Multilevel Marketing (MLM)

A saleswoman rings a doorbell.
Image (c) Brad Killer / Getty Images

Definition:

Multilevel Marketing, or MLM, is a system for selling goods or services through a network of distributors. Multilevel marketing is also referred to as Network Marketing or Direct Sales.

How Does a Typical MLM Work?

The typical Multilevel Marketing program works through recruitment. You are invited to become a distributor (or contractor or consultant or associate), sometimes through another distributor of the company's products and sometimes through a generally advertised meeting.

If you choose to become a distributor with the direct selling company, you'll earn money both through the sales of the MLM's products and through recruiting other distributors, by receiving a portion of the income these distributors generate.

And when those distributors recruit distributors of their own, you'll earn money on the income they generate too.

The distributors that you sign up with your Multilevel Marketing plan and the ones they sign up in turn are called your downline. The distributor that originally recruited you and whoever is above him or her in the recruitment chain is called your upline. Often the distributor who recruits you will give you some help getting started, including training.

Interested in becoming a distributor? Read Is Direct Selling (MLM) a Good Business Opportunity?

How Big Is the MLM Market?

Big. The top 3 MLM business are:

  • Avon Products, Inc., founded in 1986. Avon has annual sales of $11.3 billion and over 6.5 million sales associates. Avon markets various beauty products, jewelry, and fashion apparel.
  • Amway, founded in 1959. Amway has annual sales of $10.9 billion and over 3 million sales associates selling cosmetic, wellness and food and beverage products.
  • Herbalife Ltd., founded in 1980. Herbalife has annual sales of $4.8 billion and has over 2.7 million sales associates. Products include cosmetics, personal care items and nutritional supplements. In 2016 Herbalife was cleared of allegations of having a fraudulent business model after an investigation by the FBI failed to find sufficient evidence.

    Listing these three is talking about just the peak of a truly gigantic iceberg. According to the Direct Selling Association, in 2015 over 20 million people in the U.S. were involved in direct selling, with total sales of $36.1 billion. More than 74 percent of the American public has purchased goods or services through direct selling. Worldwide sales are also strong with more than $154 billion in sales.

    Why Is Multilevel Marketing So Popular? 

    The main reason, I think, is that most Multilevel Marketing programs operate on a "the sky's the limit" promise with a nice bit of "easy money" thrown in. If you work hard, the MLM sales pitch says, there's no limit to how much money you could make. And through your downline you will actually make money doing nothing.

    The cherry on top is that MLMs are usually very inexpensive to join, so becoming a distributor is much cheaper than starting a business of your own in many cases or doing something like buying into a franchise.

    What Are the Odds of Making Money with MLM?

    Poor, according to Jon Taylor, who runs the MLM-theTruth.com website. In his free e-book Multi-Level Marketing Unmasked, when operating expenses and other costs are included, 99.7% of people who join MLMs lose money.

    In other words, for every 1,000 people who join an MLM organization, only three will earn more money than they spend.

    Are MLMs Legal?

    Multilevel Marketing plans are legal in the United States and regulated by the Federal Trade Commission (FTC). In Canada MLMs are legal as long as they do not contravene the Competition Act. MLM companies are, in general, largely unregulated and the existing laws regarding MLM practices are vague or poorly defined. As such, prosecutions of offending MLM companies are long, arduous and relatively rare. Larger MLMs can easily afford powerful legal representation to ward off prosecutors. 

    If you are considering becoming part of an MLM company, you need to investigate the opportunity thoroughly, just as you would with any other proposed business venture. Not all Multilevel Marketing plans are created equal, and some may not be MLM at all, but pyramid schemes, which are illegal.

    To learn how to tell the difference between them, see Is It Multilevel Marketing or a Pyramid Scheme?

    Alternatives to MLMs

    If you are looking to start a business, there are other, proven business ideas that can generate full or part-time income:

    15 Inexpensive Business Ideas

    Top 10 Home Business Opportunities

    12 Unique Business Ideas

    The Best Business Ideas for Working for or with Seniors

    Best Business Opportunities for Retirees

    16 Part-Time Businesses You Can Start Today

    Also Known As: MLM, Network Marketing.

    Alternate Spellings: Multi-level marketing.

    Examples: Because Penny worked really hard and truly believed in the product line, she was a very successful Multilevel Marketing distributor.