Multi-Level Marketing Explained

by Megan Ryan

Those who seek work from home opportunities have probably heard about multi-level marketing in the past. But it is still a very misunderstood concept. Many people have an idea in their mind about multi-level marketing, but it is often different from how it works.

So what is multi-level marketing? And how does it work?

Multi-Level Marketing

The concept of multi-level marketing is to encourage distributors to recruit new members into the system, by promising the distributors a cut of their recruits’ sales.

Say a company is producing an organic body wash or a gaming keyboard. Rather than relying on typical methods of selling, such as stores or online retailers, the company focuses on distributors.

They hire a set of distributors and task them with selling the product. Those distributors now have the option of recruiting others into the process. And they have an incentive to do so – as they get a cut of the sales their recruits make.

Is It a Scam?

There is no scam in a genuine multi-level marketing strategy. Whether it is a wise career choice for someone is another matter. But it is a legitimate business strategy, as it incentivizes sellers to not only sell product, but to recruit others to do the same.

The issue is the tiered structure of multi-level marketing makes it easy for people to craft pyramid schemes, while telling their distributors it is a legitimate operation.

For instance, a pyramid scheme may use money that comes from new recruits, who must buy the product at a low price and then sell it, to pay those at the top. But these should not be confused with legitimate multi-level marketing operations.

Spotting a Fake

Those who are considering multi-level marketing as a career option must learn how to spot a fake scheme.

When a business operation seems more focused on recruiting new members, as compared to selling products, it is a worrying sign. These operations are usually pyramid schemes, as they want to keep adding more people into the network so they can use that money to pay everyone at the top.

Herbalife Controversy

One of the most controversial situations surrounding multi-level marketing occurred with Herbalife.

It is a well-known brand that sells nutritional and weight-loss items to people around the world. And these products are sold through a multi-level marketing operation.

However, journalists and activists were convinced that Herbalife was a scam. It even got to a point where the United States FTC investigated Herbalife, attempting to find some type of fraud.

It was eventually confirmed that Herbalife was a legitimate multi-level marketing operation. Records showed that most of the money made by the company came through selling products, not recruiting new members. They even had a protection plan for new hires, which meant they could give back the products to Herbalife they were not able to sell.

It goes to show that while pyramid schemes do exist, under the guise of a multi-level marketing operation, the real deal is very much legitimate. For entrepreneurs, it is a matter of finding those legitimate operations among the crowd of fakes.