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What is Multi-Level Marketing (MLM)?
Multi-Level Marketing (MLM) is a business model in which companies sell products or services through independent distributors who earn income not only from direct sales but also from recruiting new distributors into the network.
Definition
MLM is a sales strategy where distributors earn commissions from their own sales and from the sales made by individuals they recruit into the business, forming a hierarchical or “multi-level” compensation structure.
Key Takeaways
- Involves direct selling through independent distributors.
- Income comes from personal sales and downline recruitment.
- Legitimate MLMs differ from illegal pyramid schemes.
Understanding Multi-Level Marketing (MLM)
MLM companies rely on network-based selling rather than traditional retail distribution. Distributors earn two types of income:
- Retail Profit – Markup earned from selling products directly to consumers.
- Override Commissions – Earnings from the sales generated by one’s downline (recruited members).
While MLM can provide flexible earning opportunities, many participants struggle to earn significant income due to market saturation, high competition, and recruitment pressure.
Regulators monitor MLMs closely because some illegal pyramid schemes disguise themselves as MLM businesses.
Formula (If Applicable)
There is no fixed formula, but earnings depend on:
- Sales volume
- Downline performance
- Compensation plan structure (unilevel, binary, matrix, etc.)
Real-World Example
Companies like Amway, Herbalife, and Avon use MLM structures, with distributors selling products and earning commissions from team sales.
Importance in Business or Economics
MLM offers low-cost entry into entrepreneurship and expands product reach through personal networks. However, it raises concerns about income inequality, questionable business practices, and sustainability of the recruitment model.
Types or Variations
- Unilevel MLM
- Binary MLM
- Matrix MLM
- Hybrid Compensation Plans
Related Terms
- Direct Selling
- Pyramid Scheme
- Network Marketing
Sources and Further Reading
Quick Reference
- Sales through personal networks.
- Income from sales and recruitment.
- Not all MLMs are illegal, but caution is required.
Frequently Asked Questions (FAQs)
Is MLM the same as a pyramid scheme?
No, MLM is legal when income is based on actual product sales.
Do most people make money in MLM?
Studies show many earn little or lose money due to recruitment pressure.
Is MLM a sustainable business model?
It depends on product demand and ethical business practices.
