Glossary and FAQ
Multilevel marketing, which is commonly referred to as MLM, is one type of distribution method found in direct selling. You may also hear of the term multilevel used to refer to a type of compensation plan that 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.
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.