What Is Multilevel Marketing (MLM)?
Multilevel marketing (MLM) is a strategy some direct sales companies use to encourage existing distributors to recruit new distributors who are paid a percentage of their recruits’ sales. The recruits are the distributor’s “downline.” Distributors also make money through direct sales of products to customers. Amway, which sells health, beauty, and home care products, is an example of a well-known direct sales company that uses multilevel marketing.
- Multilevel marketing (MLM) is a strategy that some direct sales companies use to encourage existing distributors to recruit new distributors.
- In MLM schemes, there can be hundreds or thousands of members worldwide, but relatively few earn meaningful incomes from their efforts, indicating a possible pyramid scheme.
- While many MLM practices are legal, the FTC has been investigating multi-level marketing companies for decades and has found many with questionable legitimate practices such as running pyramid schemes.
Understanding Multilevel Marketing
Multilevel marketing is a legitimate business strategy, though it 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 involve taking advantage of people 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.
The Legitimacy of Multilevel Marketing
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.
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