Franchise vs MLM: what's the difference?
They are often confused and sometimes deliberately blurred. Here is the real difference between a franchise and an MLM.
What's the difference between a franchise and an MLM?
What you actually own
- Franchise, a defined business (site, vehicle or territory) with customers you sell to, under a brand and system.
- MLM, a distributorship, the right to buy and resell products and to recruit a downline.
- The franchise is a business you operate; the MLM is a selling-and-recruiting position.
How each makes money, and the regulation
A franchisee earns by selling to customers; the franchisor earns from fees and royalties on that trade. In many MLMs, a large part of a participant's income comes from recruiting others and their purchases, not from genuine retail sales, and that is the danger zone. Franchises fall under the Franchising Code; MLMs do not, and schemes where reward depends chiefly on recruitment can breach pyramid-scheme laws enforced by the ACCC.
Warning signs to watch
Be wary of any opportunity that calls itself a franchise but has no defined territory or trading site, requires you to buy stock to qualify, and rewards recruitment over sales. A real franchise gives you a disclosure document and Code protections; an MLM does not. When in doubt, ask for the disclosure document, its absence tells you what you are really looking at.
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Frequently asked questions
Is an MLM a franchise?
No. An MLM (multi-level or network marketing) is a distributorship focused on selling products and recruiting others, not a licensed business under the Franchising Code. A genuine franchise gives you a defined trading business, a disclosure document and Code protections; an MLM does not.
How do I tell a franchise from a pyramid scheme?
Look at where the money comes from. A franchise earns from selling goods or services to customers; a pyramid scheme rewards recruiting new participants over real sales, which is illegal in Australia. No disclosure document and income tied to recruitment are major warning signs.
Are MLMs regulated like franchises in Australia?
No. MLMs are not covered by the Franchising Code, so they lack the disclosure and cooling-off protections franchises have. Schemes that reward recruitment over genuine sales can breach pyramid-scheme laws enforced by the ACCC.
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