Origin of the Term "MLM"
MLM (Network Marketing) is rapidly becoming one of the fastest growing industries in the United States and around the world. There has been much written and reported in the news media about the proliferation and rapid growth or trend of home based businesses. Would you be surprised to know that the vast majority of these home based businesses are Independent Distributors in MLM and growing every day? For those new to MLM, we thought it might be helpful to give you some background on the origin and evolution of some basic terms used in this industry.
The terms Network Marketing and Multi-Level Marketing (MLM) are synonymous and are used interchangeably.
Initially, the term Multi-Level referred to the compensation plan (sometimes called marketing plan) or how Distributors (Independent Contractors) were paid. This plan allowed Distributors to leverage their energy and efforts through a small number of people that they brought into the business that they would train and manage who did the same thing with their own people, and so on. In this way, their network organizations and their bonuses grew geometrically, which is commonly depicted by drawing a triangle or what some people might call a "pyramid". By the way, our industry is not shaped like a pyramid, nor is any MLM company.
Over time the companies who offered this type of compensation were referred to as Multi-Level Marketing companies. Again over time, the term Network Marketing (primarily in the United States, because MLM is still the choice in Asia) was coined as a more appropriate or modern term to describe this emerging method of distribution of products and services and compensation. Person-to-Person, Relationship Selling and Affiliate Marketing are also terms sometimes used. The latter can be deceptive since a true Affiliate cannot legally pay more than two levels. If they do, they come under Network Marketing laws.
The term Direct Sales or Direct Sales Company is used to describe companies that contract with Independent Contractors who purchase the companys' products or services at wholesale and sell them directly to the end user or customer at retail like Kirby Vacuum, Electrolux and Fuller Brush and the Book companies, etc.
All MLM companies are involved in direct sales but not all direct sales companies are MLM companies. There are some Direct sales companies that have adopted MLM compensation plans (Fuller Brush, mentioned above) that are having success they didn’t have previously, and some still prefer to be called Direct Sales companies (mostly party plan companies), although they use a tiered compensation plan. If they have a program that rewards their Distributors (no matter what they call them) for the sales of the people they sponsor (recruit) for more than two levels, they are considered by law a MLM/Network Marketing Company.
The term Distributor or Independent Contractor, within the MLM industry, is also synonymous with other names such as – Network Marketer, Independent Representative, Consultant, Dealer, someone who has a Business Center and others.
Thus, the definition of these terms is expanding every year and I’m sure you could add more and more will be added as we continue in our great profession.