The multi-level marketing is also known as the MLM industry. It is both a system in which an individual buys a product at discount and sells it for a profit and a business opportunity in which additional sales people are recruited. Many companies in the MLM industry have sales operations worldwide with hundreds of thousands of independent distributors selling and recruiting. Most consider the compensation plan to be the key indicator of whether a sales organization is in the MLM industry.
It was in the United States in 1945 that most consider the MLM industry to have been created when the California Vitamin Company began selling Nutrilite™ vitamin supplements through independent sales representatives under a new compensation plan. Hallmarks of the plan included a required level of personal sales of the products, profit on the individual representative’s sales and commission on sales of anyone that person recruited, and bonuses based on sales and recruiting volume and consistency. Commissions were also earned on recruits of recruits with multiple levels of recruits allowed. These multiple levels came to be called a team leader’s downline.
In a typical MLM organization, a potential new team member is first introduced to the product or service offered through an independent representative. Often, the business opportunity to sell the product is introduced with the first sale. Potential sales reps are generally required to purchase a given amount of the product and a starter kit, participate in training, and sell the product to a set number of new customers. When these requirements are met, the new sales representative typically is released to begin establishing his or her own downline.
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The home office of a company in the MLM industry usually provides a variety of back office support activities. These can include advertising, a web presence, payment processing, shipping, training and commission disbursement. The home office also often holds sales and recruiting contests where performance at given levels earns money, awards, travel and recognition.
Companies in the MLM industry offer a wide range of products through the independent distributors. Products include nutritional supplements, cosmetics, household products, wine and cookware among many others. The MLM industry also offers services such as pre-paid legal services and life and health insurance.
Some companies in the MLM industry have been accused of being pyramid schemes. In a pyramid scheme, there is no actual sale of products to anyone outside the downline; profit results only from selling to those a person has convinced to sell. A true MLM organization requires that its distributors sell to those outside the downline.