Small Business Terms: Network Marketing

By QuickBooks Canada Team

0 min read

Network marketing is a sales distribution model that relies on a large network of distributors to sell proprietary products to their friends, family, and personal contacts. A network marketing company grows its distribution by having its distributors recruit new distributors to create a downline. The existing distributors receive a percentage of their downline distributors’ sales. Distributors also earn a commission through the direct sales of products to customers. To join the networking team, new distributors are required to purchase a dollar volume of products from their recruiter.

Also referred to as multi-level marketing, network marketing has been scrutinized for its practice of compensating distributors for recruiting new distributors. If a distributor’s compensation is generated primarily from recruitment and not product sales, the practice may be deemed illegal as a pyramid scheme. If compensation is derived primarily from product sales, it is considered legal.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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