What Does MLM Mean in Business?


You may have heard about MLMs when it comes to business or starting a business. They are also pages dedicated to being anti-MLM, so what does MLM mean in business?

MLM in business means multi-level marketing companies. This is a business model where companies sell their products through independent sales consultants (instead of through stores). Those sales people are encouraged to recruit teams to earn bigger commissions.

MLMs are a controversial business model – read on for the anti-MLM movement is picking up traction!

As a reminder, I have an MBA, I am a Certified Public Accountant (CPA), and have almost 15 years working in finance and accounting. These are my opinions based on researched facts and my understanding of those facts. However, this is not legal, financial, or tax advice. This is me presenting facts and my opinions to help you decide if you think this is something you should spend your time doing. If you need legal, financial, or tax advice, you should reach out to a professional for a 1:1 chat! All opinions are my own.

What Does MLM Mean in Business and What are They?

MLM refers to the business structure of a multi-level marketing company. Multi-level marketing companies are a form of direct sales. Direct sales are when companies decide to skip putting their products in a retail store and sell via salesmen that are independent of the company. This means they get paid on 1099 vs. a W-2. They are not employees of the MLM.

There are two kinds of direct sales, single-level marketing, and multi-level marketing – you can read more about how they are different here: Single-Level Marketing (SLM) vs Multi-Level Marketing (MLM)

In multi-level marketing, the salesperson makes money in two basic ways, even though the compensation plans are very complex. The first way is by commissions of sales of products, and two is commissions and bonuses based on their team or downlines sales.

In every multi-level marketing income disclosure available, there is only a small percentage of people who make significant money and they are all at the top of the compensation plan. In order to rank up these compensation plans you must build teams. Each compensation plan will vary, but you must have several layers beneath you to start earning decent money. This means you recruit at least 2 people to work under you, then each of them recruits at least two people, and so on and so on.

Once you build your downline, your commissions and bonuses will be based on the ranks and sales of those under you. The same is also true of your upline, the person/people that recruited you. Therefore, even though they claim you have started your own business, you will be pressured into recruiting and sales to help earn those above you more money. This is why many people refer to them as pyramid schemes, keep reading below on why that is.

To see more about the basics of an MLM and why they are bad, check out this video:

Are MLMs Pyramid Schemes?

Pyramid Schemes are illegal scams. The premise generally is that someone convinces you to join and promises you a huge return on investments. Then, they convince another person to join with the same promises. They take the money the second person spent to join and pay some of it to you as your “return on investment”. Therefore, to keep the scam moving, you need to constantly be recruiting people to pay off the other’s “investment earnings”. Eventually, there is no one else that can join, and the money runs out to pay “investment income” and people realize most of their money went to a scammer.

MLMs do look and run a lot like pyramid schemes. Those at the top of the organization are constantly recruiting so that they can build downlines and earn larger commissions. There is no visibility (to the public) of how many sales in an MLM go to new “consultants” or to outside customers. If the majority of their sales are just going to new salespeople to start a business venture, this is very similar to how pyramid schemes work.

While all MLMs may not be pyramid schemes as defined by the law, the fact remains over 90% of people who join the MLM business model will actually lose money.

Pyramid schemes are scams. They can look remarkably like legitimate MLM business opportunities and often sell actual products, maybe even ones you’ve heard of.

FTC

What Are Other Names for MLMs?

Multi-level marketing can go by other names. I’ve seen them called network marketing, social selling, pyramid selling, direct sales, etc. People within MLMs know that the industry is under fire. So they are trying to distance themselves from the MLM name. If you are being recruited into a business where you will sell products under someone else, and then be encouraged to recruit others – it’s most likely an MLM. Another way to tell is if you get invited to a “party” on Facebook or in real life to sell things, it is likely an MLM. If you see some very vague Instagram or TikTok post that asks you to DM them or finds them on Instagram for more information – it’s probably an MLM.

Obviously, some people are very successful in MLMs, but you really need to get in early – be one of the first people that join. You also need to be comfortable with the fact that 90% of the people who you recruit to join you will lose money. MLMs prey upon desperate women primarily, who are looking to find additional income for their families while being at home. While they may not always be illegal, it is my opinion (which is shared by many others)

Wrap Up

Please remember, if its too good to be true, it probably is! When in doubt, Google the business and find out as much as you can. Please don’t fall into the MLM trap. If you have a social media following you’re looking to monetize – read this article: How to Monetize Your Social Media Following

If you liked this article, you could check out all my MLM-related articles here.

It would mean a lot to me if you would check out my YouTube channel. You can also find me on Instagram to share any feedback you may have on the info above! Both of these pages are new, so every new follower, like comment really helps (and makes my day)!

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