What Is Multilevel Marketing? (With Tips For Choosing a Job)

By Indeed Editorial Team

Published 19 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Multilevel marketing is a sales model that some companies use to save money on product distribution. This business method allows professionals to acquire the company's products at a wholesale price and then sell them using their own methods to share the profits with the company. If you're looking for a job that can allow you to work independently, you might consider a position at a multilevel marketing company. In this article, we answer the question 'What is multilevel marketing' and explain how this sales model works, how it differs from a pyramid scheme and how to decide if this is a good career opportunity for you.

What is multilevel marketing?

Multilevel marketing is a business model that uses independent sales contractors to sell products instead of a traditional sales method. A multilevel marketing company, also known as an MLM, hires employees on a contract basis and offers compensation for when a representative sells a product or recruits another professional to join the MLM.

This business model can be beneficial to both the company executives and independent sales contractors, as the company can save money on advertising and distribution costs, while the independent sales contractors can work independently and have a direct effect on their own income.

Related: What Is a Contract Employee?

How multilevel marketing works

Multilevel marketing works by involving a large number of independent sales contractors in the sale and distribution of the company's products. Here's a basic outline of the steps within an MLM company's business model:

1. The company creates the product

The company starts by designing and manufacturing a product or series of products. MLM companies can produce a wide range of products, such as technology devices, home goods and beauty products. The products an MLM produces often depends on both their target consumer audience and their target audience for sales contractors.

2. The company recruits sales contractors

Next, the company recruits professionals to directly interact with consumers and sell their products. This can help companies save money on product marketing and distribution, as it can focus its marketing budget on finding professionals to sell products instead. Depending on the type of product it's selling, an MLM company might target its advertisements to a certain type of professional because sales contractors are often more likely to sell a product they use. For example, if the company produces an anti-ageing cream, it may be more likely to recruit older sales contractors.

Related: 8 Examples of Recruitment Strategies (With Definitions and Tips)

3. Sales contractors buy and distribute

Professionals who join the MLM company can buy the products in bulk, often at a discounted rate. Then, they can sell directly to customers. This often involves the sales professional initiating contact with consumers via methods such as social media, phone or in-person by going door-to-door or setting up a workstation in a public area. MLM representatives can earn an income by both selling products and receiving the profit or by recruiting others to join the MLM company. Often, sales representatives can earn more by recruiting other professionals, as it helps reduce the company's marketing efforts for finding sales representatives.

What is the difference between multilevel marketing and a pyramid scheme?

Some may associate multilevel marketing companies with pyramid schemes, which is a fraudulent business model. While it's possible for some MLM companies to operate under this model, there are many MLM companies that are reputable and fair employers. When looking for an MLM job, it's important to know the difference between an MLM and a pyramid scheme. This can help you make a well-informed decision and protect your financial security. Consider the following comparison between MLMs and pyramid schemes to learn of their distinctions:

Multilevel marketing

Multilevel marketing companies often foster a more mutually beneficial relationship between the company and contractors. A legitimate MLM includes these hallmarks:

  • Focus on selling: If the MLM is legitimate, the company's focus is on selling its product or products to consumers rather than trying to recruit new representatives.

  • Limited buy-in: While nearly every MLM has its representatives purchase the product wholesale and then sell it to consumers, legitimate MLMs don't require representatives to spend a certain amount of money on purchasing products each month or year.

  • Income from sales: Representatives earn the majority of their income from the sales they make to their clients rather than commissions from their recruits.

Pyramid scheme

Pyramid schemes often make it difficult for individuals to earn a profit without doing so at the expense of others. This type of company typically benefits the company executives more than the contractors. A pyramid scheme often has the following characteristics:

  • Focus on recruitment: Instead of encouraging representatives to sell the product, pyramid schemes encourage their representatives to recruit additional representatives, rather than making sales.

  • Minimum regular investment: In most pyramid schemes, representatives spend a certain amount of money every month or quarter on products, regardless of how many they already have in stock.

  • Income from recruits: The majority of the money the company makes from a pyramid scheme is from new recruits purchasing products to sell rather than from the actual sales of the products to consumers.

Tips for deciding if working for an MLM is right for you

MLMs offer a number of benefits, particularly in the flexibility the work offers. This type of job has both benefits and drawbacks, so it's important to thoroughly contemplate the career choice before committing to an opportunity. Use these tips to help you determine if working for an MLM is the right choice for you:

Identify your sales skills

The majority of the work you may do with an MLM is direct sales. Having sales skills is often an important prerequisite for MLM jobs. You may even perform better with some sales experience. If you enjoy working in sales, then an MLM could be a good fit for you. You might consider developing some of the following sales skills to prepare for your MLM job:

  • Problem-solving

  • Communication

  • Active listening

  • Interpersonal skills

  • Confidence

  • Time management

Related: What Makes a Good Sales Person and What Do They Do?

Consider if you're comfortable approaching loved ones

Since MLM representatives run their own independent businesses, it's likely that the majority of your clients, at least at the start of your venture, will be your family and friends. Consider if you're comfortable approaching your loved ones with your product and giving them your sales pitch. If you're not, you might consider different ways you might sell the product, such as getting permission to sell in a public place, like a shopping centre.

Understand the financial risks

Some MLMs claim to make their representatives a substantial income in a short amount of time. In most cases, MLM representatives invest a substantial amount of money into their venture to eventually turn a decent profit. Understanding this can help you make a well-informed decision about whether you want an MLM job. It may be best to consider your budget to determine if you can afford to invest money before you earn more.

Make a plan for employment benefits

Professionals who work for MLM companies rarely receive traditional employment benefits like a full-time employee. This is why it's important to make a plan to compensate for these benefits if you plan to work in an MLM job long-term. For example, a common employment benefit is retirement assistance and professional development assistance, so if you want to advance your education while working in an MLM position, you might need to find other financial aid programs to help you pay for training.

Related: 20 Tips on How To Earn Money From Home

Prepared to invest time

When deciding whether an MLM job is right for you, consider your schedule. Successful MLM representatives devote time to their work, both in duration and frequency. They tend to work full-time hours each week and spend months or years building their client base and investing in products to sell. It's helpful to consider your other responsibilities, personal preferences and work ethic to decide if this is a commitment you're ready for.

Use the product

To be a great MLM representative, it's beneficial to use and believe in the product you're selling. If you believe in the product's quality, you're more likely to sell it to your clients. This may help ensure you're working for an MLM company with quality products, which can help you maintain ethical working practices and feel happier with your career choice.

Related: Guide: How to Choose a Career

Research the company

A good way to determine if an MLM is legitimate, and a potential income source, is by researching the company's practices, business plan, compensation structure and professional associations. You may consider researching the company via reviews online. This can help you consider other professionals' experiences and decide if the particular company is a good fit for you.

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