Multilevel Marketing, or MLM, is a system for selling goods or services through a network of distributors.

The typical Multilevel Marketing program works through sales and recruitment. You are invited to become a distributor, sometimes through another distributor of the Multilevel Marketing company's products and sometimes through a generally advertised meeting.

If you choose to become a distributor with the Multilevel Marketing company, you'll earn money both through the sales of the MLM's products and through recruiting other distributors, by receiving a portion of the income these distributors generate.

The distributors that you sign up with your Multilevel Marketing plan are called your downline. The distributor that originally recruited you is called your upline. Often he or she will give you some help getting started, including training.

Multilevel Marketing plans are legal. However, if you are considering becoming part of an MLM company, you need to investigate the opportunity thoroughly, just as you would with any other proposed business venture.

Not all Multilevel Marketing plans are created equal. Successful well-known MLM businesses include Mary Kay Cosmetics, Avon, and Cognigen.

Also Known As: MLM, Network Marketing.

Alternate Spellings: Multi-level marketing.

Examples: Because Penny worked really hard and truly believed in the product line, she was a very successful Multilevel Marketing distributor.

MLM and Pyramid Schemes Can Be Very Similar

Considering an MLM opportunity? Be careful. It may well be a legitimate MLM business. Or it may be a pyramid scheme.

MLM (multilevel marketing) is an attractive business proposition to many people. MLM offers the opportunity to become involved in a system for distributing products to consumers. Unlike the person starting a business from scratch, the MLM participant has the support of a MLM company that supplies the products and sometimes offers training as well.

As an MLM participant, you make your money by selling the MLM products to other MLM participants. If they're not already a member of your MLM company, you sign them up. Besides earning money off your own sales, you also earn a percentage of the income generated by the distributors that you've brought into the MLM plan (your downline). Sounds good, doesn't it? And being part of a well-run MLM business can be a lot like being a member of a large extended family.

Unfortunately,not every MLM opportunity is a legitimate business opportunity. Many pyramid schemes, frauds designed to part the unwary from their money, are disguised as MLM opportunities.

Like MLM, pyramid schemes depend on recruiting people to become distributors of a product or service. Like MLM, the pyramid scheme offers the opportunity to make money by signing up more recruits and by accomplishing certain levels of achievement. And the thing to look out for the most is realizing that you can make good money on a pyramid scheme! But then you may be sued or even arrested for your invovlement when it falls and you will not be given any benefit of the doubt by playing dumb either! "I did not know it was a scam!" does not keep you from the penalties of the law.

The big difference between MLM and pyramid schemes is that MLM is legal and places more weight on the products and services it offers and pyramid schemes Want lots of money and places almost no focus on product or service making unusual claims of instant wealth and oh yeah... they aren't legal. But it can be very difficult for the person looking for a business opportunity to tell the difference between a legitimate MLM opportunity and a pyramid scheme at a glance. How do you tell whether it's a legitimate business opportunity or a scam? The big difference between MLM and a pyramid scheme is in the business' operations. The entire purpose of a pyramid scheme is to get your money and then use you to recruit other suckers (ahem - distributors). The entire purpose of MLM is to move product. The theory behind MLM is that the larger the network of distributors, the more product the business will be able to sell.

Use these questions as an acid test if you're in the least doubt as to whether the opportunity you're considering is MLM or a pyramid scheme:

1) Are you required to "invest" a large amount of money up front to become a distributor? This investment request may be disguised as an inventory charge. Legitimate MLM businesses do NOT require large start up costs.

2) If you do have to pay for inventory, will the company buy back unsold inventory? Legitimate MLM companies will offer and stick to inventory buy-backs for at least 80% of what you paid.

3) Is there any mention of or attention paid to a market for the product or service? MLM depends on establishing a market for the company's products.

4) Is there more emphasis on recruitment than on selling the product or service? Remember, the difference between MLM and a pyramid scheme is in the focus. The pyramid scheme focuses on fast profits from signing people up and getting their money. If recruitment seems to be the focus of the plan, run. These next two questions will help you determine what the focus of the company is:

a) Is the plan designed so that you make more money by recruiting new members rather than through sales that you make yourself?

b) Are you offered commissions for recruiting new members?

Bonuses for promotions from within your downline is normal in MLM. Just getting money for signing up new members is not that common. Unless of course the requirement for joining is to purchase a product or service in which case you would receive a bonus for signing up a new member. See... It can be confusing. So look for what I call the 3 alarms:

1) Focus is primarily on the oppotunity not the products and services

2) Large start-up fee with no tangible cost reasoning

3) Claims of instant wealth or no effort riches... i.e.; "Make 10,000 dollars in as little as 10 days!" or Testimonial claims; "I made 83,000 dollars in my first week doing this and you can too!"

If any of these 3 things is advertised in the opportunity... it is a scam and as always, when you're investigating a potential business opportunity, you'll want to gather all the information you can about the MLM company's products and operations.

Get (and read) written copies of the company's sales literature, business plan and/or marketing plan. Talk to other people who have experience with the MLM company and the products, to determine whether the products are actually being sold and if they are of high quality. Check with the Better Business Bureau to see if there have been any complaints about the company.Though the Better Business Bureau is not really an effective tool in recognizing scams people still love posting their complaints bout organizations there. And listen carefully when you're at that MLM recruitment meeting. Inflated claims for the amazing amounts of money you're going to make should set your alarm bells ringing.

Being part of a successful MLM company can be both profitable and fun, but unfortunately, some purported MLM opportunities are actually pyramid schemes designed to flatten both your wallet and your dream of running a business.

One myth about MLMs is that they are too hard or too complicated. A true MLM is structured to provide support from many different angles while giving you the tools necessary to start your own business. The reason why they claim you are starting your own business is in 4 parts:

1) In order to maintain a legal and legitimate opportunity the organization can not allow you to say that you are employed by them. They thereby give you the right to represent the products and services that they represent as a dba or in layman's terms ... they encourage you to create your own business name and you can utilize their marketing tools to make it look more like the products and/or services are coming directly from your company.

2)They only offer guidance and support. No one will yell at you or pressure you into doing anything in a true MLM. You really are your own boss and your success is dependant on you and what you choose to do with the business opportunity.

3)In a true MLM as in local businesses you will never be dropped out of a program because of inactivity though in local business inactivity can kill it in an MLM inactivity just lengthens the time it takes to become successful. You decide when and if things are going to be done... and of course at any time you can close the business.

4)If you become stable and are making a lot of money... you can hire people to distribute goods or services that do not want to be a part of the organization. You will pay them out of your pocket knowing that for instance; An experienced salesman who is leary of MLMs can still be of great benefit to your company and strengthen it by using his abilities in what he feels is a more comfortable environment than being directly involved. But anyone who sees your successes will at this point want to know more about being directly involved.

There is nothing hard about a truly good MLM. People above you who are... and want to be more successful are always there to help... and the corporate foundation of an MLM will also help any time it is needed in a true and good MLM. Do your homework and if you find a good one... take your time... relax and enjoy yourself. MLMs take time to make a good profit. Don't ever quit a full time job if you need the income to get into MLM unless you have experience or you are 100% sure that the products and services the MLM provides are so desired or needed that they sell themselves.

The Legal Structure of Multi-Level Marketing

Some MLM companies operate under their own set of guidelines which come in every possible variety imaginable. The landmark legal case for the industry is the 1979 Federal Trade Commission ruling on Amway which found that although Amway had at one time engaged in "deceptive practices", as long as profits were made through the sale of product and commisions paid to representatives of the organization, the company could continue to operate within the law. They restructured and conformed to a more legal and ethical point of business and continue to be a great succes today.

For MLM businesses to operate legally, they must meet the following criteria:

1. The company brings a product or service to the marketplace that is (a) retailable and (b) being retailed;

2. The product or service reaches the end user through direct sales representatives (independent contractors), rather than through traditional retail establishments;

3. The company's compensation plan (a) is designed to reward representatives for the sales of the product or service they make, and (b) includes a feature that additionally rewards a representative who introduces an additional representative to the company, based on the sales volume of the second representative.

A business that has all these components except for 3 (b) is a single-level direct selling company. 3 (b) is what makes it an MLM. All of the criteria above must be met for the MLM business to be legal. Any missing component turns it into an illegal business. For instance, if in 3. the second representative does not personally sell the product or service, the business is no longer legal. How much that percentage of sales needs to be has not been defined. If a program compensates representatives, directly or indirectly, simply for the introduction or enrollment of other participants in the program, it is considered to be a pyramid scheme which is illegal.

Additionally, recent court decisions have ruled that at least 70% of all goods sold by the MLM company must be purchased by non-distributors.