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.
Direct selling and distributors
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 fixed retail locations are considered direct selling businesses. Companies use a wide range of terms to refer to their contractors such as distributors, consultants, coaches, or affiliates. Distributors (98% of whom are independent) sell the product or service whenever and wherever they want to sell. The distributor is not employed directly by the company. The distributor sets their own hours.
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.
Network marketing and multilevel marketing
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 me for sales made by 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. In other words, most network marketing companies are also MLMs. The network marketing world seems to have started to avoid 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 with, if it pays commission on multiple levels, it is an MLM.
What is a party plan? When party plans started out, they paid commissions for 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 a consultant rather than signing up as consultants themselves and buying 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 consumers willing to host parties so the consultant can reach a wider range of consumers. Typically the hostess receives free product, and/or a 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.
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.