What is MLM? Network marketing explained plainly, without sugar-coating

When you tell someone you do network marketing, you will mostly hear one of these:

• Oh… is that the pyramid?
• Are those the people who sell saucepans?
• Just don’t drag me into anything.

I understand. I really do.

There are plenty of myths about MLM. Some are true, some are not at all. And most people have never heard what MLM really is and how it works.

So let me try to explain. In plain words, without sugar-coating. As if I were telling a friend by the fire.

What is MLM?

MLM is short for multi-level marketing, also called network marketing. It is a way of selling in which a company doesn’t sell through shops and advertising, but through people who use the products themselves and recommend them to others.

Put most simply: instead of paying for billboards, the company pays the people who recommend the product.

Those people are called different things. Distributor, adviser, partner, associate. The principle is always the same.

How does network marketing work in practice?

Network marketing works on two levels: a partner recommends products to customers and can also build a team of people who do the same. They receive a reward from both.

1. The company has products. Cosmetics, food supplements, household goods, services. It makes them or buys them in.
2. The partner uses them and recommends them. A customer buys through them or through their link.
3. They receive a reward for the sale. According to the company’s rules, which are called the compensation plan.
4. They can build a team. When they bring in people who also recommend products, they receive a small part of the turnover of the whole team.
5. They teach and lead. This is where what is called leadership in MLM begins.

That fourth point is the reason it is called “network”. And also the reason MLM has such a colourful reputation.

Why is MLM called “multi-level” marketing?

Network marketing is called multi-level because the reward flows from several levels of the team: from your sales, from the sales of the people you brought in, and often from the sales of the people they brought in.

Imagine a family tree. You at the top. Below you the people you know. Below them the people they know.

How many levels count and under what conditions is different in every company. Always ask to see it in writing. I write about what to ask in the article How to choose an MLM company.

Is MLM a pyramid?

MLM is not a pyramid if the company sells real products to customers and the rewards come from sales. A pyramid stands mainly on the money of new members and on recruiting, not on goods.

The law covers this too. Under EU rules on unfair commercial practices (Directive 2005/29/EC, Annex I), a pyramid promotional scheme is prohibited in all circumstances. That is a scheme in which a person pays for the chance to receive a reward that comes mainly from bringing in other people, and not from selling or consuming products.

My simple test: if everyone stopped recruiting new people tomorrow, would anyone go on buying those products? If so, it is a normal business. If not, run.

MLM and a pyramid: the main differences

Area	Legal MLM	Pyramid
What it stands on	Selling products to customers.	The money of new members.
Who buys	People who build nothing too.	Almost only members of the system.
Entry	A low fee or none.	Expensive entry or a compulsory package.
Reward	From the turnover of products.	Mainly for bringing in people.
Without recruiting	Carries on working.	Collapses.
The law	Legal business.	A prohibited practice.

What are the advantages and disadvantages of MLM?

The main advantage of MLM is that you can start a business with small costs, alongside your job and with the support of a team. The main disadvantage is that results come slowly, depend only on your work, and the field has a battered reputation because of bad practices.

What I like about it:

• You start without a big investment and without an office.
• You can do it alongside a job.
• You learn things that are useful everywhere: talking to people, leading, persisting.
• You aren’t alone in it. You have a team around you.

What needs to be said plainly:

• It is work. No miracle that runs on its own.
• Results aren’t guaranteed and come slowly.
• Not every person and not every company is honest.
• The reputation of the field sometimes closes doors before you manage to say anything.

Who is network marketing for?

Network marketing is for people who enjoy working with people, don’t mind starting slowly and want to learn. You don’t have to be an extrovert or a born salesperson.

I’m an introvert. As a newcomer I thought I didn’t have what it takes. And for a long time I used that as an excuse.

Today I know that was one of my five biggest mistakes. I wrote them down in the article 5 beginner mistakes in MLM that I came unstuck on myself.

On the other hand, it isn’t for you if you expect money without work. It isn’t here. And whoever promises it to you isn’t telling you the truth.

How do you start in network marketing?

You start in network marketing by choosing a company you trust and a person who will really teach you, and by giving yourself a simple plan for the first weeks.

1. Choose the company with your head, not your emotions. Go through it using a few ordinary questions, not one enthusiastic presentation.
2. Choose a person, not just a company. A sponsor is the person who brings you into the company. They should teach you, not just register you.
3. Try the products yourself. If you wouldn’t buy them, you won’t be able to recommend them.
4. Start talking to people before you know everything. I waited too long.
5. Give yourself a system. A few hours a week, a small goal, a short look back on Sunday.

I write about how to approach people without losing your friends in the article How to approach people in MLM without annoying family or friends.

Frequently asked questions

What does the abbreviation MLM mean?

MLM stands for multi-level marketing, also known as network marketing. It is a way of selling through a network of independent partners who receive a reward from their own sales and from the sales of their team.

Is network marketing legal in the EU?

Network marketing is legal in the EU when the company sells real products and the rewards come from their sales. Pyramid schemes, where people are paid mainly for recruiting, are prohibited. The rule comes from Directive 2005/29/EC on unfair commercial practices, which every EU country has transposed into its own law.

How much can you earn in MLM?

I won’t tell you honestly how much you can earn in MLM, and nobody honest will promise you. It depends on the company, on the compensation rules, on the time you put in and above all on your work. Anyone who promises specific amounts or quick riches is a warning sign for you.

Do I have to invest money in MLM?

You don’t have to invest big money in a decent MLM company. The entry fee is usually low or none, and you buy products mainly because you use them yourself. If someone asks you for an expensive compulsory package right at the start, slow down and ask why.

What is the difference between MLM and network marketing?

There is no difference between MLM and network marketing. Both terms describe the same way of selling through a network of independent partners. Some people say network marketing only because the abbreviation MLM has a worse reputation.

So, is it for you?

MLM is not a miracle. It isn’t a scam either. It is a tool.

And as with any tool, it matters who is holding it.

With a spade you can dig the foundations of a terrace. Or give yourself a nasty whack on the leg.

If you want to see how I do it, arrange a private presentation. Calmly, with no obligation and no pressure.

Tom