What Is MLM (Multi Level Marketing)?

What Is MLM (Multi Level Marketing)?

Timotheus Update: This post was originally published on 9 May 2018 on this website – Passive Online Revenue. Due to rebranding and consolidation of the two sites, the post is now on this website – https://timotheuslee.com/business/what-is-mlm-multi-level-marketing/

What Is MLM (Multi Level Marketing)?

I have had my fair share of experience with MLM, also known as Multi Level Marketing. I was with Young Living, Unity, encountered Amway plus many more. In this article I will explain What Is MLM, how they work, and most importantly – can people really make lots of money from this?

What Is MLM (Multi-Level Marketing)?

The first time I heard about MLM was back in the 1980s. There was buzz about something called network marketing.

That sounded good to me because I thought it was about networking for my then fledgling career.

Sad face because I learned MLM is not good way to have a profitable business

I was so young and naïve. 

I soon learned that it was actually Multi Level Marketing. Other names were pyramid selling, referral marketing, etc.

I also learned that there is no real job. Although titles such as distributors, salespeople, independent business owners are given to those who joined the company.

Nice titles. Especially the title of business owner. I was attracted to the idea of owning my own business. Who doesn’t want to be a business owner? Who doesn’t like the idea of making lots of money?

I know I did. But I soon found out otherwise.

How Does the MLM Business Model work?

An MLM business sells products or services. But unlike other businesses, there is hardly any form of marketing in the sense of advertising by the company itself. Most of the marketing and selling is done by independent non-salaried participants who join the business as distributors (also called associates, independent business owners, independent agents, etc).

How Does MLM Work?

From my experience, how they work is like this. A participant joins the MLM business. In order to join, they have to purchase the products or services. The common sales pitch to convince them to buy is such as – After all, if you are going to sell something, you have to try it yourself, right?

After the participant is a member of the MLM, they are encouraged to ‘introduce’ others to join the MLM company, just like them. Of course, if they like, they can simply sell the products to consumers. But the prices will be higher.

MLM companies like to proudly declare that their products are cheaper than similar products in the market because they do not spend money on marketing or advertising. But then again, strangely, the prices are higher if you are not a member of the MLM company.

When participants sell products direct to consumers, they get retail profit plus commission from the company. But, when they ‘introduce’ people to the business, and these people join, they become this participant’s downline. And after that, any product or service sold by the participant’s downline will result in commission for the downline as well as the participant.

This means that the participant gets commission from sales done by their downline. This is the pyramid in MLM’s multiple level structure of compensation.

Another thing to note is that anyone that the participant’s downline recruits will also be in the participant’s pyramid. How far down it goes defers in different MLM organizations.

When selling the idea of this revenue stream, participants often pitch is as being a business owner. Also, the idea of growing their own downline is another attractive carrot. Unfortunately, this revenue stream, is also the least statistically probable source of remuneration to a salesperson. So is the probability of direct sales of the participant’s own personal sales.

How do participants of MLM earn?

As a distributor, salesperson or whatever title they give you, know that there is no salary paid.

Then how do participants make money?

First, they join the MLM company. They usually will need to buy some of the products to qualify as a member and be allowed to sell the products.

They sell directly to end user retail consumers. This is through relationship referrals or word of mouth marketing. I know of some who conduct events that are free to attend or free talks to educate people on the products.

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During either of these, there will be promotion of the products and people are encouraged to join the MLM company. The latter is more important as those who join will become their down line distributors.

There usually is a strong incentive to recruit others to join the MLM.business, and become their down line. This is because besides the sales commissions from direct retail customers, they also get commissions from sales made by their down line.

Can You Make Money with MLM?

A study by the Federal Trade Commission reported that at least 99% of people who join MLM companies lose money.

So why do people still join MLM?

This is because people are led to believe that they can make lots of money from selling the products. During the introduction, such as a preview seminar or one to one discussion, MLM companIes focus on the potential earnings one can achieve. They use participants who made millions as examples. And they tell you that you can do it too.

What they don’t tell you is the statistical improbability of that happening. That many have tried. And many have lost money.

I was one of those who lost money in MLM ventures.

Here are some reports on whether people make money with MLM:

The Times reported that “The Government investigation claims to have revealed that just 10% of Amway’s agents in Britain make any profit, with less than one in ten selling a single item of the group’s products.”

“UK Justice Norris found in 2008 that out of an IBO [Independent Business Owners] population of 33,000, ‘only about 90 made sufficient incomes to cover the costs of actively building their business.’ That’s a 99.7 percent loss rate for investors.” – Eric Scheibeler, high level “Emerald” member, Amway

Newsweek reported that based on Mona Vie’s own 2007 income disclosure statement “fewer than 1 percent qualified for commissions and of those, only 10 percent made more than $100 a week.”

In an October 15, 2010 article in USA Today, it was revealed that 30% of MLM company – Fortune Hi-Tech Marketing participants make absolutely nothing. 54% of the rest of the 70% make only $93 a month!

“You’d be hard-pressed to find anyone making over $1.50 an hour, the primary product is opportunity. The strongest, most powerful motivational force today is false hope.” – Roland Whitsell, research professor


As you can see from above, an overwhelming majority of MLM participants end up with either a significant loss or nil net profit. This is after expenses are deducted.

It is only the few individuals at the uppermost level of the MLM pyramid that makes an obscene amount of money. And these are the people that the MLM company will focus on. They will quote these cases to convince people to join their organization, telling them that if these people can, so can they. The reality is it will never happen.

While many MLM companies are generating billions of dollars in annual revenue, and hundreds of millions of dollars in annual profit, 90% or more of their participants are operating at a loss.

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14 thoughts on “What Is MLM (Multi Level Marketing)?”

  1. What a great post. I think you have laid out the MLM well. It really is the blind faith in success they sell you on. They sell the dream of success and you with tons of money living income free. It just isn’t so. Thanks for your info!

    1. Thanks Bruce! Yes, totally agree with you. They sell the success and large amounts of money made by the few at the top but neglect to inform about how poorly the rest are doing. Stay tuned. I will next write about an MLM that I used to be with. It will be a first hand report about how I got in, how I lost money, and my decision to leave.

  2. I lost money with an MLM. I shouldn’t have joined because I really knew nothing about sales and you had to continually purchase the product and rave about it whether you fully believed in it or not. I much prefer affiliate marketing or other types of sales to MLM. Just isn’t my style.

    1. Sorry to hear that, Melinda. Yes, that is another thing. They don’t really train people for sales. It is more of – here are the products, love them and sell them. And true, like what I wrote in the article, people have to continually buy the products to get commissions and the commissions of their downline. It is ridiculous! How much of one product can you use in a month?

      Totally agree with you! Affiliate Marketing is the best! See my #1 Recommended Way of Earning from a Legitimate Business.

  3. Hi. Thanks so much for this information. I’ve been scammed so many times that it is embarrassing to even mention. It’s so true that what they are selling is the hope of being a success. It’s sad to me that in our day and time, with all of the opportunities out there, that so many people, myself included, still fall for these traps. With any true success, comes hard work and sacrifice. Thanks again for getting this information out there so maybe others won’t fall for these scams.
    All the best.

    1. Hi Wendi, thank you for confirming what I wrote is true. And of course it is true. While this is a factual article, I did share some of my personal experience. And like you, I was scammed by many MLM companies. They just want us to spend money to buy their products. And worse, use us as marketing resources to promote their business for them for FREE!

      I totally agree with you that it is sad that people still fall prey to MLM. I suppose I can understand because I have been there, and the attraction is the possiblity of making lots of money. For me, especially the idea of owning a business. I have always wanted to own a business. And thankfully I now found a legitimate way to do it. Check out my #1 Recommendation. 🙂

  4. Hello,
    I found your post very interesting, I tried my hand at MLM without very little success. I have found many people are not interested in you trying to get them to sign up with MLM companies. I would recommend affiliate marketing or dropshipping before MLM, but there are people who earn an income referring to through MLM but you must be aggressive which is not me


    1. Thanks for sharing your experience, Jeff. It is very difficult to make enough money to survive with MLM. Harder still to make a profit. The statistics I quoted in this article proves that. Also, I am proof of that.

      Yes, I prefer affiliate marketing, and drop shipping (the latter which I will share more in future posts. So do sign up for my newsletters for updates. 🙂

  5. This is a wonderful post and so informative about the MLM structure of business. I just got out of an MLM and went with a regular affiliate company in the same niche and now I have the potential to make so much more money. The MLM I was with required me to spend $200 a month in product for myself at no discount just in order to keep my director title and receive a very small commission on my sales. This company was all about recruit, recruit, recruit…yeah that is how the company makes their money as each affiliate has a monthly minimum.

    1. Thanks Dena. Yeah, that is how they make money – recruit, recruit, recruit. Sad thing is the participants earn very little. And in the long run, most (about 95%) make losses after business expenses.

      Yes, affiliate marketing is much better. Really makes more money in the long run. Wishing you success in everything you do! 🙂

  6. Hello,

    I found your post on MLM bring back some past experiences, I joined several of these opportunities only to find out this was not the right type of business venture for me. I rarely received any referrals and when I did they never upgraded to a paid member, so I never made even a dollar on any of the MLM ventures I tried but many people do quite well when that type of business is a good fit for you.

    1. Hi Jeff. Thanks for sharing your experience.

      Totally agree with you. Sometimes it is whether it is a good match to the business or not. At the same time, studies have shown that most people did not succeed with MLM.

      I hope your current online ventures are successful for you?

  7. I have tried MLM marketing products before finding the right training program for affiliate marketing, and since joining this affiliate marketing program I have had more success than ever in the past. I highly recommend you check out the free stater package on this post, this is the very same program which I have experienced all my success from.


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