Also known as Multi-Level Marketing (MLM) or Referral Marketing. It's a controversial marketing model.
According to The Times:
"The Government investigation claims to have revealed that just 10% of Amway's agents in Britain make any profit, with less than one in ten selling a single item of the group's products."
How MLM Works?
MLM is built around giving a commission for each affiliate (distributor), and it has two possible income streams:
1. Direct Sales Commissions
All the sales one generates directly with the end users of an MLM service or product.
Distributors Referral Commissions
MLM distributors also get paid for any sales that their referred affiliates are making. In some cases it tends to be endless, thus a referrer might end up being paid for every single sale some other distributor is making all down the line of distribution.
MLM From FTC's Point Of View
The Federal Trade Commission advises being more skeptical towards any MLM (Network Marketing) organization that has more incentives for recruiting distributors and referrals more than the total product sales.
The FTC also warns that the practice of getting commissions from recruiting new members is outlawed in most states as "pyramiding".