What is MLM?

by louabbott on December 1, 2009

You know you have been at it too long when you think that everyone should understand the shop-talk lingo of your particular profession.

For example, I still get surprised when I am asked, “What is MLM?”

So, what is MLM?

MLM is short for multi-level marketing. Variously spelled as multilevel marketing and multi level marketing but preferably, and arguably more accurately, called network marketing.

Even if you don’t know the MLM abbreviation, you would certainly recognize some of the names of the major MLM companies. Perhaps the best known and one of the oldest is the famous (infamous?) Amway. Other well-known company names are Shaklee, Herbalife, Nu Skin, Avon, Usana, Mary Kay and Melaleuca.

But, the fact is, there are too many for anyone to accurately count.  We have many hundreds listed in our Network Marketing Companies Directory.

Very simply, MLM is a product distribution method.  Rather than use traditional channels of distribution and advertising, a network marketing company chooses to use independent distributors to market their products thus avoiding the advertising costs typically incurred.

Why called “Multi Level?”

The “multi-level” part of the name is more a description of one aspect of the compensation method used than a description of the type of marketing used. The marketing methods used by “MLMers” is better described by the word “networking,” though increasingly Internet marketing methods are being used as well as the sometimes maligned person-to-person, friends and family networking approach.

If you become a distributor, representative, associate, independent business owner (IBO), etc. regardless of the names used, the function is the same the company will pay you every time you sell the company’s product or services.

The most intriguing and potentially lucrative aspect of MLM compensation plans is that you can also get paid on the product or service sales by any of the people that you introduce to the company. Further, you can get paid on the sales volume of the people they introduce, and the people they introduce –through multiple levels.

From a legal standpoint, it appears totally irrelevant how many levels a company pays on. If you, as a representative, can also recruit new representatives and get paid a percentage of their sales volume as well as your own, the company will probably be considered an MLM company.  This is important to understand.

Is This Company an MLM?

Multi-level marketing has earned a bad reputation in many circles. Consequently, some companies do not use that terminology anywhere in their literature or website descriptions. Some even outright deny that they are “MLM.” But that is merely an exercise in ‘PC’ semantics.

From a legal standpoint, if a representative of the company can also get paid on the volume of sales generated by the people that they bring to the company, the company is most likely an MLM by legal definition.  Unless they are . . .

An Illegal Pyramid

Many people, even professional business journalists, do not know the difference between a legal multi-level marketing company and an illegal pyramid.

Frankly, though not surprisingly, smarter founders of illegal pyramids do every thing they can to try to look like the legal companies.

The biggest difference lies whether it can be demonstrated that there are a good percentage of sales of products to real customers who receive real value in exchange for their payments significantly more value than simply the right to recruit more representatives.

The payment of money for recruiting new representatives who are essentially paying for the right to recruit yet more representatives is clearly illegal – no matter how elaborately disguised.

Because of the difficulty involved in understanding the differences, I have recorded a video entitled Pyramid Schemes vs. Legal MLMs that best describes the difference between even the best disguised illegal pyramids and legal MLM companies. Further, it explains one of the key criteria that a network marketing company has to meet in order to truly produce the ultimate kind of income: reliable, long-term, leveraged, residual income. You can view the 20 minute video for free here.

Is MLM a Good Thing?

Inherently, a company that uses a multi level pay plan is neither good or bad, contrary to the most outspoken critics of the model. In those cases, the critics have either never participated, or in the least, never participated where MLM was done well.

I have seen the MLM concept implemented extraordinarily well. I have also seen MLM done very, very poorly – just like every other kind of business.
I love good charities.  I despise the ones that merely masquerade as such while funneling off most of the money for “administration.”

My father was an excellent attorney with a specialty in corporate tax litigation. Many admired his integrity. He didn’t even like it when attorneys started advertising, thinking it unprofessional. I need not even comment on his opinion of the stereotypical ambulance chaser.

The secret is knowing how to tell the difference between the good companies and the bad. Unfortunately, most join an MLM company because a friend they like invited them. In most cases, neither person knows any criteria by which to judge whether the company is good or not, whether the model is sound or not, whether management is good or not, whether the product line makes sense or not, whether the compensation plan is properly balanced or not, etc., etc., etc. Nor do they have any significant experience to tell how any particular “opportunity” compares to any other opportunity. So too often it becomes a case of blind leading the blind.

How can I learn more about what really works?

I wrote my Special Report, MLM The Whole Truth to help people better understand the whole ‘industry.’ In it, I teach what we call the “12 Critical Success Factors.” They are the criteria that must be in place for anyone to get the best chance of success in any network marketing company. May I strongly recommend the investment in this knowledge before making another step?

Your reputation, your friends and family relationships, even your finances, your hopes and your dreams are at stake.

Learn More about the Special Report

Illegal Pyramid Schemes vs. Legal MLMs

Watch the best explanation of the morality, legitimacy, and profitability of Network Marketing.

Network Marketing Companies Directory

"What is MLM?"by MLM expert, Lou Abbott, September 5, 2008
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{ 5 comments… read them below or add one }

network marketing January 5, 2015 at 1:41 am Thumb up 0 Thumb down 0

In every company, there will always be some downsides.
This isn’t the only reason that we know Vi – Salus isn’t a scam; the product is real,
and it’s backed by real research in nutrition too.
You must know what to choose in obtaining your goals.


Jason F. July 25, 2012 at 11:36 pm Thumb up 0 Thumb down 0

I couldn’t have explained this any better. I tell people all the time there are legitimate network marketing companies out there you just have to do your due diligence investigating the companies.


Mannatech Mexico September 17, 2010 at 8:50 pm Thumb up 0 Thumb down 0

Awesome LOUABBOTT, great advice on MLM, Do you coach people to build MLM businesses to reach success faster?


john guy December 19, 2009 at 2:06 pm Thumb up 1 Thumb down 0

Great article.
I believe this industry is absolutley brilliant however,
there are shams out there to catch anyone and everyone.
We have all been caught at one time or another, thats where
due dilligence comes into play.
The best thing you can do is learn, learn, learn.
Be careful.

Merry Christmas and Happy New Year.


Roy Harper December 8, 2009 at 11:39 pm Thumb up 1 Thumb down 0

One of the industry problems is the idea of “acceptable casualties”. Too many who purport to be leaders in the industry are not leaders in the true sense of the word. People are enrolled, and the person enrolling them knows they will go through their list of family and friends in a short time, then be gone, an acceptable casualty of the industry. The “leader” has earned some money, but no one has created anything of lasting value.
The whole truth is there need not be “acceptable casualties” of this industry. Like any other business some will fail, and some will simply decide network marketing isn’t for them. And some who fail in one opportunity will go on to find success in a different opportunity.
Leaders in the network marketing industry must become resources on whom people in their businesses can rely for sound advice and wise counsel. For the aspiring leader that begins with an understanding of the “12 Critical Success Factors” and them actually understanding the concept of “reliable, long-term, leveraged, residual income”. It is only when leaders are armed with this knowledge, and become capable of teaching it to others, that they become worthy of being followed.


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