Direct selling and multi-level marketing (MLM), also known as Network Marketing, are two business models that are often used by companies in the UK, and Worldwide, to sell products or services.
Key differences
Both models involve selling products directly to consumers, but there are some key differences between the two.
Direct selling
Direct Selling is a business model in which a company sells its products or services directly to consumers, usually through a network of independent sales representatives. These representatives typically work on a commission basis, earning a percentage of the sales they make.
This model is often used by companies that sell products such as cosmetics, jewellery, and home goods. Direct selling companies usually have a wide range of products, and the representatives can reach out to customers through a variety of channels, such as home parties, online sales or door-to-door visits.
Multi-level Marketing
Multi-level Marketing (MLM), also known as Network Marketing, is a business model in which a company sells its products or services through a network of independent sales representatives. (“Network Marketing (Multi-Level Marketing) – The Ultimate Guide”)
However, unlike direct selling, MLM also allows representatives to recruit other representatives and earn a percentage of their sales as well. This creates a “multi-level” structure in which representatives can earn money from not only their own sales but also the sales of those they recruit. This model is often used by companies that sell products such as health supplements, energy drinks, and personal care products.
Commissions
One of the key differences between direct selling and MLM is the way in which commissions are earned.
In direct selling, representatives earn a commission solely based on their own sales. This means that they will only make money from the products they sell directly to consumers.
In contrast, in MLM, representatives also earn a commission from the sales made by those they recruit. This creates a hierarchical structure, with representatives earning money from not only their own sales but also the sales of those they recruit, and so on.
Another difference between the two models is that in direct selling, the representatives are not required to recruit other representatives in order to earn a commission. In MLM, however, recruiting is a key component of the business model, and representatives are often encouraged to recruit people in order to earn more money and grow their business.
It’s important to note that MLM can sometimes be associated with pyramid schemes, which are illegal in the UK and other countries.
Is it a pyramid scheme?
A pyramid scheme is a business model in which a company recruits new members primarily to make money from them, rather than selling a product or service. In a pyramid scheme, the majority of the money earned comes from recruiting new members, rather than from sales of products or services. Pyramid schemes are illegal because they are inherently unsustainable – eventually, there will not be enough new members to recruit, and the scheme will collapse.
There are a number of red flags that consumers should be aware of when considering an MLM opportunity. Here are our top 3:
- Company history – making sure consumers research the company thoroughly is a must
- If an MLM opportunity seems to be primarily focused on recruiting new members, rather than selling products or services, it is likely to be a pyramid scheme
- Consumers should also be wary of MLM opportunities that require a significant investment, or that make unrealistic income claims.
In conclusion, Direct Selling and Multi-level Marketing are two different business models that are used by companies to sell products or services. The main difference between the two is that Direct Selling representatives only earn a commission from their own sales, while MLM representatives also earn a commission from the sales made by those they recruit.
If you would like to find out more information about PRB’s Network Marketing solutions, visit our dedicated website pages or give us a call on 01444 458252.