A downline is a term generally used in multi-level marketing (MLM) to describe the consultants or representatives who work under another representative. For example, if Susan begins working for a company and then recruits five others to work under her for the same company, those five people are her downline. In the MLM business model, owners or representatives typically earn most of their revenues through their downlines rather than by selling products or services alone.
MLM is similar to what is described as a “pyramid scheme,” but with a few modifications. Both models require members to sign other members as a source of income, but with a pyramid scheme there is no actual product or service being offered. Members earn money from the members under them by collecting the sign-up fee and nothing else. In a MLM model, there are actual products that members sell through the Internet, party hosting, and other methods.
Aside from earning commissions on sales and recruiting members, representatives in a MLM company also earn commissions on sales and recruitment attained by their downline. This is also the primary way reps work their way up within the company, with a bigger downline earning reps higher commission rates and added perks like a new title and bonuses. This gives representatives incentives to work harder at recruiting rather than selling, which benefits the company’s owners and higher directors because they too are earning commissions for every new recruit.
There are some disadvantages to a MLM-based business. The main ones are that MLM businesses have a very high turnover rate and that income is at least partially based on the work ethic of others. Since many recruits do not earn the money expected when signing up, the number of people who give up on these businesses and drop out is generally high. This results in recruiters losing members, which in turn can cause them to lose their minimum income quotas needed in order to maintain a higher status.
MLM business models are also set up in a way that the income of one member is partially based on how hard others work. Recruiters are responsible for helping their downline succeed because their income is also based on how well their members recruit and sell products. This is helpful if the other team members are hardworking but others only join the companies to receive discounted products or because they believe that very little work is involved in order to make money.
Many downline-based pyramid schemes and MLM companies have been reported as scams, so it is recommended that potential members research each company carefully before signing up. Even companies who operate legally often exaggerate the typical income of their members and understate the amount of work is actually involved in running the business. Any potential members should learn the average income, number of hours spent to obtain the income, and overall success rate of any businesses being considered.