Multilevel Marketing (MLM) is a business model where independent salespeople are compensated not only for their own sales, but also for the sales of the people they recruit. These recruits become known as downlines. Salespeople who sign up new members receive compensation based on several factors, including the amount of money those recruits bring in. MLMs have been widely criticized since the 1980s. In the United States alone, over 100,000 distributors sell products sourced directly from manufacturers and sold under distributorship agreements with the parent companies. In addition, many of these same companies purchase direct from suppliers at discount prices then mark them up to meet retail prices charged to end consumers. The Federal Trade Commission issued a decision in 1979 stating that multilevel marketing plans were illegal if they constituted pyramid schemes, even if participants were paid for recruiting others into the plan. Congress passed the federal Multi-Level Marketing Act of 1988 to outlaw such practices, though some states had already adopted laws to prohibit network marketing prior to enactment of the federal law. State laws vary significantly, however, about what constitutes a pyramid scheme or any of the other terms that are sometimes applied to network marketing programs. Many states consider recruitment compensation to be either legal or illegal depending upon how much pressure is placed on participants to make purchases from upper levels or earn commissions from sales to their friends and relatives. What is MLM? MLM stands for Multi-Level Marketing. In general, MLMs are businesses that sell products directly to consumers. These business models have been around since before World War II, but they did not become popular until the 1980’s. MLMs are different than traditional pyramid schemes (which we will discuss later) because they do not require participants to pay money out front. Instead, they charge participants fees based on sales generated by those under them. How does MLM work? The basic idea behind multi-level marketing is that if everyone sells just a little bit, then everyone makes some money. So, the company pays its distributors a percentage of what they make. However, the distributor must recruit people below him/her to sell product. Once someone joins, he/she becomes a distributor and gets paid a commission for each sale he/she makes. Why do people join MLM companies? There are many reasons why people join MLM companies. One big reason is that people want to earn extra income. Another reason is that they want to build their own network of friends. Still others join because they think it is a great way to promote a brand. Is MLM illegal? No, MLM is not illegal. There are laws that govern pyramid schemes, but MLM is not considered a pyramid scheme. Pyramid schemes are illegal because they prey upon the elderly and vulnerable. People who participate in these types of programs lose money because they are pressured to spend money on recruitment costs. Are MLM companies legitimate? Yes, MLM companies are legitimate. They provide products and services to customers. They may even employ a few independent contractors. However, MLM companies often use deceptive practices to get people to sign up. Many times, they promise commissions without requiring any upfront investment. Other times, they require people to invest thousands of dollars before they start earning anything. Can I make money with an MLM company? You can definitely make money with an MLMT company. You just need to be careful about how much time and effort you put into it. If you are looking for a quick buck, you probably won't succeed. But if you are willing to put in the time and effort, you could potentially make good money.
