Network marketing

Multi-level marketing, abbreviated as MLM, also called pyramid selling,network marketing, and referral marketing, is a controversial marketing strategy for the sale of products and/or services where the revenue of the MLM company is derived from a non-salaried workforce (also called participants, and variously known as "salespeople", "distributors", "consultants", "promoters", "independent business owners", etc) selling the company's products/services, while the earnings of the participants is derived from a pyramid-shaped commission system.

Although each MLM company dictates its own specific "compensation plan" for the payout of any earnings to their respective participants, the common feature which is found across all MLMs is that the compensation plans theoretically pay out to participants only from the two potential revenue streams. The first stream of compensation can be paid out from commissions of sales made by the participants directly to their own retail customers. The second stream of compensation can be paid out from commissions based on the sales made by other distributors below the participant who had recruited those other participants into the MLM; in the organizational hierarchy of MLMs, these participants are referred to as one's “down line” distributors.

MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of relationship referrals and word of mouth marketing, but most importantly they are incentivized to recruit others to join the company as fellow salespeople so that these can become their down line distributors.

Studies by independent consumer watchdog agencies have shown that between 990 and 999 of every 1000 participants (i.e. between 99.0% and 99.9% of all participants) in MLMs in fact lose money.

In the MLM business model, the commission derived from the MLM pyramid structure (i.e. from the sales of one's recruits) is the most profitable revenue stream. This revenue stream, however, is also the least statistically probable source of remuneration to a salesperson. Conversely, the revenue stream from direct-sales of ones own personal sales is the least profitable. This revenue stream, however, is also statistically the most likely source of remuneration to salespeople. For the overwhelming majority of participants, however, neither one of these two revenue streams will be profitable after operating expenses are deducted.

The overwhelming majority of MLM participants (most sources estimated to be over 99.25% of all MLM participants) participate at either an insignificant or nil net profit. Indeed, the largest proportion of participants must operate at a net loss (after expenses are deducted) so that the few individuals in the uppermost level of the MLM pyramid can derive their significant earnings—earnings which are then emphasized by the MLM company to all other participants to encourage their continued participation at a continuing financial loss.

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