In a recent article where Melaleuca was mentioned to deny being MLM, a debate began between individuals on what defines MLM.
MLM simply means Multi-Level Marketing. If you are able to build a team of independent sales people that you earn an income from, this is multi level marketing, even if it's one line of IBO's. (Independent Business Owners) What makes MLM different from traditional sales are a few things. The distributors are all on a 1099 and not a W-2. They are independent, making their own hours, working at their own leisures.
A salesperson at a car dealership, for example, is hired by the car dealership and has to report in, still clocking in, still showing up for work and is expected to be there. If a salesperson doesn't meet the expectations, they are fired. In MLM, there's usually a low start up cost. In traditional sales, there is no start up cost and there may also be a minimum salary offered plus commissions.
Some of the largest MLM companies are Herbalife, Amway, and Mary Kay.
An IBO can't be fired. They can be terminated by the company for violation of a contract. Most network marketing (or MLM) companies fall comfortable in line with the MLM model, there are a few that will deny they are MLM and walk the line on definition. But most in the industry would still put them under that category. An MLM generally relies on its distributors for marketing of the products and advertising.
A traditional sales company still has a very high budget for marketing and advertising. Avon is one of the few exceptions in where they still spend a large amount on a marketing budget. Avon is an MLM company that takes on a lot of direct-selling attributes, such as focusing on product sales and retailing and offering limited commissions on team building.
Anyone can sign up in MLM. Not everyone can sign up for traditional sales as they have to go through a traditional job interview with a manager to be accepted. In traditional sales, they are mostly employees.
An Affiliate program is one where someone signs up for free (in most cases) and earns a referral bonus for marketing a product or service. Amazon, AWeber, Host Gator, and Get Response are all examples of affiliate programs. The ability to build a team is not present. There's usually no quotas or overhead. The referral fees are usually nominal and there is no motivation to sell, or any programs to motivate the individual to sell in most cases.
A direct selling company is a cross between an affiliate program and an MLM. In a direct-selling company, there will be a start-up cost and the person will most likely earn commissions the same way as an MLM without building a team. They will most likely have a regional director of sorts and be invited to attend meetings that help motivate them to sell products. Their focus is 100% on selling products. There may be a referral bonus for referring someone else to become a distributor for the company, but it is a one-time bonus. An example of a true direct-selling company is Chloe+Isabel, a national jewelry company based out of New York City.
A direct-selling company, such as Chloe+Isabel, also does not sign everyone up. Individuals must fill out an application and applicants are limited to keep the market from saturating.
The confusion for many is that there are several companies that blur the lines and are hybrids of different styles of network marketing and direct-selling companies. Although Avon is traditionally considered an MLM company, recent statements by the company after they dropped their membership with the DSA seem to push them towards the direct-selling model.
While affiliate programs and direct-selling companies primarily focus on retailing their products, it is the MLM company that continues to go under fire by the public and media for focusing on income and team-building. There are benefits and drawbacks to all three models and it is important for an individual to understand what they're signing up with before working with a company.