What is network marketing and how does it work?
Written by : Ilias Hajjoub | Reading time : 8 min | 20 April 2026
Network marketing, also known as network marketing or multilevel marketing (MLM), is a distribution model that combines the direct sale of products or services with the development of a network of independent distributors. Unlike traditional commercial channels, it relies on recommendations, structured word of mouth, and the ability of salespeople to build both a customer base and a team.
When someone searches online to understand what network marketing is, their approach usually goes beyond a simple definition. Queries observed on search engines reveal a clear desire to understand how this model works in practice, how it differs from a pyramid scheme, and the legal framework in which it operates. Many people also look for reliable numerical data about the sector, such as market size, the number of participants involved, or the reality of the income generated. Others want to evaluate the advantages and risks of the model, both for companies and for distributors, or to identify the real conditions for success and the companies that have become benchmarks in the industry.
These searches also reflect growing interest in the impact of digital technology on network marketing. The rise of artificial intelligence, social media, CRM tools, and blockchain is deeply transforming how networks recruit, train, and manage distributors, while raising new questions about transparency, performance, and the long-term sustainability of these models.
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What is network marketing?
History and emblematic companies
Network marketing traces its origins to the United States in the mid twentieth century, at a time when some companies were looking for alternatives to traditional distribution channels. As early as the 1940s, manufacturers of nutritional supplements and wellness products introduced direct selling systems that allowed salespeople to earn commissions not only on their own sales but also on those generated by people they recommended. This sponsorship based approach laid the foundations of modern network marketing.
The model became more structured in the following decades with the rise of companies that would become emblematic of the sector. Brands such as Avon, Tupperware, Amway, Mary Kay, and Herbalife popularized home selling, product demonstrations, and the organization of networks of independent distributors. These companies helped give network marketing international visibility and establish it as a recognizable business model, particularly in the cosmetics, nutrition, and wellness industries.
A major turning point occurred in 1979 with a landmark legal decision in the United States involving federal authorities and Amway. The Federal Trade Commission ruled that Amway’s multilevel marketing system was not an illegal pyramid scheme because it relied on real product sales to consumers rather than recruitment alone. This decision created a clear legal distinction between legitimate MLM operations and fraudulent pyramid schemes and remains a reference for regulators and professional organizations in the sector.
From the 1970s and 1980s onward, network marketing entered a period of rapid international expansion. Major companies in the industry established operations in Europe, Asia, and Latin America, adapting their models to local regulatory frameworks. In several European countries, including Switzerland, network marketing gradually became a significant component of the direct selling industry.
This historical foundation explains why network marketing is today both recognized as a distinct economic model and regularly debated. Its evolution has always been closely linked to regulation, public perception, and the ability of companies to maintain a balance between commercial performance and ethical practices.
Difference between network marketing and a pyramid scheme
Real sales versus paid recruitment
The confusion between network marketing and pyramid schemes is one of the main reasons for mistrust toward the industry. Yet these two models rely on fundamentally different economic and legal principles. Sector analyses and regulatory authorities emphasize that legitimate network marketing is primarily based on the sale of real products or services, whereas an illegal pyramid scheme mainly relies on recruiting new participants and collecting entry fees.
In a lawful network marketing model, distributors are compensated mainly from sales made to end consumers. Sponsorship may exist, but it only has economic value when it supports genuine commercial activity. In contrast, in a pyramid scheme, products are often nonexistent or merely serve as a facade. Revenue primarily comes from membership fees paid by new entrants, making the system structurally unsustainable and harmful to the majority of participants.
The legal framework in France and internationally
In France, this distinction is clearly established by the authorities. The DGCCRF states that multilevel selling is permitted when income comes from the sale of goods or services to consumers and from the sales made by sponsored participants. By contrast, financial pyramid schemes are prohibited because they rely on recruitment as the main source of compensation.
In the United States, the Federal Trade Commission takes a similar position. The institution notes that even in MLM systems considered legitimate, most participants earn little or no income. It also warns against promises of quick wealth and against models that place disproportionate emphasis on recruitment rather than on actual product sales.
How to identify a pyramid scheme drift
In practice, the line between the two can sometimes appear blurred, which analyzes certain signals essential. A legitimate MLM sells a product or service with real, identifiable value in the market. Distributor compensation mainly depends on their commercial performance rather than on the number of people they recruit. Some regulators and industry observers also refer to the so-called “70 percent rule,” according to which the majority of products should be sold to customers outside the network rather than consumed only by the distributors themselves.
Conversely, high entry fees, mandatory large inventory purchases, or constant pressure to recruit without focusing on actual sales are strong warning signs. These practices reflect a system where money circulates between participants rather than being generated by genuine commercial activity.
Turn theory into tangible results
Ilias Hajjoub
Ilias is the Head of SEM and Digital Marketing at Kifcom 360. Passionate about artificial intelligence, SEO and performance marketing, he designs data-driven and automation-powered campaigns to maximize ROI. From acquisition strategy and conversion funnel optimization to continuous monitoring of emerging technologies, he constantly pushes the boundaries of digital marketing performance
How network marketing works in practice