Obscure the Nature of the Business
Multi-level marketing is not the same as direct selling any more than it is franchising. Avon and Tupperware are direct selling businesses, but not multi-level marketing. Multi-level marketing is a specialized business model. It differs significantly from traditional direct selling in its unique and characteristic policy of authorizing every active sales representative to recruit others and to earn override commissions from the purchases of generations of recruits in a multi-tiered chain. This use of the "endless chain" of recruiting is the main point of controversy. It is the characteristic that invites the financial abuse and deception.
The override commissions paid directly by the company to recruiters are the primary source for the promised incomes in MLM, while retail sales profits are the primary source of income in traditional direct selling
The MLM management chain is not the same as management structures used by traditional sales companies. Traditional direct selling companies can organize entire countries with four levels of managers overseeing a direct sales force that retails directly to the consuming public or to business end-users. In MLM companies, the number of levels expands "infinitely" as upper levels are awarded bonuses on the purchase volumes of extended generations of 12-level chains that have "broken away" when they reach purchase-volume thresholds. In this way, many MLMs function as "endless" chains.
The multiple levels are each paid some commission on each purchase made by new recruits. Usually between 40-60% of the price paid by the new recruit is redistributed to the recruiters above the latest entry level. In many cases, the total amount of the wholesale price that is paid to the "upline" exceeds the maximum gross profit the new recruit could earn if he/she were to retail the product at full price.
Multi-level marketing is not the same as direct selling any more than it is franchising. Avon and Tupperware are direct selling businesses, but not multi-level marketing. Multi-level marketing is a specialized business model. It differs significantly from traditional direct selling in its unique and characteristic policy of authorizing every active sales representative to recruit others and to earn override commissions from the purchases of generations of recruits in a multi-tiered chain. This use of the "endless chain" of recruiting is the main point of controversy. It is the characteristic that invites the financial abuse and deception.
The override commissions paid directly by the company to recruiters are the primary source for the promised incomes in MLM, while retail sales profits are the primary source of income in traditional direct selling
The MLM management chain is not the same as management structures used by traditional sales companies. Traditional direct selling companies can organize entire countries with four levels of managers overseeing a direct sales force that retails directly to the consuming public or to business end-users. In MLM companies, the number of levels expands "infinitely" as upper levels are awarded bonuses on the purchase volumes of extended generations of 12-level chains that have "broken away" when they reach purchase-volume thresholds. In this way, many MLMs function as "endless" chains.
The multiple levels are each paid some commission on each purchase made by new recruits. Usually between 40-60% of the price paid by the new recruit is redistributed to the recruiters above the latest entry level. In many cases, the total amount of the wholesale price that is paid to the "upline" exceeds the maximum gross profit the new recruit could earn if he/she were to retail the product at full price.