Glossary and FAQ

Multilevel marketing, which is commonly referred to as MLM, is a type of compensation plan found in direct selling. A direct selling company that offers a multilevel compensation plan pays its representatives based on the individual’s product sales as well as that of their “downline,” which refers to a group of people that consultants bring into a company to generate sales, their recruits, and so on.

Single level compensation plan is a structure in which a representative is compensated based solely on his or her individual product sales.

Independent contractors perform work or services for an entity on a non-employee basis. Direct sellers are statutory non-employees, and are treated as self-employed for all Federal tax purposes, including income and employment taxes, if: 1) substantially all payments for their services as direct sellers are directly related to sales or other output, rather than to the number of hours worked; and 2) their services are performed under a written contract providing that they will not be treated as employees for Federal tax purposes.

Network Marketing is a term sometimes used to describe direct selling, and often used interchangeably to describe the sales model or a compensation plan. Using the term “direct selling” for the sales model or “multilevel/single level marketing” for the type of compensation plan is more clearly conveys each term.

Direct marketing is a method used to distribute advertising and marketing materials such as catalogs, brochures or other items to consumers through mail, e-mail, telemarketing or other methods. Direct selling is NOT direct marketing.

Downline refers to a group of people that consultants bring into a company to generate sales, their recruits, and so on.

Upline refers to a consultant’s sponsor, along with his/her sponsor, etc.

Compensation Plan is a system that compensates consultants for their efforts and must be based primarily on the sales of products by the consultant and his/her downline. The level of earnings is often based on an achieved title or rank and is usually a percentage commission of sales. There are various types of compensation plans so it is important to fully understand how one will be compensated before joining a company.