Question: Will you explain the difference between MLM and Party Plan? I think that MLM is the same as Network Marketing, but are these different from direct selling? And how do I know which is best for our startup?
Answer: “Direct selling” is the generally accepted term the selling system that moves products and services directly from a company to its users and consumers. The selling is performed by the independent representatives of the company. Worldwide, companies sell an estimated $118 billion in goods and services through this massive distribution system of person-to-person marketing and sales, with as much as $28 billion of that in the United States. (Sources: Direct Selling Association, www.dsa.org, and the World Federation of Direct Selling Associations, www.wfdsa.org)
Some MLM Consultants teach that there are three methods of person-to-person selling:
- Direct Selling
- Party-Plan Selling
- MLM or Multi-level Marketing
The LaunchSmart MLM consulting team suggests a subtle distinction, which is that direct selling is the umbrella under which two methods of selling reside: MLM and Party Plan. Direct selling is a generic reference to the movement of goods and services directly from company to consumer, where sales commissions are associated with the sales efforts of the company’s independent sales force. Party-plan sales commissions are generated through group selling, often with retail commissions plus incentives for gathering a group together. Party-plan compensation leverages a one-to-many sales presentation.
MLM compensation plans pay commissions for personal sales, accumulating commissions and bonuses on sales that are related through sponsoring lines. Both MLM and Party Plan methods link individual sponsors and business builders, often paying compensation through, and/or as a result of, these connected lines. These methods are sound and very legal since compensation is tied only to the sale of products and services, and not to the act of sponsoring someone.
Advantages that are common to MLM compensation plans and Home Party Plan compensation include the following:
- Sales representatives need not stock products other than those used for demonstration or samples
- The company ships directly to the distributor or customer who makes the purchase
- MLM presentations and Home Party Plan demonstrations are ideal for presenting products that require explanation
- MLM compensation plans, like Party Plan compensation plans, pay for sales personally produced, with commissions and overrides paid to those who train and manage individuals and groups in their sales organizations
- Distribution channels, once established, are the marketing channels through which information, goods, and services are moved
- Part-time to full-time selling, with incentives for immediate action, are characteristic of successful MLM compensation plans and Home Party Plan compensation systems
Through MLM (multi-level marketing, network marketing, viral marketing, referral marketing, etc.) the direct-selling process is duplicated by independent sales reps who sponsor and train others. Through this basic system of selling, on which virtually all sales systems are based (from insurance to real estate, and from automobiles to men’s clothing) multiple levels of commissions are earned, paid directly from the company to the sellers, managers, and leaders. This basic concept applies in both the MLM and Home Party Plan selling models.