# Network Marketing: Understanding MLM, Affiliate Marketing, and More

![Network Marketing](https://www.investopedia.com/thmb/L41AP4qMX2ez5fISSEjn89SyIn8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/network-marketing-c915b4cfa835460b8a3a4e01f6813109.jpg)

*— Investopedia / Ellen Lindner*

## What Is Network Marketing?

Network marketing is also called multilevel marketing (MLM), cellular marketing, [affiliate marketing](https://www.investopedia.com/terms/a/affiliate-network.asp), consumer-direct marketing, referral marketing, or home-based business franchising.

Network marketing is sometimes compared to pyramid schemes, but it differs in that the intent is not to create a network of new members paying off more senior members; instead, it is to sell actual products and services. The Federal Trade Commission cautions individuals about multilevel marketing programs, but acknowledges that there are ethical MLM and network models and businesses.

### Key Takeaways

*   Network marketing involves building a network of salespeople or business partners who help generate leads and close sales, commonly through a multilevel marketing (MLM) structure.
*    Sales representatives in network marketing often earn commissions based on the sales of their recruits, creating a tiered system where those at the top level can earn the most.
*   The Federal Trade Commission (FTC) monitors network marketing companies to ensure they do not operate as illegal pyramid schemes, which profit more from recruitment than actual product sales.
*   Reputable network marketing operations focus on compensation based on genuine product sales, rather than primarily on the recruitment of new distributors.

## How Network Marketing Operates

Network marketing firms use their salespeople's relationships to find customers and market products. It serves as an alternative or addition to traditional marketing strategies. Salespeople are pressured to aggressively target their friends and family, not only to buy their products but also to recruit them as new salespeople.

Sales representatives are encouraged to recruit salespeople, creating multiple tiers of recruits in network marketing. The creators of a new tier or "upline" earn commission on their sales and on sales made by the people in the tier they created, the "downline."

New tiers can create additional tiers, increasing commissions for top and middle-tier members. Salespeople's earnings depend on recruitment and product sales. Those in the top tier make the most.

Network marketing has been compared to pyramid schemes, particularly with regard to the focus on recruiting new distributors. The Federal Trade Commission has warned that many multi-level marketing firms may be pyramid schemes but it stopped short of saying that the model is inherently fraudulent.

> **Important**
>
> Some MLM schemes may be run as pyramid schemes. A pyramid scheme funnels earnings from all recruited participants on the lower levels of an organization to those on higher levels. The Federal Trade Commission (FTC) monitors businesses that operate as multi-level marketing companies.

## Real-World Network Marketing Examples

Energetic individuals with good sales skills can build a profitable business with modest investment in network marketing. An operation that ensures compensation based on actual sales to real customers tends to be more reputable than multi-tier schemes in which people make money based on the number of distributors they recruit, according to the [Federal Trade Commission (FTC)](https://www.investopedia.com/articles/financial-theory/10/the-us-federal-trade-commission.asp).

The FTC settled a suit with Herbalife in 2016, alleging that the company deceived consumers into believing they could earn money selling diet, nutritional supplements, and personal care products. Herbalife paid $200 million to compensate consumers and restructured its business.

Skin care provider Rodan and Fields operated as a billion-dollar business in the MLM space before 2024. The company moved away from the multilevel direct business model and established a new affiliate program due to increased online marketing and shops like Amazon or TikTok Shop.   

## How Should an Individual Research a Network Marketing Company?

Anyone considering joining a network marketing operation should independently use or be enthusiastic about the products. They should familiarize themselves with the company structure and be sure that the position is to earn commissions based on selling products and not recruiting others.

## What Are Some of the Oldest Network Marketing Programs?

Some of the oldest network marketing companies still exist in 2024. Avon was founded in 1886. Tupperware was established in 1946. Amway began in 1959.

## What Are "Buyback Provisions" in Network Marketing?

“Buyback provisions” allow participants to return unsold products to an MLM for a refund. This Federal Trade Commission mandate benefits sales representatives with too much inventory who can't earn commissions.

## The Bottom Line

Network marketing is a business model that uses independent representatives to build a network and generate sales. The model may involve multilevel marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, or home-based business franchising.

The Federal Trade Commission helps to regulate the operations of network marketing organizations. There are risks involved when considering joining a network, such as pyramid schemes, so it's important to conduct your due diligence. If the business focuses more on recruitment than it does on sales of products or services, it is likely not a network marketing model and should be avoided.

> **Article Sources**
>
> 1.  Federal Trade Commission. "[Multi-Level Marketing Businesses and Pyramid Schemes](https://consumer.ftc.gov/articles/multi-level-marketing-businesses-pyramid-schemes)."
>     
> 2.  Federal Trade Commission. "[Business Guidance Concerning Multi-Level Marketing](https://www.ftc.gov/tips-advice/business-center/guidance/business-guidance-concerning-multi-level-marketing)."
>     
> 3.  Federal Trade Commission. "[Herbalife Refunds](https://www.ftc.gov/enforcement/refunds/herbalife-refunds)."
>     
> 4.  PR Newswire. "[Rodan + Fields Announces New Path to Growth](https://www.prnewswire.com/news-releases/rodan--fields-announces-new-path-to-growth-302197214.html)."
>     
> 5.  Avon. "[The Best Beauty Story Ever Told](https://www.avon.com/135-years-of-avon/david-h-mcconnell#:~:text=In%201886%2C%2034%20years%20before,to%20create%20a%20beauty%20company.)."
>     
> 6.  Tupperware. "[About Tupperware](https://www.tupperware.com/pages/about-us)."
>     
> 7.  Amway. "[About Amway](https://www.amway.com/en_US/amway-insider/common-questions/about-amway#:~:text=Amway%20has%20been%20in%20business,helping%20others%20do%20the%20same.)." Select "How long has Amway been in business?"