MLM, Direct Sales, Pyramid Schemes... What Do All These Terms Mean?

So now that you have jumped into the direct sales business with both feet, do you know what the terms mean? You hear Direct Sales and MLM used interchangeably, but do you know the difference? Can you explain the difference to your potential prospects? And what about those nasty illegal pyramids, do you know what that actually means and how to identify them?

In many people's minds, these are all the same. But they are not the same, and have very distinct characteristics. If you are involved in Direct Sales, or considering becoming involved in Direct Sales, you really need to know these terms. So, let's begin with the one we don't want to encounter! A pyramid scheme.

According to dictionary.com:

pyramid scheme  
"n.   A fraudulent moneymaking scheme in which people are recruited to make payments to others above them in a hierarchy while expecting to receive payments from people recruited below them. Eventually the number of new recruits fails to sustain the payment structure, and the scheme collapses with most people losing the money they paid in."

Legitimate Direct Sales companies only pay commissions on the exchange of products or services purchased for use or consumption by the end user. They do not endorse buying products that are not for use or consumption and never endorse the payment of money or commission without the exchange of product. If you run across an organization claiming to be a legitimate Direct Sales organization that asks for money not in exchange for a product or service.... run away quickly! History has shown that during times of economic distress, the number of illegal pyramid schemes increases. So be careful out there!

According to the Direct Selling Association (www.dsa.org)

"Direct Sales is the sale of a consumer product or service, person-to-person, away from a fixed retail location. These products and services are marketed to customers by independent salespeople. Depending on the company, the salespeople may be called distributors, representatives, consultants or various other titles. Products are sold primarily through in-home product demonstrations, parties and one-on-one selling."

Direct Sales is a distribution system. Many Direct Sales companies are able to deliver their products directly to the consumer from their manufacturing plant saving money on warehousing expenses. They are also able to save on advertising costs due to the fact that the consultants market and advertise the products.  These savings allow the the companies to compensate their consultants, representatives or distributors very well for their sales efforts.

Direct Sales refers to selling products or services person-to-person sometimes through parties. Direct Marketing refers to catalog sales. 

Multi-Level Marketing refers to the compensation plan. MLM compensation plans are common within the Direct Sales industry. When a company employs a MLM payment plan, that means the company compensates a representative based on their personal sales as well as the sales in their down line. There are a number of different types of MLM compensation plan. But all pay on down line sales volume.

Pretty simple, huh? So, now that you understand the concepts, go out there and market your products with pride!