Glossary
Multilevel Marketing (MLM)
Multilevel marketing, usually shortened to MLM, is a direct selling business model where distributors earn commissions on their own product sales and on the sales made by distributors they personally recruit, often across several additional levels below those recruits as well. The Federal Trade Commission distinguishes a lawful MLM, which pays real commissions tied to sales to genuine customers, from an illegal pyramid scheme, which pays mainly for recruiting rather than for product sold to end users.
Also called: MLM, multi-level marketing, multilevel marketing
Regulated termWhy it matters
Whether a company is a legitimate MLM or an unlawful pyramid scheme turns on how its compensation plan actually pays, not on how the company describes itself. Regulators look closely at whether most revenue and most commission comes from sales to real customers outside the distributor network, or mainly from required purchases and recruiting.
Example
A distributor earns a retail profit on skincare sold to personal customers, plus a small override on the sales her recruited team members make to their own customers, an arrangement built around real end customer sales rather than recruiting fees.