It is an approach where the company creates a contact relationship with the person who wants to expand his business.
The members make their earnings based on the sales they have reached in that particular product or service. It also includes the sales of the person they recruited to join the business.
Most of the time, the individual who has recruited more members and provided an excellent sales output on the product compensates more because of the effort to transact in two fields.
There are "pyramid schemes" or Ponzi schemes, which are considered illegal. Most people associate multi-level marketing with this scheme because they also recognize themselves as a legitimate networking business.
Because of the bad image brought up by these schemes, many prefer to use their names for their businesses as "home-based business franchising" or "affiliate marketing.
Commissions are earned when selling a particular product or service in a legitimate network marketing. There can be no earnings in what they call a "sign up fee" or for just recruiting yourself alone.
This kind of marketing is always criticized because of the questionable recruitment process where they get their revenue and profit. They get their sales from members and new members, considered the product's end users and the distributors.
These criticisms led to significant changes in multi-level marketing in the early 1980s when many companies started to allow their members to concentrate only on marketing and not on distributing or stocking the product.
Most multi-level marketing firms perform as fulfillment firms by shipping the product, paying the commissions, and taking orders from their clients.
Many people who are victims of illegal schemes in multi-level marketing are required to buy expensive products, but most of these schemes do not last long because most of the sales are not easily resold.