What Is an MLM? How Multilevel Marketing Works

Multilevel marketing (MLM) is a business strategy employed by direct sales companies to promote and sell products and services. Unlike traditional sales channels, MLM leverages networks for sales and recruitment, earning participants a commission on sales made by their recruits. This network-driven approach is commonly referred to as network marketing.

MLM involves bringing individuals into the business as independent distributors tasked with selling the company’s offerings. These participants receive commissions for each sale they make and are encouraged to recruit others into the program, creating a network or downline.

Multilevel Marketing
Multilevel Marketing

Strategy and Revenue Generation

Participants at all levels earn commissions, creating a tiered structure where the more layers there are, the more potential earnings. This pyramid-like structure, while legal, has raised controversies, especially when compared to illegal pyramid schemes.


In MLM, the strategy involves the overall plan or method that a company adopts to sell its products or services. Unlike traditional sales models, MLM relies on a network of independent distributors or participants. The strategy typically includes:

  • Recruitment: Encouraging individuals to join the MLM program as distributors.
  • Sales: Selling the company’s products or services directly to consumers, often leveraging personal connections.
  • Commission Structure: Designing a tiered commission structure where participants earn a percentage of sales made by themselves and their recruits.

The success of the strategy depends on effective implementation and the ability to build a robust network of distributors. read on Tactical Asset Allocation (TAA) to learn more 

Revenue Generation

Revenue generation in MLM is the process through which the company earns income. The main sources of revenue include:

    • Product Sales: MLM companies generate revenue through the sale of their products or services. Distributors earn commissions based on the sales they personally make.
    • Recruitment Commissions: Participants not only earn from their own sales but also receive a percentage of the sales made by those they recruit into the program. This creates a cascading effect, forming a network or downline.
    • Tiered Structure: The tiered structure of MLM allows for multiple levels of participants, each earning a share of the sales made within their respective levels. The more extensive the network, the higher the revenue potential.
    • Productivity Bonuses: Some MLMs offer additional bonuses or incentives for meeting specific sales or recruitment targets, further contributing to revenue.

Network Marketing in Action

Network Marketing in Action refers to the dynamic execution and real-time implementation of network marketing strategies within a business framework. It signifies the practical application of network marketing principles, where independent representatives actively engage with their personal networks to promote and sell products or services. In essence, it is the proactive utilization of network marketing techniques to drive sales, build relationships, and expand business networks. This term emphasizes the hands-on, operational aspect of network marketing, showcasing how individuals or teams actively put these strategies into effect to achieve tangible results.

Network Marketing
Network Marketing

Individuals, often contractors or direct salespeople, sell products online or in person. Simultaneously, they recruit new participants, earning a percentage of their recruits’ sales. This cascade continues, creating a potentially lucrative structure for those higher up in the hierarchy.

Is MLM Right for You?

Multilevel marketing’s commission-based nature makes it suitable for individuals with an entrepreneurial spirit, self-driven goals, and effective networking and sales skills.

Entrepreneurial Spirit and Goal Setting

MLM participants do not receive salaries, making it ideal for those who can set their goals and schedules independently. The potential for income depends on individual efforts and the ability to build a successful network.

Entrepreneurial Spirit

The term “entrepreneurial spirit” encapsulates the mindset and qualities that drive individuals to embark on innovative ventures, take calculated risks, and navigate the challenges of business ownership. It embodies a passion for creating, a willingness to embrace uncertainty, and the ability to persevere in the face of adversity.

Goal Setting

Goal setting is a strategic process that entrepreneurs use to define objectives, outline a roadmap for success, and measure progress. It is a fundamental practice that empowers individuals to turn aspirations into achievable targets.

The Intersection of Entrepreneurial Spirit and Goal Setting

Entrepreneurial success often hinges on the effective synergy between an entrepreneurial spirit and strategic goal setting. Entrepreneurs with a robust entrepreneurial spirit leverage goal setting as a tool to channel their energy, prioritize actions, and navigate the unpredictable journey of building and growing a business.

Sales Skills and Networking

Success in MLM requires effective salesmanship and the ability to network, not only for selling products but also for recruiting new marketers into the program.

Sales Skills

Sales skills are the set of abilities and attributes that empower individuals to effectively persuade, negotiate, and close deals. In the competitive landscape of business, mastering these skills is crucial for driving revenue, building lasting relationships with clients, and ultimately ensuring the success of a sales-oriented role or business.


Networking involves cultivating and nurturing relationships with individuals and businesses to create a web of connections that can lead to opportunities, collaborations, and professional growth. In the context of sales, networking is a powerful strategy for expanding the client base, gaining referrals, and staying abreast of industry trends.

The Symbiosis of Sales Skills and Networking

The synergy between sales skills and networking is undeniable. Sales professionals with strong networking capabilities can leverage their interpersonal connections to access a broader pool of potential clients. Conversely, effective sales skills enhance the impact of networking efforts by turning connections into meaningful business relationships.

The combination of honed sales skills and a strategic approach to networking creates a powerful formula for business success. Whether closing deals or expanding professional connections, these elements work in tandem to elevate individuals and businesses in the competitive landscape.

Commission-Based Structure

The commission-based structure rewards participants for both sales and recruitment. This structure aligns with the entrepreneurial mindset, as earnings are directly tied to individual efforts.

Commission-Based Structure
Commission-Based Structure

Special Considerations

While MLM is legal, controversies arise due to pyramid schemes that focus more on recruitment than product sales. Legitimate MLM companies sell products primarily to consumers, distinguishing them from illegal schemes.

Legitimacy and Controversies

Controversies often stem from pyramid schemes using recruitment-focused models, taking advantage of participants. Legitimate MLMs sell products to consumers rather than relying on internal recruitment.

Differentiating Pyramid Schemes

Determining a company’s legitimacy involves evaluating its product sales focus. If products are primarily sold to consumers, it’s likely a legitimate MLM. If sales are mainly to members who recruit, it may be an illegal pyramid scheme.

Identifying Legitimate MLM Companies

The challenge lies in distinguishing legitimate MLM companies from illegal schemes. Legal MLMs prioritize product sales to consumers, demonstrating a genuine business model.

Real-World Examples of Multilevel Marketing

Two prominent examples of MLM in the corporate world are Amway and Herbalife Nutrition.


Amway, a direct sales giant, operates in over 100 countries, reporting billions in sales. Its MLM structure involves independent business owners selling health, beauty, and home care products.

Herbalife Nutrition

Herbalife Nutrition, a high-profile MLM, focuses on weight-loss and nutritional products. Despite legal battles and accusations, it claims the majority of its revenue comes from product sales, not recruitment.

What Is MLM, and Is It Legal?

Multilevel marketing is a legitimate sales structure where members earn from product sales and commissions on recruits’ sales. However, legal scrutiny arises when profits disproportionately benefit those at the top.

Legal Aspects of MLM

MLMs are legal businesses with distributors earning from actual product sales and commissions. Legal concerns arise when profits disproportionately favor the top echelons.

Pyramid Scheme Comparisons

MLM’s controversy often links it to pyramid schemes. Legal MLMs focus on sales, while pyramid schemes prioritize recruitment, leading to unequal profit distribution.

What Are Some Red Flags to Look Out for an Illegal MLM Pyramid Scheme?

The FTC provides warnings to identify potential illegal MLM pyramid schemes.

FTC Warnings

  • Extraordinary earning claims
  • Emphasis on recruiting for income
  • Pressure tactics for immediate involvement
  • Urgency to join to avoid missing opportunities

Warning Signs of Pyramid Schemes

Look out for distributors buying products they can’t sell solely for rewards, signaling potential pyramid schemes.

What Is an Example of Multilevel Marketing?

Avon serves as a classic example of multilevel marketing.


Operating without fixed retail locations, Avon drives sales through a network of salespeople, utilizing presentations and one-on-one interactions. This direct sales model provides tools for entrepreneurs to conduct business.

Multilevel marketing, while legitimate, shares characteristics with illegal pyramid schemes. The key difference lies in MLM’s focus on sales, emphasizing that success involves both sales and effective recruitment.

Legitimacy vs. Pyramid Schemes

In the realm of business opportunities, the distinction between legitimacy and pyramid schemes is crucial for individuals seeking viable ventures. Understanding these concepts is paramount to making informed decisions, protecting oneself from potential scams, and fostering a trustworthy business environment.

Legitimacy vs. Pyramid Schemes
Legitimacy vs. Pyramid Schemes

Legitimacy in Business

Legitimate business ventures adhere to ethical practices, legal frameworks, and transparent operations. They are built on principles of fairness, sustainability, and delivering genuine value to customers. Legitimate businesses prioritize product or service quality, customer satisfaction, and long-term relationships, contributing positively to the broader economy.

Pyramid Schemes

On the contrary, pyramid schemes disguise themselves as legitimate business opportunities but operate on an unsustainable and deceptive model. In a typical pyramid scheme, participants earn money primarily through recruitment rather than the sale of actual products or services. The emphasis on recruitment creates a hierarchical structure where those at the top benefit disproportionately from the investments of those lower down the pyramid.

Legal MLMs prioritize sales to consumers, distinguishing them from pyramid schemes that focus on internal recruitment. Evaluating a company’s focus on product sales reveals its legitimacy.

Challenges of Earning in MLM

Despite the potential for income, relatively few participants earn substantial amounts. Success requires not only effective sales but also adept recruitment, highlighting the challenges inherent in MLM structures.

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