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Network Marketing, Multilevel Marketing (MLM), Direct Sales, Party Plan….. Oh My

Article by: Nancy Tobler
March 14, 2016

The list of jargon used in the direct selling industry goes on and on into infinity (at least that is what it seems). I want to try to clear up some of the confusion about differences and similarities in the direct selling industry.

You will note that I am calling us the direct selling industry. Direct sales is defined as the sale of goods and services away from a fixed, retail location. All companies that use contractors and sell in places other than a fixed retail location are considered direct selling businesses. This first distinction of being in the direct selling industry means that the company uses contractors (98% of which are independent) to sell the product or service when and where they want to sell. The distributor is not employed directly by the company. The contractor sets their own hours. Companies use a wide range of terms to refer to these contractors such as independent distributors, consultants, coaches, or affiliates.

In the direct selling industry, the sale of the product or service does not happen in a brick and mortar store front. That means that no matter what anyone calls your company (network marketing, MLM, party plan), if you are selling in people’s homes or on the internet or from your own home, you are probably a direct seller. Check out The Direct Selling Association or the World Federation of Direct Selling Association for more information on the industry.

You may be asking yourself, what is the difference between network marketing and multilevel marketing (MLM)? In general, both network marketing and multilevel marketing are similar because they use a commission (also called compensation) system that pays the distributor based on the sale of product by those the contractor has recruited into the company. If a company pays on my recruits and the recruits of my recruits, then I am in a multilevel company. Most network marketing companies have more than one level of pay. They are also MLMs. The word network marketing seems to have started to get away from the use of the term MLM. I typically say that network marketing and MLM companies are the same. No matter what word a company chooses to identify their company, if it pays commission on multiple levels, it is an MLM.

What is a party plan? When party plans started out, they paid on retail sales to the end user of a product. Often they only paid one level of commission on those the contractor (usually called a consultant in party plan) recruited. Party plan companies protected retail sales for their consultants by having a higher barrier to entry. Most people who wanted to buy Tupperware, or Avon, or Pampered Chef would buy from someone else rather than buy the kit which could cost hundreds of dollars. In the past 10 to 15 years, most party plan companies reduced the barrier to entry and started to pay down more levels of recruits.

Today, the key element of a party plan is that they use the party as the main place where sales occur. This means the company provides incentives to be a hostess so the consultant can reach a wider range of consumers. Typically the hostess receives free product, and/or unique product. Most party plan companies provide the hostess incentives for holding a party and then for the amount of sales that occur at the party.

How can you tell if a company is legitimate? Typically the most important element to focus on is the product or service. Do people use the product? If there is a use for the product and the product is priced reasonably, then the next step is to look at how you get paid. In most MLM companies, you get paid on the sales made by your recruits. In a party plan, you get paid on your retail sales (usually 20% to 30%) and a percent on your recruits’ product sales. The key here is product. A company must have a product that consumers buy.

Many people ask about how you can tell if a company is direct sales, network marketing, MLM, and party plan. Although this is a brief explanation of the differences and similarities, we hope this explanation is useful. For more details, check out this article written by the wonderful Bob Hipple.

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Why Engage in Network Marketing?, Party Plan Companies, MLM 101—Your MLM Business Plan, All Articles

Nancy Tobler

Nancy Tobler has a PhD in communication from the University of Utah. She specializes in research on how organizations change,...

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