what is multilevel marketing mlm 
multilevel marketing mlm refers to a strategy used by some direct sales companies to sell products and services mlm encourages existing members to promote and sell their offerings to other individuals and bring new recruits into the business distributors are paid a percentage of their recruits sales new recruits become the distributor s network or downline and are in turn encouraged to make sales to earn money many mlm schemes are legal but there also are illegal operations run as pyramid schemes this has cast some negative light on legitimate mlm businesses alex dos diaz investopediaunderstanding multilevel marketing mlm multilevel marketing is a legitimate business strategy commonly used by businesses that rely heavily on sales to generate revenue unlike traditional sales channels multilevel marketing programs use networks for sales and to recruit new participants as such they re often referred to as network marketing here s how it works individuals are brought into the business as contractors independent business owners distributors or direct salespeople these people are then tasked with selling the company s products and or services to others including family and friends sales can be done in person or online they are given a commission for every sale they make participants also are encouraged to recruit others into the program as participants while they may not be pressured to do so signing up new contractors provides a financial incentive for participants who receive a percentage of the sales of their recruits and their recruits and so on 1there can be hundreds even thousands of participants depending on the size of a company members at all levels receive some form of commission as long as the chain keeps going the more layers there are the more money people can make think of it as a pyramid the person or people at the top earn the most while those who sit toward the bottom earn fewer commission dollars relatively few though generally earn any meaningful income from their efforts 2because multilevel marketing plans are commission based the participants do not receive salaries this means that mlm businesses are often best suited for people with an entrepreneurial spirit who can set their own goals and schedules who are good at sales and who can effectively network with others not only to sell products but also to recruit new marketers special considerationsalthough it is legal multilevel marketing often is controversial one problem is pyramid schemes that use money from new recruits to pay people at the top rather than those who perform the work these schemes and the people behind them take advantage of others by pretending to be engaged in legitimate multilevel or network marketing you can spot pyramid schemes by their greater focus on recruitment than on product sales 1an issue in determining the legitimacy of a multilevel marketing company is whether it sells its products primarily to consumers or to its members who must recruit new members to buy their products if it is the former the company is likely a legitimate multilevel marketer if it is the latter it could be an illegal pyramid scheme 2since relatively few earn meaningful income from their efforts this reflects the characteristics of a pyramid scheme to some observers you can often spot pyramid schemes by their far greater focus on recruitment than on product sales real world examples of multilevel marketingthere are a lot of examples of multilevel marketing in the corporate world the following are just two of the most popular and well known companies that operate in this sphere amway is a well known direct sales company that uses mlm to generate revenue the company which sells health beauty and home care products in more than 100 countries regularly reports billions of dollars in sales conducted by its independent business owners 3 this makes it the largest mlm business in the world by revenue 4herbalife nutrition is a high profile mlm company that manufactures and distributes weight loss and nutritional products the company argues that most of its revenue is from product sales not recruitment it also says it offers members many protections such as a money back guarantee so they will not be stuck with products they could not sell there have been multiple lawsuits against herbalife accusing it of misrepresenting its sales practices including a settlement reached with the federal trade commission ftc in 2016 under which it had to restructure its business 5activist investor william ackman also shed a national spotlight on the company by shorting 1 billion of the company s stock in 2012 ackman accused the company of operating a pyramid scheme backing up his allegations with a bet that the stock price would fall under the weight of the scam he gave up on that bet in 2018 6