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Multi-level marketing is also known as the MLM industry. It is a system where an individual buys a product at a discount and sells it at a profit and a business opportunity where additional sellers are recruited. Many companies in the MLM industry have sales operations all over the world, with hundreds of thousands of independent distributors selling and recruiting. Compensation plan is considered by most to be the primary indicator in determining whether a sales organization is in the MLM industry.
It was in the United States in 1945 that most believe the MLM industry was created when the California Vitamin Company began selling Nutrilite™ vitamin supplements through independent sales representatives under a new compensation plan. The hallmarks of the plan included a required level of personal product sales, earnings on the sales of the individual representative and commission on the sales of anyone that person recruited, and bonuses based on volume and consistency of sales and recruitment. . Commissions were also earned on recruits from recruits with various levels of recruits allowed. These various levels came to be called the team leader’s downline.
In a typical MLM organization, a potential new team member is introduced to the product or service offered through an independent representative. Often the business opportunity to sell the product comes at the first sale. Potential sales reps are often required to purchase a certain amount of the product and a starter kit, attend training, and sell the product to a certain number of new customers. When these requirements are met, the new sales rep is usually free to start establishing their own downline.
The head office of an MLM company often offers a variety of administrative support activities. This may include advertising, web presence, payment processing, shipping, training, and commission disbursement. Head office also often hosts sales and recruiting contests, in which performance at certain levels earns cash, prizes, trips, and recognition.
Companies in the MLM industry offer a wide range of products through independent distributors. Products include nutritional supplements, cosmetics, household products, wine, and cookware, among many others. The MLM industry also offers services such as prepaid legal services and life and health insurance.
Some companies in the MLM industry have been accused of being pyramid schemes. In a pyramid scheme, there is no actual sale of products to anyone outside of the downline; profit results only from selling to those whom a person has persuaded to sell. A true MLM organization requires its distributors to sell to those outside of the downline.