Multi-Level Marketing Explained


Many multi-level marketing "opportunities" are work from home scams. Multi-level marketers sell all sorts of products from makeup to internet access. It's important to understand and avoid the costly mistake of getting involved with an illegitimate business opportunity.

How Multi-Level Marketing Works

In multi-level marketing, the company produces a product or sells a service. An independent distributor sells that product or service and recruits other independent distributors to sell it. The distributor earns a commission on what they sell directly plus a commission on what their recruits sell. The promise to distributors is that the more they can recruit others, the more money they can make. The idea is that there will be an endless line of new distributors, and therefore more and more money. 

Multi-Level Marketing Vs. Pyramid Schemes

Multi-level marketing is often confused with pyramid schemes. A pyramid scheme is where someone gets a commission for signing people up for paid memberships. For example, a distributor signs up recruiter "A" to join a membership plan for $50.00 a month and in return earns a commission. When recruiter "A" sells a membership to recruiter "B," both the distributor and recruiter "A" earn a commission on that sale. Pyramid schemes are illegal and some are disguised as multi -level marketing and affiliate marketing programs. You can spot a pyramid scheme if sales are mainly generated from recruiting new members and not selling the products or services to the general public. Be on the lookout for any request for payments to join a membership program with the promise to make money selling other memberships for a commission. The Federal Trade Commission's advice is, "Avoid plans that require you to recruit distributors, buy expensive inventory, or commit to a minimum sales volume."

Multi-Level Marketing Programs: Work From Home Scams

Many multi-level marketing programs are work from scams because you have to pay to join, and you lose money trying to recruit others. New recruits may be asked to buy their own inventory. For instance, a makeup company might ask its sales people to buy makeup at a discount to have on hand to sell directly. Another example of costs is the requirement to buy your own membership before you'll be allowed to sell memberships to others. The reason why many people don't make money is because most multi-level marketing programs require you to sell mainly to other distributors, and not to the general public. Asking someone to be your seller, rather than a buyer, is difficult.  Most people want to buy products, not sell them.

While there may be legitimate multi-level marketing programs, the risks and costs of finding yourself involved with a cleverly disguised pyramid scheme may not be worth it. Many people who have signed up for famous multi-level marketing plans have been left disappointed, and out of much needed money.


Daphne Mallory, Esq. is the co-owner of Mallory Writing Services and has written more than 100 articles helping home based business owners and entrepreneurs start and market their business. You can learn more about her here.

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