Difference between MLM and Network Marketing

Multi-level Marketing (MLM) and Network Marketing although used synonymously in the network marketing business are in reality, quite different from each other. Basically, the difference between MLM and Network Marketing lies in the manner of their operation, people involved and the incentives gained by them. You should keep in mind their drawbacks or limitations before adopting any of the two models for your business.

In this article, we bring out the difference between the two types of businesses to help you make your choice.

 a. Usage of terms

‘Network Marketing’ refers to a particular marketing strategy while MLM refers to the overall business model and hierarchical management structure. The term network marketing does not describe the structure of the business but the strategy of social networking that is used for marketing. So it is possible that a company is using both MLM and network marketing or either of them. However, if either of these terms is used for describing one’s business attributes we can distinguish them further through other attributes discussed below. 

b. Levels of operation

 MLM operates at multiple levels of hierarchy in an organization, while network marketing operates at a single level. In MLM, as your experience and business increases, you reach a higher level of hierarchy. For example, in MLM, you may go up from a member level to a managerial or executive level.  Unfortunately, it does take a very large downline to make any kind of significant money.

However, in network marketing, your position remains the same in the organization’s hierarchy, although your network and business may increase.  It doesn’t necessarily take recruiting a lot of people to make significant money like it does in MLM. 

c. Basis of commission  

The basis of your commission in an MLM business is the revenue generated by the people introduced by you in the business. Therefore, in MLM one can make money out of other people’s work. Your income increases with the increase in the number of people added down the line through training and recruitment. The compensation plans in MLM business can be further distinguished into Uni-level plans, Stairstep breakway plans, matrix plans, .and so on.

On the other hand, in network marketing you make money by selling your product or services to people through your relationships and marketing techniques. Network marketing usually has a much wider scope because you just need to reach out to people you know and sell your product.  You can also make money off of the people you “sponsor” through sales that they make.

Both MLM and network marketing can be very lucrative, but you must study the compensation programs of the individual opportunities to see if it makes sense for your own financial goals.

d. Initial investment

In a traditional Network Marketing business there is always an entry fee for the member as an initial cost to get started and the distributor up line earns a commission from it.  However, there is usually little or no entry fee in an MLM business and therefore, there is no financial barrier to entry.    

e. Legal status

Both MLM and Network Marketing business have legitimacy throughout the United States, and more than 100 other countries. However, MLM businesses that work on pyramid schemes are illegal in many countries. A pyramid scheme usually involves getting commission from recruiting new members including sign-up fees.

Now that you know about the main differences between MLM and network marketing, you can make a more informed decision on which business model you would like to opt for.

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