On The Level

Only by understanding what network marketing is and how it works can you decide if it's for you. How do MLM companies differ from traditional direct-selling ventures? The distinction lies in the number of "levels" you can build to earn income.

Suppose you sell cookware door-to-door via traditional direct selling. In this instance, you're limited to one income level. You present the product; the customer buys (or not). Your income directly correlates to your activity. If you stop selling, you stop earning.

In contrast, as its name suggests, multilevel marketing creates multiple income levels. While selling their products, successful network marketers also prospect for new recruits--people who are sold on the products, believe in the company and have the vision to market the product line and business opportunity themselves.

Here's how it works. You recruit a handful of people--say, five--who are interested in the business opportunity. Those five distributors comprise your first "level." Their customers make up your second level. If anyone on the second level buys into the opportunity and begins selling, then those sales constitute your third level, and so on down the line (hence the term "downline").

As the number of levels in your downline increases, your income grows exponentially. Ultimately, it's possible to build such a large downline that you keep earning even when you're no longer selling.

This article was originally published in the July 1998 print edition of Entrepreneur with the headline: On The Level.