Network Marketing or Multi-Level Marketing (MLM) is a business concept which allows the parent multi level marketing company to market and distribute their products, or/and service, directly to the consumer by direct selling and relationship referral.
According to the WFDSA (World Federation of Direct Selling Associations), direct selling is defined, as the face-to-face marketing of products and services directly to consumers in a non permanent, retail location.
Independent, unsalaried sales Consultants represent the company and make commission based on the volume of sales. The sales consultants often build their own organisation by recruiting a downline of other independent distributors who do the same; as a result the entire organisation expands..
As a consultant you earn commission not only based on your own sales, but also on the entire sales of your downline group. The amount of rewards paid out is decided according to the company's compensation plan.
How to tell the difference between a legitimate business and a disguised pyramid scheme
Pyramid schemes seek to make money from you, however multilevel marketing companies seek to make money with you as you build your business. Before you sign up with a company, investigate carefully and ask yourself these three queations:
1. Do you risk financial loss by being involved with this company?
If the answer to this question is yes, we say “be careful.” It may be legitimate but most direct sales firms do not require any substantial investment or risk of financial loss.
2. Is the money you are going to earn primarily coming from the sale of the products or services to the ultimate consumer of those products or service?
If the answer to this question is no, and money earned is coming from some other source (e.g. recruiting or headhunting fees, inventory loading, sale of sales kits and sales aids), you then have an illegal pyramid scheme and we advise people to stay away. It is that simple.
Please note that we include in our definitions the sales to salespeople for their personal or family consumption as sales to the ultimate consumer. There is nothing unethical or illegal in compensation based on personal or family consumption, so long as the amount purchased for such personal and family consumption is reasonable and the products are reasonably priced.
3. Would you buy the company’s product if you were not a member of the sales organisation?
If the answer to that is no, you would not buy it, then why would you want to sell for a company whose product you do not think worthy of purchasing, whether for your own or family’s or friends’ usage.