What Is Multi Level Marketing?
Many people confuse multi-level marketing (MLM) with illegal pyramid or Ponzi schemes. An MLM has a real product or service to sell, and distributors earn commissions on those sales, whereas a pyramid scheme focuses on providing money for recruiting success in the absence of a real product or service.
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Definition
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Multi-level marketing (MLM) is a business model whereby independent distributors are compensated not only for their sales of a product or service to customers, but also for sales made by other distributors they have brought into the company.
Becoming a Distributor
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Some companies require that an individual pay a sign-up fee and/or make an initial purchase of a minimum dollar value to become a distributor, while others may require only that an individual sign an agreement form.
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Structure
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Typically the person who brings in a new distributor is called that person's sponsor; the new distributor and others brought in by that sponsor are all in the sponsor's downline. Depending on the compensation model a company chooses, distributors may have multiple people in their first level, and many levels in their whole downline or organization.
Passive Income
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One of the benefits of working in an MLM business is passive or residual income. Once a distributor has a substantial downline, she earns commissions even while taking vacation and not actively working the business.
Compensation Plans
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Compensation for distributors of a given company is in the form of commissions based on the total volume of sales, which is a combination of sales to customers who buy direct from the company and sales to an individual's downline distributors. Some distributors also earn income by purchasing products wholesale and selling them retail to customers.
Companies
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Companies that use MLM range from decades-old companies to startups and from small companies with around a thousand distributors to large ones with hundreds of thousands. Some MLM companies are Amazon Herb Company, Avon, Pre-Paid Legal, Shaklee and Quixtar.
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