Multilevel marketing (MLM) is a business model where a company distributes its products or services through a network of independent salespeople.
However, the industry can be controversial and confusing due to the jargon and terminology used by MLM companies and their distributors.
This blog demystifies some of the most common MLM terms and strategies, including pyramid schemes, downlines, uplines, commissions, autoship, recruiting, training, binary compensation plans, unilevel compensation plans, and party plans. By understanding these concepts, readers can make informed decisions about whether to participate in an MLM opportunity.
- Pyramid Scheme A pyramid scheme is an illegal business model where people are paid for recruiting others into the scheme, rather than for selling products or services. Pyramid schemes are unsustainable and usually collapse, leaving the majority of participants with losses.
- Downline Your downline is the network of people you've recruited into your MLM business. You earn a commission on their sales, as well as your own.
- Upline Your upline is the person who recruited you into the MLM business. They are responsible for training and supporting you, and they earn a commission on your sales.
- Commission Your commission is the percentage of the sales you make that you get to keep as your income. In MLM, your commission may also include a percentage of the sales made by your downline.
- Autoship Autoship is a monthly automatic shipment of products that distributors are required to purchase to remain eligible for commissions. Autoship can help ensure that distributors always have products on hand to sell, but it can also be a financial burden for those who aren't making enough sales to cover the cost.
- Recruiting Recruiting is the act of bringing new people into the MLM business. In MLM, recruiting is often emphasized over product sales, which can make it feel like a pyramid scheme.
- Training Training is the process of teaching new distributors how to sell products and recruit new members. In MLM, training is often provided by the upline, and it may be focused on motivational and inspirational messages rather than practical skills.
- Binary Compensation Plan A binary compensation plan is an MLM compensation plan where distributors are organized into two legs or downlines. The commissions are based on the sales volume of the weaker leg, which encourages distributors to support and balance both legs.
- Unilevel Compensation Plan A unilevel compensation plan is an MLM compensation plan where distributors can sponsor as many people as they like in their downline. Commissions are based on the sales volume of the distributor's entire downline.
- Party Plan A party plan is an MLM sales strategy where distributors host parties or events where they showcase and sell products. The parties can be in-person or virtual, and they may include games, giveaways, and other incentives to encourage people to buy.
In conclusion, MLM terminology and strategies can be confusing, but understanding these terms can help you make informed decisions about whether to participate in an MLM business. It's important to do your own research, read reviews, and talk to other distributors before joining any MLM opportunity. Remember that success in MLM is not guaranteed, and it requires hard work, dedication, and often significant financial investment.
A Cautionary Tale of MLM Failure and Controversy
One of the most notable MLM failures in recent years was the case of Herbalife, a global nutrition and weight management company that was founded in 1980. In 2012, the hedge fund manager Bill Ackman accused Herbalife of operating as a pyramid scheme and shorted the company's stock, believing it was overvalued and would eventually collapse. Ackman's accusations sparked a public feud with Herbalife and its supporters, including high-profile investors like Carl Icahn.
The controversy around Herbalife led to investigations by the Federal Trade Commission (FTC) and other regulatory agencies. In 2016, Herbalife agreed to pay $200 million to settle claims that it misled distributors about their earning potential and operated as a pyramid scheme. The company was also required to restructure its business to focus more on product sales than on recruiting new members.
While Herbalife has continued to operate and remains a major player in the MLM industry, the controversy and negative publicity around the company have had a significant impact on its reputation and stock price. The case of Herbalife serves as a cautionary tale for the potential risks and challenges of participating in an MLM business.
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