What Is Multi-level Marketing And Why It Matters In Business

Multi-level marketing (MLM), otherwise known as network or referral marketing, is a strategy in which businesses sell their products through person-to-person sales. When consumers join MLM programs, they act as distributors. Distributors make money by selling the product directly to other consumers. They earn a small percentage of sales from those that they recruit to do the same – often referred to as their “downline.”

The difference between multi-level marketing and pyramid schemes

Many equate multi-level marketing with sometimes fraudulent and often illegal pyramid schemes.

However, individuals who invest in MLM can make money through sales alone without the need to recruit others.

Multi-level marketing also incorporates high-quality products that serve a purpose – the classic examples being Avon and Tupperware.

Pyramid schemes, on the other hand, rely on income being derived by recruiting as many people as possible.

The quality of the product is also low, overpriced, or simply doesn’t work.

Furthermore, pyramid schemes do not offer the possibility of inventory buy-backs and are not backed by research into consumer demand.

Whatever the marketing strategy, it is important to understand that the presence of a pyramid selling structure does not automatically make it illegal.

The reality is that MLM businesses are the same as any other; their success or failure is dependent upon finding, attracting, and then selling to a target market.

Examples of successful multi-level marketing businesses

Home, health, and beauty company Amway is the largest MLM company in the world, with close to $9 billion in annual revenue.

A landmark ruling in 1979 confirmed that Amway was a legitimate business and not a pyramid scheme.

The aforementioned Tupperware is perhaps the most well-known example of a successful MLM company.

With annual revenue of $2.26 billion and almost 3 million distributors, their line of durable kitchen products are synonymous with food storage and are much sought after. 

Companies such as Digital Altitude and Tecademics are also using multi-level marketing.

They sell business systems to entrepreneurs that teach them how to market their own companies while also receiving income from referrals.

Advantages and disadvantages of multi-level marketing


Multi-level marketing is well placed to take advantage of the surge in popularity of freelancing and the gig economy.

If businesses do their product research properly, then MLM can also leverage word-of-mouth advertising and increase recruitment levels. 

Multi-level marketing also gives each distributor the flexibility and empowerment of growing their own “business” as they recruit more and more people in their downline.


Because of the association with pyramid schemes, businesses that employ multi-level marketing strategies should expect closer scrutiny from regulatory bodies.

The stigma that still surrounds multi-level marketing amongst consumers also means that businesses might find it difficult to sell their products.

Resistance might also be met when businesses ask their distributors to buy large amounts of a product without the guarantee that it will be sold.

Furthermore, the freelance nature of MLM means few entitlements such as insurance or paid vacations.

These factors mean that, to some extent, MLM businesses are at the mercy of their distributors to make a profit.

Key takeaways

  • Multi-level marketing involves an individual consumer deriving an income from selling a company’s products. The consumer also derives a percentage of the sales income from consumers who they manage to recruit in their downline.
  • Multi-level marketing is not a pyramid scheme if it features high-quality products and doesn’t rely on recruiting others to make money.
  • Multi-level marketing gives consumers the freedom and autonomy of running their own business, but it comes with attached stigmas and extra scrutiny.

Is MLM a pyramid scheme?

Multi-level marketing is a form that follows a pyramidal structure, where people at the top bring in more affiliates, which might also affiliate others.

Multi-level marketing can effectively outsource a salesforce, one of the most expensive cost centers for most companies.

However, when the multi-level scheme’s main aim is to bring more affiliates in, you get illegal schemes rather than enable the underlying product to find more distribution.

In short, the main distinction between legal and illegal multi-level marketing is whether there is a foundational product that gets sold or if the scheme becomes the main product.

In the latter case, changes are the multi-level marketing scheme might be illegal.

What is an example of multi-level marketing?

Take the case of a software company that invites other affiliates to sell its software and gain a percentage of the sales as a result.

These affiliates are incentivized to build their affiliates’ teams which can distribute the product in a much broader market. One example is Herbalife.

For a multi-level marketing scheme to work and be legal, it needs to emphasize creating an affiliates’ team to sell the underlying product to potential customers.

When affiliates are prompted to be the primary customers purchasing the underlying product, multi-level marketing can turn awry and into illegal schemes.

Connected Marketing Concepts

Affiliate Marketing

Affiliate marketing describes the process whereby an affiliate earns a commission for selling the products of another person or company. Here, the affiliate is simply an individual who is motivated to promote a particular product through incentivization. The business whose product is being promoted will gain in terms of sales and marketing from affiliates.

Ambush Marketing

As the name suggests, ambush marketing raises awareness for brands at events in a covert and unexpected fashion. Ambush marketing takes many forms, one common element, the brand advertising their products or services has not paid for the right to do so. Thus, the business doing the ambushing attempts to capitalize on the efforts made by the business sponsoring the event.

Brand Building

Brand building is the set of activities that help companies to build an identity that can be recognized by its audience. Thus, it works as a mechanism of identification through core values that signal trust and that help build long-term relationships between the brand and its key stakeholders.

Brand Equity

The brand equity is the premium that a customer is willing to pay for a product that has all the objective characteristics of existing alternatives, thus, making it different in terms of perception. The premium on seemingly equal products and quality is attributable to its brand equity.

Brand Positioning

Brand positioning is about creating a mental real estate in the mind of the target market. If successful, brand positioning allows a business to gain a competitive advantage. And it also works as a switching cost in favor of the brand. Consumers recognizing a brand might be less prone to switch to another brand.

Business Storytelling

Business storytelling is a critical part of developing a business model. Indeed, the way you frame the story of your organization will influence its brand in the long-term. That’s because your brand story is tied to your brand identity, and it enables people to identify with a company.

Content Marketing

Content marketing is one of the most powerful commercial activities which focuses on leveraging content production (text, audio, video, or other formats) to attract a targeted audience. Content marketing focuses on building a strong brand, but also to convert part of that targeted audience into potential customers.

Digital Marketing

A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

Growth Marketing

Growth marketing is a process of rapid experimentation, which in a way has to be “scientific” by keeping in mind that it is used by startups to grow, quickly. Thus, the “scientific” here is not meant in the academic sense. Growth marketing is expected to unlock growth, quickly and with an often limited budget.

Guerrilla Marketing

Guerrilla marketing is an advertising strategy that seeks to utilize low-cost and sometimes unconventional tactics that are high impact. First coined by Jay Conrad Levinson in his 1984 book of the same title, guerrilla marketing works best on existing customers who are familiar with a brand or product and its particular characteristics.

Inbound Marketing

Inbound marketing is a marketing strategy designed to attract customers to a brand with content and experiences that they derive value from. Inbound marketing utilizes blogs, events, SEO, and social media to create brand awareness and attract targeted consumers. By attracting or “drawing in” a targeted audience, inbound marketing differs from outbound marketing which actively pushes a brand onto consumers who may have no interest in what is being offered.

Integrated Marketing

Integrated marketing describes the process of delivering consistent and relevant content to a target audience across all marketing channels. It is a cohesive, unified, and immersive marketing strategy that is cost-effective and relies on brand identity and storytelling to amplify the brand to a wider and wider audience.

Marketing Mix

The marketing mix is a term to describe the multi-faceted approach to a complete and effective marketing plan. Traditionally, this plan included the four Ps of marketing: price, product, promotion, and place. But the exact makeup of a marketing mix has undergone various changes in response to new technologies and ways of thinking. Additions to the four Ps include physical evidence, people, process, and even politics.

Marketing Personas

Marketing personas give businesses a general overview of key segments of their target audience and how these segments interact with their brand. Marketing personas are based on the data of an ideal, fictional customer whose characteristics, needs, and motivations are representative of a broader market segment.

Multi-Channel Marketing

Multichannel marketing executes a marketing strategy across multiple platforms to reach as many consumers as possible. Here, a platform may refer to product packaging, word-of-mouth advertising, mobile apps, email, websites, or promotional events, and all the other channels that can help amplify the brand to reach as many consumers as possible.

Multi-Level Marketing

Multi-level marketing (MLM), otherwise known as network or referral marketing, is a strategy in which businesses sell their products through person-to-person sales. When consumers join MLM programs, they act as distributors. Distributors make money by selling the product directly to other consumers. They earn a small percentage of sales from those that they recruit to do the same – often referred to as their “downline”.

Niche Marketing

A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.

Relationship Marketing

Relationship marketing involves businesses and their brands forming long-term relationships with customers. The focus of relationship marketing is to increase customer loyalty and engagement through high-quality products and services. It differs from short-term processes focused solely on customer acquisition and individual sales.

Sustainable Marketing

Sustainable marketing describes how a business will invest in social and environmental initiatives as part of its marketing strategy. Also known as green marketing, it is often used to counteract public criticism around wastage, misleading advertising, and poor quality or unsafe products.

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