Capterra Glossary
Multi-Level Marketing (MLM)
Multi-level marketing (MLM) is a business strategy used by direct sales companies. MLMs encourage existing members to sell their offerings in addition to recruiting others to join the business. This type of business strategy is also commonly referred to as network marketing. The structure of MLMs is made up of a hierarchy of roles that can be ascended through either sales success or successful recruiting practices. MLM participants are often paid a percentage of their own sales and their recruits' sales, meaning that the more layers of recruits there are, the more money the businessʻs salespeople can earn.
What Small and Midsize Businesses Need to Know About Multi-Level Marketing (MLM)
The difference between an MLM and a small business is that MLMs put a heavy emphasis on recruitment, whereas small businesses are concerned with selling their product and service offerings. Small businesses and startups should understand that MLMs do not employ staff, but they do recruit a salesforce. In other words, MLM salespeople work off of commission and do not receive a salary or wage, and are considered independent contractors. If your organization functions using this structure, it is technically a sole proprietorship that contracts salespersons and uses a MLM business strategy, not an actual small business.