Multi-level marketing (MLM), also known as network marketing or direct selling, is a business model where independent, non-salaried representatives earn income through personal sales and by recruiting new members to sell products. Participants receive a commission from their own sales and a percentage of sales generated by their "downline" recruits.
Core Components of MLM:
Direct Sales: Products are sold directly to consumers, bypassing traditional retail stores, often through home demonstrations or social media.
Recruitment-Based Income: A large portion of income often comes from recruiting others into the business, creating a hierarchical team structure.
Non-Salaried Workforce: Participants are independent contractors, not employees, and do not receive guaranteed salaries, benefits, or minimum wages.
Compensation Structure: Participants earn commissions from both their direct sales and the sales of their downline (the people they recruited).
Key Considerations and Risks:
High Failure Rate: Studies suggest that most participants in MLMs earn little to no money, and many may even lose money once expenses and inventory costs are calculated.
Distinction from Pyramid Schemes: While legal MLMs focus on selling products to real consumers, illegal pyramid schemes focus on generating income primarily from recruiting new members, say sources like.
High Pressure on Relationships: Distributors may pressure friends and family to buy products or join the network.