Definition of 'Multi-Level Marketing':

A strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits' sales. The recruits are known as a distributor's "downline." All distributors also make money through direct sales of products to customers. Amway is an example of a well-known direct-sales company that uses multi-level marketing.

Most multi-level (MLM) marketing programs grow through recruitment. Each person recruited becomes part of the "downline" for the person who recruited them. In most MLM marketing arrangements people make money off of the sales efforts of their downline. In some cases, more money than they make selling or distributing the actual products or services themselves.

Direct Selling Association

The Direct Selling Association (DSA) is the name of several similar trade associations in the United States, United Kingdom, Australia, Malaysia, Singapore, and New Zealand that represent direct selling companies, primarily those that use multi-level marketing compensation plans. On behalf of its members companies, the DSA engages in public relations and lobbying efforts against regulation of the multi-level marketing industry, and it funds political candidates through a political action committee.

Criticisms of Mlm

Despite its impressive growth, MLM suffers from a negative reputation in some quarters. In the past, many business ventures that used network marketing techniques were actually pyramid schemes. These illegal scams promised participants the chance to make huge amounts of money while doing very little work, provided they made a sizeable initial investment. The people who started the pyramid scheme were paid off by those who joined later, but most participants did not see any return on their investment. Roha noted that an MLM is more likely to be offering a legitimate business opportunity if it has low startup costs; charges a reasonable price for products; does not require sales representatives to purchase a lot of inventory; allows sales representatives to return unsold merchandise; and provides the majority of sales representatives' income from the sale of products.

Benefits of Mlm

Despite these criticisms, MLM businesses have a great deal to offer their sales representatives. The primary reason people become involved in MLM is because they value flexibility. Sales representatives can usually work part-time from home and set their own hours. Direct Selling Association research shows that 90 percent of MLM sales representatives work less than 30 hours per week, and 50 percent work less than 10 hours per week. In addition, MLM businesses usually do not require a long-term commitment from their sales representatives.

Another reason for MLM's appeal is that it enables people to start their own businesses without making a large monetary investment. In fact, the average price of a startup kit for reputable MLM companies is about $100. Gitomer noted that many people value the opportunity to be their own boss and control their own destiny. "The secret to successful network marketing is you—the messenger—and your willingness to dedicate and focus on preparation," he wrote. "Your willingness to become a salesperson who believes in your own ability to succeed. Everyone wants success, but very few are willing to do what it takes to be successful."

Of course, like any other entrepreneurial venture, becoming an MLM sales representative involves establishing goals and developing a plan to reach them. According to Kristine Ziwica, writing in Success, MLM sales representatives must master retailing techniques and understand the mechanics of compensation plans and distribution chains. Perhaps most importantly, they must also feel real enthusiasm about the product they are selling in order to be effective in creating downlines.