Multi Level Marketing, also referred to as MLM or network marketing, is a distribution model which allows a parent MLM company to distribute it’s products through a network of suppliers throughout the company and world.   Distributors work without salary and incur their own advertising and promotional costs but in return receive a generous commission payout on their sales, and the sales of their down-line.

Distributors are also referred to as associates, franchise owners, sales consultants, independent business owners or independent agents depending on the company concerned.    Each distributor can build their business in two ways.  They can either buy product at a discount and retail it for a markup profit(most MLM’s require a minimum sales volume to be met), or they can recruit more affiliates beneath them and gain a percentage of their sales, and increasing the organization overall.

Each distributor earns a commission based on the sales returns of their business, which includes their own sales and the sales of all those working below them.  The emphasis on recruiting more people into the sales structure rather than making actual sales often makes it difficult to ascertain a MLM company from less reputable operations such as pyramid or Ponzi schemes.  The best way of determining the legitimacy of a business is to trace where the money comes from.  When commission is only earned from the actual sale of products then business has a solid base, but where ’sign up’ fee’s are charged and the potential to sign up a large down-line is presented as a major income opportunity then the company is moving towards the definition of Pnozi or Pyramid schemes, which are illegal in almost every country.

Despite many complaints, the Federal Trade Commission ruled in 1979 that multi-level marketing itself was not illegal, though the same decision found Amway guilty of price fixing and exaggerated income claims.  The FTC has also issued multiple warnings about MLM company practices, including not clearly disclosing the business in recruitment and a 2006 proposal that would require all business opportunities to provide enough information to enable potential buyers to make ‘an informed decision’ about heir potential earnings.  The clear implication is that currently this is not the case.

While MLM generate a lot of bad press and a general skepticism, they can also generate a lot of money.  Multi Level marketing companies appear in the Fortune 500 and are frequently reported on in financial magazines.  They can be incredibly profitable, particularly in the early stages, and those with strong sales backgrounds have an ability to do very well with them.

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