Multi-level marketing, or MLM, involves buying products at a discount and selling them for a profit, while also recruiting additional sales associates. The compensation plan is a key indicator of an MLM organization, which offers a variety of products and services through independent distributors. Some MLM companies have been accused of being pyramid schemes, but true MLM organizations require distributors to sell to those outside their downline. The industry was created in the US in 1945 by the California Vitamin Company.
Multi-level marketing is also known as the MLM industry. It is both a system where an individual buys a product at a discount and sells it for a profit and a business opportunity where additional sales associates are hired. Many companies in the MLM industry have worldwide sales operations with hundreds of thousands of independent distributors selling and recruiting. Most view the compensation plan as the key indicator that a sales organization is in the MLM industry.
It was in the United States in 1945 that most consider the MLM industry to be created when the California Vitamin Company began selling Nutrilite vitamin supplements through independent sales representatives under a new compensation plan. Hallmarks of the plan included a required level of personal product sales, profit on sales of the individual rep and commissions on the sales of any such person hired, and bonuses based on volume and consistency of sales and hires. Commissions have also been earned on Recruit Recruits with multiple levels of Recruits allowed. These multiple tiers became a team leader’s downline.
In a typical MLM organization, a potential new team member is first introduced to the product or service being offered through an independent representative. Often, the business opportunity to sell the product is introduced with the first sale. Prospective sales reps are typically required to purchase a set amount of product and a starter kit, attend training, and sell the product to a set number of new customers. When these requirements are met, the new sales rep is typically released to begin establishing their downline.
The home office of an MLM company usually offers a variety of back office support activities. These may include advertising, web presence, payment processing, shipping, training and commission disbursement. Often the home office holds sales and recruiting contests where performance at certain levels earns money, prizes, trips and recognition.
Companies in the MLM industry offer a wide variety of products through independent distributors. Products include dietary supplements, cosmetics, household products, wine and cookware among many others. The MLM industry also offers services such as prepaid legal services and life and health insurance.
Some companies in the MLM industry have been accused of being pyramid schemes. In a pyramid scheme, there is no actual sale of products to anyone outside the downline; profit comes only from selling to those a person has convinced to sell. A true MLM organization requires its distributors to sell to those outside the downline.
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