What Exactly Is MLM (Multi-Level Marketing )?


Published on October 10th, 2019

Despite its widespread popularity all across the globe, multi-level marketing (MLM) is among the most poorly understood business structures operating today. While it admittedly can sound somewhat complex, at its heart, MLM is essentially a direct selling model in which independent business owners personally make sales to customers.

That is the crux of it. And the nature of these direct sales generally come largely on the basis of relationship building through networking and word-of-mouth referrals.  In the best cases, these referrals also bring new independent sellers into the fold, allowing both individuals to earn a commission on all the products they sell in the future.

Laid out like that, it starts to become more simple. But to become even more better acquainted with this long-established way of doing business, we need to address a few of the persistent myths about exactly what MLM is and what it is not.

1. Is Multi-Level Marketing (MLM) A Pyramid Scheme?

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Along with all the ongoing confusion surrounding multi-level marketing and direct sales business models, there are often foolish claims and rumors that continue to mischaracterize the situation. This offers a great opportunity to remember some age-old wisdom that you probably first hear from your grandmother: Don’t believe everything you hear.

In particular, we sometimes still even see these types of allegations toward the world’s most well-known direct sales company, Amway. If you become an independent business owner in partnership with the Ada, Michigan-based company, someone is inevitability going to ask you, “Is Amway a pyramid scheme?”

Such myths have long been dispelled. It doesn’t take long to uncover the truth if you ignore the falsehoods and innuendo. Both the company itself and many credible, objective outside organizations have been debunking these lingering false allegations for decades.

2. The Federal Trade Commission (FTC) Position On MLM

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Most critically, the Federal Trade Commission has exhaustively investigated the issue of legality and found the MLM model to be legitimate way of doing business. The Washington, D.C. regulator clearly laid out the validity of Amway as a direct sales platform in particular in the 1970s, and it has not altered this position in the subsequent 40 years.

This stance comes despite the FTC’s ongoing work to fight against actual pyramid schemes. There are many, many documented instances of the agency dismantling illegal companies that flout the law and prosecuting those responsible for setting up scam operations.

Make no mistake: People operating pyramid schemes do not get away with it for long. Law enforcement and regulators are rarely fooled by slick window dressing. With the full resources of the federal government, the FTC and its partner organizations in the Justice Department are able to detect and investigate scams in order to break them up under its mission to protect the American consumer.

3. Fair Play: Gaining Perspective On MLM

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The truth is that there have been some nefarious actors who have run scams under the guise of a multi-level marketing or direct sales model. These are the bad guys and they give the entire MLM world a bad name.

But you shouldn’t allow the bad apples to ruin the whole orchard. Do we condemn the whole investment brokerage world because Bernie Madoff was a conman with no morals? Is the entire agriculture industry now full of criminals because negligent practices at one distributors caused a listeria outbreak?

These examples naturally seem preposterous. But that is the same mentality that many uninformed onlookers have when it comes to successful direct sales and MLM companies.

Yes, pyramid schemes are very real and a serious threat to the people that are scammed out of their savings. But you don’t need to worry about the legitimate MLM and direct sales companies that are fairly competing — and thriving — in the marketplace.