I am often asked, “What’s the difference between the terms ‘direct sales’ (or ‘direct selling’), ‘network marketing’, ‘multi-level marketing’, and ‘party plan’?” Although there’s a lot of similarities in companies’ commission structures, business plans, and the way they work, they’ve invented different names for themselves over the years. This leaves a lot of industry beginners and veterans alike to wonder—”Are these terms really all that different from each other? What does each one mean?” And, even, “Am I using them the right way?”
Unfortunately, there aren’t official industry definitions for the words “direct selling,” “MLM,” “network marketing,” and “party plan.” But, as I’ve worked with many different companies during my career, I’ve noticed some nuances and contrasts that I think would be helpful to post here. These definitions come from my experiences and viewpoints, so I don’t expect them to reflect everyone’s understanding. But I hope these explanations lend a little clarity to anyone who’s curious. So, follow along as we go over each name individually and then make some comparisons for a little extra context.
What is Direct Selling?
First up is the word “direct selling.” It’s generally used as an umbrella term for all types of companies in the industry, and it’s one of the only names with a general dictionary definition. Merriam-Webster defines direct selling as “the selling by a manufacturer, producer, or agent to someone other than a wholesaler or intermediary: selling directly to a consumer.”
So, in a direct selling company, a distributor (or “agent”) markets and sells products directly to consumers. In our industry, we usually understand direct sales companies to have multiple levels of distributors. But the official term can mean both single- and multi-level marketing and sales structures. Here’s a basic illustration to show you how it works:
What is Multilevel Marketing (MLM)?
Multi-level marketing is the other term I’ll go over that has an official definition. Meriam-Webster says multilevel marketing is “a business structure or practice in which an individual seller earns commissions both from direct sales and from the sales of the seller’s recruits, of those recruited by the seller’s recruits, and so on.”
MLM vs. direct selling
In the graphic above, you can see that an MLM is very similar to a direct selling company. The only difference is the salesforce. In an MLM, the salesforce is made up of a tiered structure of independent sellers and their recruits. These “levels” are what give an MLM its name. All multilevel marketing companies are doing direct selling, but not all direct selling companies are MLMs.
What is Network Marketing?
Network marketing describes the same kind of business structure as an MLM—one with distributors that market products and commission payments to those distributors and the people they recruit. It’s a term that’s gained a lot of traction, but, in my experience, it’s interchangeable with multi-level marketing. I’ve heard some say that Network Marketing companies focus more on customers, but I’ve not seen any evidence of that. The fact is the entire industry has an increased focus on customer sales–regardless of what a company calls themselves.
Network marketing vs. MLM
As I’ve mentioned, the words “network marketing” and “MLM” are one and the same. “Network marketing” seems to have come about because people think “MLM” has negative connotations, but these terms are really just two different ways of describing the same thing.
What is a Party Plan Company?
A party plan is a direct selling business with multi-level commissions that uses parties to market and sell products. Parties used to be held in person, but now it’s more common to see them happening online. They’re held by a “hostess” (or “host”) who’s normally a customer but takes on a new role during the party to help distributors facilitate sales. Hostesses usually get a reward for doing this but aren’t considered distributors.
Party plan vs. network marketing and MLM
Party plans used to be much more distinct from MLMs/network marketing companies—their comp plans were much simpler, they wanted most selling to happen during parties, and the role of the hostess added a really unique element to the compensation strategy.
Now, though, the line between party plans and MLMs have started to blur. As both MLMs and party plans compete with one another, MLMs are working to be more customer focused and party plans are adding more MLM style compensation elements (like fast start). And, as I said before, a lot of parties have moved online, and customers can now place orders outside of parties for greater convenience.
There are still some pretty clear distinctions between party plans and MLMs. But because a party plan is a direct selling business (sells products through independent distributors) and has a multi-level commission structure, I consider it a type of network marketing/MLM business.
Conclusion
Well, there you have it! The non-definitive guide to the names of commission-driven business plans. If you started reading this blog thinking that direct selling, multi-level marketing, network marketing, and party plan all mean the same thing, I hope this gave you a little context, a better understanding of the nuances of each of these terms, and gave you some insight into why we have so many.
Looking for a software solution for your direct selling business (or party plan, network marketing company, or MLM)? FlexCloud is the best-in-breed solution for commission calculations with a powerful platform of tools. Contact us here to learn more.
