What is multilevel marketing?

Multilevel marketing (MLM—also called network marketing) is a way of distributing and selling products and services through a chain of independent distributors rather than through traditional retail outlets.

How does multilevel marketing work?

Each distributor has two basic jobs: (1) to sell the company's products or services and (2) to recruit more distributors to sell the company's products or services.

Each new recruit a distributor brings into the organization is, in turn, encouraged to bring in his or her own recruits. The result is that an active distributor eventually develops a hierarchical substructure known as a downline that looks somewhat like an organization chart in a company with a lot of employees.

Each distributor gets sales commissions on his or her own direct product sales. He or she also makes a commission on the sales of the distributors in their downline. There are also likely to be performance bonuses available for reaching certain sales levels.

Since each distributor profits not only from his or her own sales but from sales of the downline, it is to the advantage of the distributor to guide and help those below to succeed.