What Is an MLM Business Model

You’re surfing on the net for ways to make money, or you have friends inviting you to parties involving different products, or you’ve been approached by friends/family members to join a specific company…? You read on the web, or they told you that you could make a lot of money out of this company if you dedicate a lot of time and effort. They sell you dreams and an unrealistic life, and you wonder, should I?

What they introduced you to is a Multi-Level Marketing (MLM) business model, and in this article, I want to explain to you in more detail what it is about. Our main question is: What is an MLM Business Model? For everyone who doesn’t know what MLM companies are about, this article is for you. If you know a little, but you would like to know more, it is also for you!

So without any further due, I will jump in the explanation of what is an MLM business model. If you have any questions/comments/experiences you would like to share, leave them in the comments at the end of this post. 🙂

1. The Definition

What Is an MLM Business Model

By definition, an MLM company is also called pyramid sellingnetwork marketing, and referral marketing. It is a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried workforce selling the company’s products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.

This definition comes from Wikipedia and shows shortly what an MLM business model is. One of the main reasons why I decided to write this article is to give you a better explanation of what an MLM business model is so that it is more precise than this short definition. It will help you have a better idea of what it involves so that you can be aware of it.

The keywords you must keep in mind are pyramid sellingnetwork marketing, and compensation commission system

2. What MLM Companies Involve

Many companies work under the MLM business model, so knowing what it involves is primordial. Even if an opportunity seems attractive, you need to be sure to understand what’s going on inside so that you don’t waste your money and time; these are two precious things.

2.1 Every MLM Should Have a Product To Sell

First, as you’ve been introduced, you probably saw that the primary goal of entering an MLM business model is to sell products to earn revenue from it. Warningif no products are involved, be aware that it might be a severe scam that only wants your money, you should be careful. I’ll come back on this later.

The kind of products can be absolutely anything. It can be household (e.g. Norwex, Amway), services of an insurance (e.g. Primerica), teaching service (e.g. IM Mastery Academy), etc. The possibilities are infinite as long as the products or services are viable. The critical point is to remember that there must be a product or service.

2.2 The Compensation Plan

The reason we call these companies Multi-Level Marketing is that they offer a compensation plan. This compensation is paid for every new member you recruit. When you recruit new members, they subscribe under your sponsorship, and this is where it takes the look of a pyramid (yes, like this one below).

Pyramid - What Is an MLM Marketing Business Model

The compensation plan is different in every MLM company, which means that in some of them it can be exciting and in others, it won’t be so interesting. It mostly depends on the company’s fees since it is closely linked. The higher the fees, the more you are alike to earn a lot of money. Most of the time, these companies will have ”ranks” so, for a specific number of new members, you earn a particular prime. 

Let’s take an example, at IM Mastery Academy for every new member you earn $50 immediately when they subscribe. The next compensation depends on how many members you have on your team, e.g., for three members; you will receive $150 per month, 12 members you receive $600 per month, etc.

2.3 Learning Marketing In an MLM Company

In some MLM companies, you will be able to learn marketing. Some companies have a program teaching their members how to promote the company the right way. It can be exciting when you’ve never done marketing before or just if you want to learn more about it. You won’t find this in every MLM companies so if this is something you are looking for, choose the right company for you.

Unfortunately, in this business model, most of the time, why people are staying is because of the compensation plan. Companies know a lot of money can be made out of this model, so they offer exciting compensation plans.

Unfortunately, #2, the majority of people are told false information about the reality of working in an MLM company. The average money these people make is $200 per month, which is not what companies are selling. As long as people pay their monthly fees (or any other fees) to stay in, companies are happy and don’t really care.

In resume, this is what you will find inside an MLM business model on ”how to make money”. It is not an easy path; if you want to succeed in this kind of model, you must work hard and dedicate a lot of your time (as in any other type of business) and be aware that you probably will have to harass many people to climb the pyramid. 

3 What You Should Be Aware Of

What Is an MLM Business Model

3.1 Legality

The reason why I say you must be aware of is that not every MLM company is legal. As explained in the last chapter, MLM companies must sell a product or a service. Without a product or service, the legality of this company might not be present. So, before entering any MLM company, be sure to be informed of their products or services. This product or service is what makes the company viable.

When no product or service is offered, it means that the only revenue of the company is based on recruitment, and this is illegal in most countries (if I talk for myself, it is the case in Canada). In the long term, only recruitment as revenue cannot be viable because there is no money generated elsewhere. Imagine no more people come in; then, the pyramid will fall. 

3.2 How Long It’s Been In Operation

Another thing I would like you to be aware of is how long the company has been in operation. Some of the biggest MLM companies exist for more than 20 years (e.g. Amway), and some exist only for 5 or 6 years (e.g. IM Mastery Academy), it can make a difference in their legitimacy. In every kind of business, it takes approximately five years for a new company to tell if it’s going to last or not. Usually, if it’s still opened after five years of operation, it should stay in the game and continue growing (not necessarily the case for every company, many factors must be considered to determine the longevity of a company). So, if the MLM company you are looking for has been in operation for more than 20 years, maybe it can be more trustable than a company that has been running for three years. I repeat, it is not always the case, but it is something you can take into consideration if you consider entering an MLM company.

3.3 About The Founder

In my sense, this is an essential factor. The first thing I do when I find an MLM business, I look for their ”About Us” page to know where it comes from. Knowing the provenance of a business build trust and confidence toward this business. You feel you can jump in safely. If you cannot find any information about the founder(s), I would stay away from this business. 

3.4 Terms Used

It’s probably not the more critical factor to consider, but I think it is important that the company uses the right name when it comes to a professional manner. What I mean by that is that some MLM companies use the term ”affiliate program” when they mean a ”compensation plan”. 

An affiliate program is when you receive a commission for a single sale (I explain what an affiliate program is in another chapter)compensation plan is when you recruit new members. In an MLM business model, it’s the compensation plan that applies. You will find ranks such as Platinum, Diamond, Chairman, etc. So, whatever the company talks about, be informed of how its remuneration works.

So I’m telling you, before entering any MLM companies, take as much information as you can. Make sure they sell products or services; only recruitment is NO. Take a look at how long it’s been in operation. Learn more about the founder and its intention in building such a business. Find out what kind of remuneration is offered if you are looking to recruit new members.

4. MLM Companies Are Not Accepted Everywhere

What Is an MLM Business Model

Since we live in a world with many countries and different legislation, it’s possible that MLM companies are not accepted where you live. If you consider joining one of them, you must be informed before if this company is legal in your country. 

I didn’t check for every country how it works, but I can tell for Canada since it is where I live. In Canada, MLM companies that are based only on recruitment are entirely illegal and called ”pyramid”. Although, if a product or service is offered and it’s the main focus of the company, then it is legitimate. 

An MLM plan is a plan with three or more levels (the operator and at least two levels of participants) that promotes the supply of a product to participants of the plan. Compensation is earned by participants in the MLM plan based on the supply of the product to participants and/or non‑participants of the MLM plan. A legitimate MLM plan focusses on the supply of products rather than the recruitment of prospective participants into the MLM plan and offers products that consumers value and are willing to purchase.” (https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03035.html, point 4.1)

So again, before entering any MLM companies, even if it looks stimulating, make sure you cannot have any problem with your country legislation. 

5. Scam or Legit?

What Is an MLM Business Model

Now the hard question. MLM business model: Scam or legit? 

Although this question goes right to the point, I think the answer can be found throughout my article easily, depending on how you see it. Still, I want to add one point :

I think it is more appropriate to ask this question for every MLM company separately since they are all different. We know in general what involves an MLM business model, so now, we must look deeply into one specific company like I have done for some (you can take a look here). By going in profoundly, we can analyze the product or service offered and tell if it has a long term value and if customers like it, how long the company has been in service, how much it cost to get started, what is the compensation plan, etc. 

By knowing this information, it is easier to position ourselves in front of this company and tell if it’s worth our time, money, and effort. Building a business is not easy, so if you can choose the right model for you right at the beginning, it’s better. 

So, I cannot say if Multi-Level Marketing companies are a scam or legit because they are too different even if they operate under the same business model. The best solution is to analyze them independently.

6. Affiliate Marketing Is Safer Than MLM 

What Is an MLM Business Model

However, if the main reason you are interested in entering an MLM business model is to create another source of income or even create a full-time income, there is a safer alternative. This alternative is affiliate marketing. Now, you must ask yourself what the difference between multi-level marketing and affiliate marketing is, right? Since all these words are close to each other, let me explain to you what affiliate marketing is.

Google’s definition is ”marketing arrangement by which an online retailer pays commission to an external website for traffic or sales generated from its referrals.” There are many keywords in this definition. Let’s check out my definition: ”promoting products or services through a website from a seller in exchange for commissions on these sales.” Finally, in simple words, you become a salesman promoting different products or services to earn commissions and make money.

Affiliate marketing is not complicated and is full of opportunities online. Do you know how many people are buying online? No? Me neither, but I know there are many millions of them. What if you could profit from all these sales? Absolutely anyone can do it with a little will. The hardest part is to know where to start and how to do it. Good news, learning affiliate marketing is like learning how to write and read; you sit down, you listen to the lesson and practice and practice and practice. What lesson?

These lessons are taught through the Online Entrepreneur Certification. This training teaches exactly how to build a business with affiliate marketing. It goes from A to Z and it is for absolutely everyone, beginner or advanced.

I personally took this course and it helped me build an awesome business with affiliate marketing. I didn’t know affiliate marketing before and I never thought of building a business neither. But because of this step-by-step training, my beginner skills became soon enough advanced skills to use affiliate marketing like a pro.

Taking this course was definitely a better idea than going back to traditional school. Learning how to make money is much more fun! This is the best decision I could take for my future.

I hope this article helped you understand better what is an MLM business model and maybe discover affiliate marketing if you didn’t know what it was.

Let me know your experiences or opinions on MLM companies. Have you experienced this business model before? If so, are you still working with one? Do/Did you like it?

Your friend,


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  1. Finally someone who can explain to me in simple words what MLM is and what it isn’t! Thanks for doing all the research on this. Actually, I didn’t know that MLM companies sell their own products – I thought the membership was the only thing they sell. In that sense, a lot of companies are MLM actually and I didn’t even know! Of course, that makes differentiating the different products and companies much harder now – since both of them have to have a product. Luckily you’re reviewing them and I can check your reviews to see what’s MLM and what’s not! Looking forward to more content like this, it was very interesting to read.

    1. Hi James,

      I’m very happy it helped you understand correctly what is an MLM business model. In fact, many companies sell products to customers like you and me, but they add the option of becoming a representant of that company and sell their products for them. In return, you either have discount or commissions, it depends on each companies. Plus, many of them offer the compensation plan, like I explained, where you can recruit new members and upgrade in the company hierarchy, that’s why we call them multi-level marketing companies.

      Stay tuned, more are to come! 😀

  2. I can totally see the difference between the two marketing models now, I can recall a similar MLM company that had its own products, but it was still an MLM company at the end of the day, and guess what? like you said in this post, it no longer exists..this was back in 2014 by the way! 5-6 years later and it no longer exists…

    So touching on affiliate marketing, I definitely think that this is a sustainable model, because it almost mimics the traditional purchasing model that we’re all accustomed to…

    Because inherently we know that in order to earn money in any business, a sale must take place, & like you said we(affiliate marketers) are like salesmen/saleswomen of particular online products that are seeking to expand their reach and drive more sales to their websites.

    Thanks for really clarifying this, I gained a deeper understanding of the different models, and I also came to understand that other MLM companies can have a product, and others rely solely on recruitment, some do both, but still border on fraud, especially ones with anonymous owners.

    1. Hi Kay,

      I’m happy to read that it helped you understand better the different models. Wow, you see! I think Young MLM companies are a big risk for new members because it’s hard to tell if it’s going to survive long enough so that they can have a sustainable income without being afraid of losing it. Affiliate marketing remains more secure than MLM. Plus, Wealthy Affiliate is in operation since 2005, so it had made its proofs.

      Thank you for sharing Kay!

  3. Hi, Audrey,

    I remember my first “job” when I was 18. I saw an ad on the newspaper and called to get more info. They scheduled me for an interview and I went. It turned out I had to sell perfumes to become part of the company. Naive as I was, I accepted. I didn’t reach the quota.

    It turned out later that it was all a scam. They opened a company, ripped people off and then disappeared. Then they would move to another city and open a company under a different name.

    MLM’s have a very bad reputation in Mexico. Ever since, I have always avoided them.

    Thanks for sharing.

    1. Hi Enrique, thank you for sharing your story with us. I’m sorry for you that you experienced this. It frustrates me to see such companies do this to people who only want a better future. I hope people will make sure to find enough information about the company before joining.

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