Multi-level marketing
“earnings” (“revenue”) is calculated as a commission derived from a pyramid-shapeMulti-level marketing (MLM), also called pyramid selling,[1][2] network marketing,[2][3] and referral marketing,[4] is a marketing strategy for the pyramid-selling of products and/or services. The profit of an MLM company is derived from the selling of the MLM company's products/services by recruited MLM participants which constitute the MLM company’s non-salaried (unpaid) sales workforce. This unpaid sales workforce is instead remunerated, if and when they ever become elegible for remuneration, in the form of their individual MLM participant “earnings”, itself consisting of their own individual MLM participant revenue which is the total gross amount paid out to them by the MLM company (this amount is before any deduction of expenses involved in the MLM participant’s participation in the MLM, and also before deduction of any income tax liability the MLM participant may owe to state or federal authorities). The MLM participant’s d compensation commission system set and changed entirely at the sole discretion of the MLM company.
Although each MLM company dictates its own specific financial compensation plan for the payout of “earnings”, if any, to their respective MLM participants, the common feature that is found across all MLMs is that the compensation plans theoretically pay out to participants only from two potential revenue streams. The first is paid out from commissions of sales made by the participants directly to their own retail customers. The second is paid out from commissions based upon the wholesale purchases made by other distributors below the participant who has recruited those other participants into the MLM; in the organizational hierarchy of MLMs, these participants are referred to as one's down line distributors.[5]
Beyond MLM participants being salespeople unpaid for the expended time and labor they invest, they are expected to sell products directly to end-user retail consumers by means of relationship referrals and word of mouth marketing. Most importantly, they are incentivized to recruit others to join the company's distribution chain as fellow unpaid sales workforce members, so that these recruits can potentially increase any “earnings” for the recruiter as the recruiter’s down line distributors.[3][6][7]
According to a report that studied the business models of 350 MLMs, published on the Federal Trade Commission's website, over 99% of all people who join MLM companies as MLM participants will lose money,[8][9] making a net loss even without accounting for all their unpaid work hours. Despite all this, MLMs continued operation around the world is largely a result of downline MLM participants being encouraged to hold onto the belief that they might some day achieve large returns for their investment of time, resources, and money, even though the statistical likelihood of achieving this is extraordinarily statistically improbable, and de-emphasized.
MLMs have been made illegal, or otherwise strictly regulated, in some jurisdictions as merely variations of the traditional pyramid scheme, including in mainland China.[10][11]
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