the same products within a limited area or demographic. This can lead to a highly competitive environment, making it difficult for distributors to find new customers or recruits.

Market saturation can also devalue the product if it becomes too commonplace, reducing the potential for profitability and growth for new entrants.

Misrepresentation of Earnings

A common criticism of MLM is the misrepresentation of potential earnings. Some distributors or companies might present the business opportunity as a quick and easy way to achieve wealth, which is often far from the truth.

The reality is that a significant percentage of MLM participants may earn little to no profit, and some may even incur losses. This misalignment of expectations can lead to disappointment and disillusionment among recruits.

Social Dynamics

MLM heavily relies on personal and social networks for selling products and recruiting new members. This can strain personal relationships, as friends and family may feel pressured to support the business.

There’s often a fine line between sharing a business opportunity and exploiting personal relationships for financial gain. Additionally, some people might find themselves socially isolated if their network starts to avoid them due to constant sales pitches.

Product Issues

In some MLM schemes, the products offered can be overpriced compared to similar items in the market, or they might not live up to the claims made by the company.

This can make it challenging for distributors to make sales, especially if the products do not offer clear value for money. Also, reliance on certain products that may be trendy or faddish can lead to instability in sales as consumer interest wanes.

Dependence on Recruitment

A significant challenge in many MLM models is the heavy reliance on recruitment for income generation. In systems where earnings are predominantly derived from recruiting new members rather than selling products, it can create a scenario where only those at the top of the hierarchy make substantial earnings.

This model can demotivate new distributors who find recruiting and building their downline challenging.

Regulatory Risks

MLM companies and distributors must navigate complex legal landscapes, varying significantly by country or region. The risk of inadvertently engaging in practices that border on or constitute pyramid schemes can lead to legal issues.

Distributors must be well-informed about MLM laws and regulations in their respective areas to avoid legal complications.

Getting Started in MLM

Navigate the initial steps of an MLM venture, from selecting the right company to adopting best practices for a successful MLM journey.

Research and Due Diligence

Thorough research is the first crucial step in selecting an MLM company. Investigate the company’s track record, leadership team , financial stability, and market reputation. Look for reviews and testimonials from current and former distributors. Also, research the demand and competitiveness of the products in the market.

Product Alignment

Aligning with a company whose products or services you believe in is vital. If you’re passionate about the products, selling them and sharing your enthusiasm with potential recruits will be easier. Try the products before joining, ensuring their quality and value meet your standards.

MLM compensation plans can be complex, with various levels and bonus structures. Take time to understand how you will earn money , including the percentages from your direct sales, team sales, and any additional bonuses or incentives. Be cautious of plans that promise high returns with little effort or focus heavily on recruiting.

Legal Compliance

Verify the company’s compliance with legal standards and regulations. This includes ensuring that the company is not engaged in pyramid scheme practices and has a legitimate focus on selling products or services.

Best Practices for MLM Success

Set realistic goals.

Define clear and realistic goals for your MLM business. This could include short-term goals like a certain number of monthly sales or long-term goals like achieving a specific rank in the company’s hierarchy. Setting goals helps in tracking progress and staying motivated.

Continuous Learning and Adaptation

The MLM industry is dynamic, so staying informed and adaptable is key. Engage in ongoing learning through webinars, workshops, and mentorship programs the MLM company offers. Adapting to new selling strategies and market trends can keep your business relevant and successful.

Networking and Relationship Building

Building a robust network is more than just expanding your contact list; it’s about cultivating genuine relationships. Attend networking events, engage with community groups, and connect with others in the industry. Authentic relationships can lead to more meaningful business opportunities.

Utilize Digital Tools

Embrace digital marketing tools and social media platforms to enhance your business reach. Create engaging content showcasing your products and your MLM business’s lifestyle benefits. Utilizing online tools effectively can help attract a wider audience and generate leads.

Maintain Professionalism and Ethics

Conduct your business ethically and professionally. Be honest and transparent about your products and the business opportunity. Avoid exaggerating claims about product efficacy or potential earnings, as this can harm your credibility and trust with clients and recruits.

Let’s uncover the essential best practices for MLM success, focusing on practical strategies and ethical approaches to build a sustainable and thriving network marketing business.

  • Set Achievable Goals: Establish clear, realistic targets for sales and recruitment to guide your efforts and measure progress.
  • Stay Informed and Adaptable: Keep up-to-date with industry trends and training opportunities to continually enhance your skills and business strategies.
  • Build Genuine Relationships: Focus on creating authentic connections rather than merely selling products or recruiting people, as strong relationships are key to long-term success.
  • Leverage Digital Marketing: Use social media and other online tools to broaden your reach and engage with a larger audience.
  • Maintain Professionalism and Integrity: Conduct your business with honesty and ethical practices, ensuring transparency in product representation and business opportunities.

Unveiling the World of Multi-Level Marketing’ has offered a thorough examination of the MLM universe, shedding light on its various facets. We’ve navigated through its definition, workings, legal aspects, and the dual-edged sword of its advantages and challenges.

The inspiring success stories and practical startup advice provide a realistic picture of what it takes to thrive in this dynamic field. MLM demands dedication, ethical practice, and strategic thinking.

As the industry continues to evolve, it remains a realm of opportunity for those willing to invest effort and embrace continuous learning. This guide serves as a foundational compass for navigating MLM’s complex yet potentially rewarding world.

Jacob Maslow

Digital Marketing for Small Business: Strategies for Success

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Multi-Level Marketing Businesses and Pyramid Schemes

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What Are MLMs and How Do They Work?

What’s a pyramid scheme and how do you spot one, is an mlm right for you.

MLM companies sell their products or services through person-to-person sales. That means you’re selling directly to other people, maybe from your home, a customer’s home, or online.

If you join an MLM program, the company may refer to you as an independent “distributor,” “participant,” or “contractor.” Most MLMs say you can make money two ways:

  • by selling the MLM’s products yourself to “retail” customers who are not involved in the MLM
  • by recruiting new distributors and earning commissions based on what they buy and their sales to retail customers

Your recruits, the people they recruit, and so on, become your sales network, or “downline.” If the MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.

Most people who join legitimate MLMs make little or no money. Some of them lose money. In some cases, people believe they’ve joined a legitimate MLM, but it turns out to be an illegal pyramid scheme that steals everything they invest and leaves them deeply in debt.

Pyramid schemes are scams. They can look remarkably like legitimate MLM business opportunities and often sell actual products, maybe even ones you've heard of. But if you become a distributor for a pyramid scheme, it can cost you and your recruits — often your family and friends — a lot of time and money that you won’t get back.

The promoters of a pyramid scheme may try to recruit you with pitches about what you’ll earn. They may say you can change your life — quit your job and even get rich — by selling the company’s products. That’s a lie. Your income would be based mostly on how many people you recruit, not how much product you sell. Pyramid schemes are set up to encourage everyone to keep recruiting people to keep a constant stream of new distributors — and their money — flowing into the business.

Often in a pyramid scheme, you’ll be encouraged or even required to buy a certain amount of product at regular intervals, even if you already have more inventory than you can use or sell.

You may even have to buy products before you’re eligible to be paid or get certain bonuses. You also may have to pay repeated fees for other items, like training sessions or expensive marketing materials. In addition, the company may say you can earn lavish rewards, like prizes, bonuses, exotic vacations, and luxury cars. However, it often turns out that you have to meet certain product purchase, recruitment, training, or other goals to qualify for the rewards, and only a handful of distributors ever qualify.

Eventually, most distributors find that no matter how hard they work, they can’t sell enough inventory or recruit enough people to make money. They also can’t keep up with required fees or the inventory purchases they need to make to qualify for rewards, and they can’t earn enough money to cover their expenses. In the end, most people run out of money, have to quit, and lose everything they invested.

Here are some warning signs of a pyramid scheme:

  • Promoters make extravagant promises about your earning potential . Stop. These promises are false.
  • Promoters emphasize recruiting new distributors for your sales network as the real way to make money.  Walk away. In a legitimate MLM program, you should be able to make money just by selling the product.
  • Promoters play on your emotions or use high-pressure sales tactics , maybe saying you’ll lose the opportunity if you don’t act now and discouraging you from taking time to study the company . Leave by the nearest exit. Any company that tries to pressure you to join is one to avoid.
  • Distributors buy more products than they want to use or can resell , just to stay active in the company or to qualify for bonuses or other rewards.  If you see this happening, keep your money.

If you’re considering joining an MLM, know that some MLMs — even ones that aren’t pyramid schemes — may not be a wise investment. Other MLMs may not be a good fit for your interests and lifestyle. Here are some ways to help protect yourself against a bad MLM experience.

Ask yourself these questions

  • Do you want to be a salesperson?  If you join an MLM, you’ll be a salesperson. Your job will be to sell the company’s product and, in many cases, to convince other people to join, invest, and sell. If you don’t like selling, or if you’re uncomfortable asking people you know to put their time and money into a business venture, joining an MLM is a bad idea.
  • Do you have a solid sales plan?  Consider whether you have friends and family who will buy this product from you over and over again. Think about how you would find and keep other regular customers. Can people buy something like this product elsewhere, maybe for less?
  • What are your income goals?  You might think that, with your willingness to work hard, you can earn substantial income through the MLM. In fact, most people who join MLMs and work hard make little or no money, and some of them lose money.
  • Can you afford to risk the money and time?  Every business venture has risks. MLMs are no different. Even if the start-up costs seem low, additional expenses can add up quickly. Expenses can include training and travel costs, website fees, promotional materials, costs to host parties, and costs to buy products. If you need to borrow money or use your credit card to finance your expenses, you may face hefty interest charges too. Also, consider the time demands of the business, like going to training, recruiting new distributors, managing paperwork, recording inventory, and shipping products.

Do your homework

  • Research the company.  Search online for the name of the company and words like “review,” “scam,” or “complaint.” You may also want to look for articles about the company in newspapers, magazines, or online. Does the company have a good reputation for customer satisfaction? Check with your  state attorney general for complaints. A lack of complaints doesn’t guarantee that a company is legitimate, but complaints can alert you to possible problems.
  • Research what distributors are saying.  Individual distributors often post their own training videos online to promote the MLM. Search for these materials. Be suspicious if the trainings make earnings claims, tell you that the fastest way to make money is to “recruit, recruit, recruit,” or suggest that all you need to do to build a downline is “find two people who find two people.” Claims like these are hallmarks of a pyramid scheme.
  • Consider the products.  MLM companies may sell quality items at competitive prices. But some offer goods that are overpriced, have questionable benefits, or are downright unsafe to use. For example, be very skeptical about health products advertised as having  “miracle” ingredients  or guaranteed results. Those claims are generally false or at least unproven and, at worst, the products could be dangerous.
  • Understand the costs.  Many MLMs make you buy training or marketing materials, or pay for seminars on building your business. You may need to book travel and pay for hotels and meals. Make sure you know what you must pay for, and how much it will cost over time. If the company says some of these things — like periodic product purchases or training — are optional, find out if you’ll become ineligible for bonuses or rewards if you opt out of them.
  • Ask about refunds . In many MLMs, before you can start selling the products, you have to buy them from the company. So get the company’s refund policy in writing. Make sure it includes information about returning any unused products, including restrictions and penalties. Consider whether you’ll get a full refund or only a partial one — and how long it may take.
  • Read the paperwork and have a friend or advisor review it.  Read the company’s sales literature, business plan, disclosure documents, and any contracts or agreements you’ll need to sign. Ask an accountant, a lawyer, or someone else you trust — and who is  not  affiliated with the company — to help you review the MLM’s materials. Ask them to look at your possible earnings and whether the company can back up its claims about how much money you can make. Ask for their honest opinion about whether they think the MLM is legitimate and a good fit for you.

Talk with current and past distributors about their experience in the MLM

Ask tough questions and dig for details. Don’t consider it nosy or intrusive. You’re thinking about starting a small business. A good businessperson needs those answers. Here are some questions to ask:

  • How long have you been in the MLM?
  • How much money did you make last year, after expenses?
  • What were your expenses last year?
  • Have you borrowed money or used your credit card to fund your business? How much did you borrow? How much do you owe?
  • Do you need to have recruits to make money?
  • How many people have you recruited? How many did you recruit last year?
  • How many of your recruits have left the business?
  • What percentage of the money you made came from selling the product to customers outside the MLM?
  • What percentage of the money you made — income and bonuses less your expenses — came from recruiting other distributors and selling them inventory or other items to get started?
  • How much time do you spend on the business?
  • How much inventory did you buy from the MLM last year? Did you sell all of your inventory?

Remember, you’re on a mission to check out a potential business deal that will require your time and money. The information you learn can help you decide whether it’s really a deal, a dud, or straight up illegal.

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Multi-Channel Marketing Made Easy with HighLevel

In recent years, the landscape of marketing has evolved dramatically. Gone are the days of relying solely on one channel to reach your audience effectively. Enter multi-channel marketing, a strategy that leverages various platforms and touchpoints to engage with customers across different mediums. For digital marketers, agency owners, and entrepreneurs looking to maximize their reach and impact, mastering multi-channel marketing is no longer an option but a necessity.

Table of Contents

Understanding Multi-Channel Marketing

Traditional marketing efforts often focused on one or two primary channels, such as print ads, television commercials, or direct mail. While these methods still hold value, they lack the versatility and adaptability of multi-channel marketing. Multi-channel marketing involves utilizing a combination of online and offline channels, including social media, email, SMS, websites, and more, to interact with potential customers at various stages of their buyer’s journey.

Unlike traditional marketing, which may cast a wide net in hopes of reaching the right audience, multi-channel marketing allows for targeted and personalized communication. By meeting customers where they are and delivering tailored messages across multiple touchpoints, businesses can foster deeper connections and drive higher engagement rates.

The Power of Multi-Channel Marketing with HighLevel

Email marketing.

HighLevel offers robust email marketing capabilities, allowing users to create personalized campaigns, automate follow-ups, and track performance metrics in real time. Whether nurturing leads or re-engaging existing customers, email remains a cornerstone of multi-channel marketing strategies.

SMS Marketing

With HighLevel, reaching customers on the go has never been easier. By integrating SMS marketing into your multi-channel approach, you can deliver timely promotions, appointment reminders, and customer service updates directly to their smartphones, driving immediate action and engagement.

Social Media Management

HighLevel’s social media management tools enable users to schedule posts, analyze performance, and engage with followers across multiple platforms from a single dashboard. Whether it’s Facebook, Instagram, LinkedIn, or Twitter, staying active and consistent on social media is essential for building brand awareness and fostering community engagement.

Website Optimization

Your website serves as the digital storefront for your business, making it crucial to optimize for both search engines and user experience. HighLevel’s website builder and optimization tools empower users to create visually stunning websites, implement SEO best practices, and capture leads through strategically placed call-to-actions and lead capture forms.

Streamlining Your Multi-Channel Efforts with HighLevel

Managing multiple channels and campaigns can quickly become overwhelming without the right tools and resources in place. HighLevel offers an all-in-one platform designed to simplify and streamline your multi-channel marketing efforts. By consolidating your email marketing, SMS marketing, social media management, and website optimization tasks within a single interface, HighLevel eliminates the need for juggling multiple platforms and logins, saving you time and resources.

With HighLevel, digital marketers, agency owners, and entrepreneurs can take full control of their multi-channel marketing strategy, from planning and execution to analysis and optimization. Whether you’re a seasoned marketer looking to scale your efforts or a newcomer eager to explore the possibilities of multi-channel marketing, HighLevel provides the tools and support you need to succeed.

Ready to experience the power of multi-channel marketing with HighLevel? Sign up for our 14-day free trial today and discover how our platform can help you attract, engage, and convert customers across multiple channels. Don’t let complexity hold you back—unlock the full potential of your marketing efforts with HighLevel. 

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  2. A Complete Guide of Multi-Level Marketing Business Model

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COMMENTS

  1. What Is an MLM? How Multilevel Marketing Works

    Multilevel 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...

  2. A Guide To Multi-Level Marketing As A Business Model

    What Is Multi-Level Marketing Business Model? It's a marketing strategy or model by companies focused on creating, building, and managing a sales force. The model encourages the existing independent distributors to recruit more distributors.

  3. What Is Multi-Level Marketing?

    Multi-level marketing (MLM), also known as direct marketing or network marketing, is a method of selling products directly to consumers using independent sales representatives. MLM...

  4. 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.

  5. What is Multilevel Marketing (MLM)?

    Multilevel marketing (MLM) is a business model that involves unsalaried, hierarchical sales teams selling products directly to consumers in conjunction with recruiting additional company sales representatives. Multilevel marketing may also be referred to as referral marketing or network marketing.

  6. Multilevel Marketing (MLM)

    Multilevel marketing (MLM), or network marketing, is a marketing approach that depends on a non-salaried workforce selling the company's products and services (that represent the corporate identity and reputation), where the earnings of the participants come from a pyramid-shaped compensation system.

  7. How Multi-Level Marketing Companies & Pyramid Schemes Work

    Multi-level marketing (MLM) is also known as referral marketing, direct marketing, or network marketing. It's a business model in which sales are funneled through individuals and their social networks instead of through a retail outlet. This diverts the sales responsibility to individual distributors.

  8. What Is Multi-level Marketing And Why It Matters In Business

    Multi-level marketing (MLM), otherwise known as network or referral marketing, is a strategy in which businesses sell their products through person-to-person sales. When consumers join MLM programs, they act as distributors. Distributors make money by selling the product directly to other consumers.

  9. Multilevel Marketing (MLM)

    Multilevel marketing (MLM) is a strategy that sells products and services through a non-salaried workforce in a pyramid-shaped commission system. The MLM strategy is also known as network marketing or referral marketing.

  10. Multi Level Marketing (MLM) explained

    Multi Level Marketing (MLM), often (mistakenly) associated with pyramid marketing, is a commissions based business model in which these type of companies build a network of people who commit to sell their product or service. In this business model, existing distributors are encouraged to recruit new distributors.

  11. What Is Multi-Level Marketing?

    Multi-level marketing (MLM) is a business model that uses contractors to promote the company's products or services. Rather than using a traditional salesforce, multi-level marketers...

  12. Multi-level marketing

    Multi-level marketing ( MLM ), also called network marketing [1] or pyramid selling, [2] [3] [4] is a controversial [5] marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling the company's products or services, while the earnings of the participants are der...

  13. How Does Multi-Level Marketing (MLM) Work?

    How MLMs Work In an MLM, salespeople (known as "distributors," "contractors," "participants," or other titles depending on the jargon of individual companies) buy products from a company, then try to sell them to customers at home, at work, or in other non-retail locations for a marked-up price. Downline Distributors

  14. An economic model of multi-level marketing

    Multi-level marketing (MLM), also called network marketing (NM), is a business method used by some direct sales firms whereby individual distributors are encouraged to recruit new distributors. Distributors are paid a commission both on their own sales and on recruitment or sales made by their recruits, creating a multi-level marketing structure.

  15. The Ultimate Guide to Multi-Level Marketing

    What is MLM? Multi-level marketing (MLM) is a business model where a company distributes goods and services in return for compensation. The company's main product is usually a monthly subscription or an item that the consumer can use or consume.

  16. What is Multi-Level-Marketing (MLM)

    The Multi-Level Marketing Business Model. The multi-level marketing business model can get pretty complicated but it's actually quite simple. Most are typically made up of either "distributors" or "independent business owners". The two terms are used interchangeably.

  17. Business Guidance Concerning Multi-Level Marketing

    1. What is direct selling? What is multi-level marketing? Direct selling is a blanket term that encompasses a variety of business forms premised on person-to-person selling in locations other than a retail establishment, such as social media platforms or the home of the salesperson or prospective customer.

  18. The Comprehensive Guide to Building a Successful MLM Company

    MLMs that adopt a multi-level business structure but rely on sales to newly recruited representatives rather than retail sales to end customers are known as pyramid schemes and fail to meet FTC guidelines. The second KPI MLM companies share is, not surprisingly, a financial one related to revenues and profits.

  19. Unveiling the World of MultiLevel Marketing: A Complete Guide

    Understanding MLMs: We'll explain multi-level marketing and how it differs from traditional business models.; The Pros and Cons: Not all that glitters is gold.We'll explore the benefits touted by MLMs and balance them with the often less-discussed downsides. Personal Stories: Hear from real people who've been on the front lines of MLMs - the good, the bad, and the unexpected.

  20. What Is an MLM? How Multi-Level Marketing Model Works

    Network marketing, on the other hand, is an ecosystem that involves multiplying sales efforts as products are sold. Users get products. Recruiters earn a commission, not just for introducing new people to the business but also for selling the products. The emphasis is not just on the recruitment but also the product.

  21. How does Multi-Level Marketing Business Model Work?

    The MLM business model relies mainly on a network of distributors who contribute towards the growth of a business. It involves three systematic strategies to make money: Besides, there are different types of network marketing business models - single-tier, two-tier, and multi-level. Here, we will see how multi-level marketing works.

  22. Multi-Level Marketing Businesses and Pyramid Schemes

    Businesses that involve selling products to family and friends and recruiting other people to do the same are called multi-level marketing (MLM), network marketing, or direct marketing businesses. Some MLMs are illegal pyramid schemes. Before joining an MLM program, here are some things to know. What Are MLMs and How Do They Work?

  23. Unicity Multi-Level Marketing: Feel Great Business Model

    As a result, in 1991, a new person-to-person sales process was implemented - Unicity multi-level marketing. At that time, under the name Rexall Showcase, a division of Rexall Drugstores, and in 2001, it became Unicity company products, and in 2021, launched the Feel Great business. The MLM business model gave people the opportunity to connect ...

  24. What is multi-channel marketing?

    Enter multi-channel marketing, a strategy that leverages various platforms and touchpoints to engage with customers across different mediums. For digital marketers, agency owners, and entrepreneurs looking to maximize their reach and impact, mastering multi-channel marketing is no longer an option but a necessity.

  25. H I R A T A R E E N on Instagram: "After posting the video, I soon

    htareen on February 22, 2024: "After posting the video, I soon started receiving DMs from friends asking about how to be a part ..."