Network Marketing and MLM — How It Actually Works 🔍
Network marketing, also known as MLM, stands for multi-level marketing. There are plenty of myths and scary stories around it. But if we drop the emotion and look at the facts, it's just a regular business with a different distribution model. Below — how it works, where the money comes from, and why it isn't a pyramid scheme.
What Is the Essence of Network Marketing?
The core is direct product sales from the manufacturer. The brand doesn't spend money on ad campaigns, and that saved budget goes to reward the people who actually sell — distributors. As the structure grows, so does your passive income. Points can cover company products, letting you get cosmetics, supplements and household goods essentially for free.
Distributors find people, build websites and social media communities, and run masterclasses. At those meetups they attract not only buyers but also new partners. A network structure enables passive income — by signing people up under your referral link, you earn from every new distributor invited into your network. It's a multi-level system where anyone can build their own team.
An important note on employment and taxes. Every MLM company must be registered in Russia and have an OGRN. If you build a large structure, you withdraw funds to your settlement account after signing a contract. You register as a distributor and become a full member of the organization, so all your earnings fall under taxation.
History of MLM Business and Its Growth
One of the first companies to apply door-to-door direct selling was Watkins Incorporated in 1868 (now J.R. Watkins). By 1911 it had 2,500 agents, and by the end of the 20th century — 80,000 people in its network.
In 1886, American businessman David McConnell founded the California Perfume Company, which we now know as Avon. Its first official distributor was Persis Albee, wife of a New Hampshire senator. Over 13 years she built a network of 5,000 representatives.
International brands, including Mary Kay and Oriflame, entered the Russian market in the 1990s. One of the first domestic companies to adopt the MLM model in 1997 was «Russkaya Liniya», which four years later rebranded as Faberlic.
Distributor Income Structure
Network business offers several income streams. The first — margin, percentage, markup on the product. You buy goods from the warehouse at distributor price (usually 30%+ off), then sell at the recommended retail price. Important tip — don't buy stock in advance if you haven't yet received payment from the buyer. Let the customer pay first, then you buy. That way every party in the deal is motivated and you don't lose money.
The second option — a percentage from your structure's sales. It's the longest and hardest path, but the most lucrative. You build a network of partners and earn a percentage and points from their sales. The more points, the higher your percentage and income. There are qualification levels — pearl, ruby, gold, silver, diamond, platinum. The more new members you bring into your team, the higher your chance to see solid payouts on your settlement account.
Pyramid vs MLM — What's the Difference?
The «network business = pyramid» comparison isn't just absurd — it's meaningless by nature. Here's why:
1. Creating a pyramid scheme is a criminal offense in Russia.
2. In pyramid schemes, capital is built from new recruits — invest yourself, invite two more, take their money. Once the influx stops, the company collapses.
3. Illegal organizations may hide behind product manufacturing with prices tens or hundreds of times higher than cost.
In MLM, income comes from producing and selling real goods, not from endlessly recruiting new depositors. A telling fact — Herbalife was accused of fraud twice, but its members were able to prove that their income comes specifically from producing and selling products.
How Do Sellers Work?
A distributor distributes a product catalog, the customer picks an item and places an order with the seller who provided it. Some network companies (such as Oriflame and Faberlic) don't allow partners to open wholesale-retail outlets — that's written in their charter. Meanwhile, Essens allows its products to be sold that way.
The Rules of the Big Game
Today network marketing, like any other business, has moved online. Companies have websites and online stores where shoppers can browse products and place orders with home delivery at any time of day. An Essens consultant can create a personal page on the company site, add a phone, name, email and a photo.
There's also targeted social media advertising, contextual ads, video channels on Rutube and YouTube (the latter violates Russian law), posts on Zen and other communities. But not every company welcomes such distribution, even if, to put it mildly, it contradicts their economic policy. For instance, Oriflame allows an online order page only on its official site, and sales via third-party platforms (such as Avito) are strictly forbidden.
Another advantage of working online — quality audience targeting. No need to knock on every door or cold-call people. Just write an email or a message. It's convenient, and your message will arrive. Many networkers use CRM systems. The wide audience reach lets you promote yourself not only within one country but internationally — your market is essentially unlimited. Automation through online technologies lets you automate product promotion and the search for new clients and partners.
Is MLM Business Popular, and Why?
According to the World Federation of Direct Selling Associations (WFDSA), more than 118 million people worldwide are involved in MLM. That level of interest shows network marketing is certainly popular. Here's why:
Easy to start — no major or specialized knowledge required.
Minimal starting capital. At Essens it's practically nothing — 1 point. Within 30 days of registering on the company website, you need to make a purchase of 140 rubles (the price of an energy drink).
Flexible schedule. According to WFDSA, out of 118.4 million network sellers, 10.5 million work full-time (30+ hours per week), nearly 43 million work less than 30 hours, and the rest work occasionally.
In Short — the Main Takeaways
- Financial risk and no guaranteed steady income, but the chance to earn many times more than at a standard job — especially if the company is young.
- Constant network expansion. You always need to promote your product and bring more partners into the network.
- Make sure the company isn't a financial pyramid and actually sells real goods.
- Your personal product preferences. The company's products should appeal to you first and foremost, and you should use them — this will give you more confidence when promoting.
- Register on the website.
- Open a sole proprietorship or LLC and sign a contract once your personal partner network gets large.
- Don't take out loans to buy stock — that's a mistake. There's no guarantee you'll be able to sell it.
- At the early stage, treat network business as an additional income source. If you're a civil servant, withdrawing funds and setting up a sole proprietorship or LLC will be a bit more complicated.
Submit a request — I'll help you register, walk you through it and answer all your questions. No fluff, no pushiness.
🚀 Submit a RequestI really hope this article helps you see network marketing the way I do.