Multi-level marketing (MLM), also known as network marketing or pyramid selling, is a marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling the companys products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system. MLM companies sell their products or services through person-to-person sales, and if you join an MLM program, the company may refer to you as an independent “distributor,” “participant,” or “contractor” . Most MLMs say you can make money two ways: by selling the MLM’s products yourself to “retail” customers who are not involved in the MLM, or by recruiting new distributors and earning commissions based on what they buy and their sales to retail customers.
However, MLM businesses have been a frequent subject of criticism and lawsuits. Legal claims against MLM companies have included, among other things:
- Their similarity to traditional illegal pyramid schemes
- Price fixing of products or services
- Collusion and racketeering in backroom deals where secret compensation packages are created between the MLM company and a few individual participants, to the detriment of others
Most people who join legitimate MLMs make little or no money, and some of them lose money. Pyramid schemes are fraudulent schemes, disguised as an MLM strategy, where there is no real product that is sold, and participants attempt to make money solely by recruiting new participants into the program.
In summary, MLM is a marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling the companys products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system. However, MLM businesses have been a frequent subject of criticism and lawsuits, and most people who join legitimate MLMs make little or no money.
