This post may contain affiliate links. Read the full disclosure here.
One question that you may hear all the time — especially when sharing your business with someone skeptical is: “Aren’t direct sales and MLM the same thing?”
Though the two terms can certainly be confusing, I believe an explanation is in order to clear things up a bit. So, here goes…
What Direct Sales Is:
Simply-speaking, direct sales is face-to-face selling.
A sales force of independent contractors (called consultants, representatives, ambassadors, etc.) market and sell products/services for a company. That’s you if you are affiliated with a direct sales company.
You do this outside of a fixed retail location through methods like face-to-face meetings, online orders, or even those texts and Facebook messages too!
Essentially, you work to provide potential customers with awareness and knowledge of a product they may never have heard of before, providing even demonstrations or samples of said products/services.
When you make sales, you are rewarded via a compensation plan.
Ok, this is the point where multilevel marketing actually comes into play.
What MLM Is:
You see, multilevel marketing, or MLM, isn’t really marketing at all.
It’s actually the term used to describe a technique used by direct selling companies to compensate their salesforce.
On the one hand, you have companies that use the single-level marketing plan. If you are a consultant that is paid based only on the sales you make and your sales only, then your company uses this model.
On the other hand, you have multi-level marketing. If you are a consultant that is paid based on your sales in addition to the sales of people that you sponsored into the company, your company uses this model.
You see, in direct sales, companies usually allow you to build an organization (often referred to as a downline or team), utilizing the multi-level marketing model. You are rewarded for building your team, allowing you to earn commission based on not only what you personally sell, but what your friends sell too.
It’s kind of like a referral bonus that keeps on paying, month after month after month (this, my friend, is called residual income and once people understand it, they would walk through a brick wall to get it).
That is multi-level marketing.
What About “Pyramid Schemes”?
Now, here’s the all-important point that often comes up when people look at the organizational structure of multilevel marketing — when you draw it out, it can resemble a pyramid.
People who don’t truly understand it often look at that and automatically assume that multi-level marketing is a pyramid scheme. We’ve all heard the accusations!
However, that is not an accurate or fair assumption.
In fact, there are two simple ways that you can discern whether or not a business is, indeed, a pyramid scheme:
- Are the consultants paid based on the sales that they make? If the answer is yes, then it is not a pyramid scheme. In pyramid schemes, the money is made primarily on recruiting people. In legitimate businesses, the focus is on the products/services that are offered, though they also often offer leadership bonuses.
- Is there a limit to how far down into their downline a consultant can receive compensation? If the answer is yes, it is not a pyramid scheme. In pyramid schemes, someone can earn money from a person that is infinite levels below them. In legitimate businesses, there is usually a cap.
I hope that you are now a bit more knowledgeable about the overlaps and differences between direct sales and multi-level marketing!