Network marketing is a kind of business opportunity that has become very popular among people who are looking for a part-time, flexible business. Network marketing is also known as multi-level marketing, pyramid selling, or referral marketing. The business model generally depends on the person – to – person sales by independent business owners or contractors or representatives. These business owners often work from home. The network marketing companies often encourage these distributors to create a network of business partners or salespeople to help with lead generation and closing sales. This is done by recruiting known/ unknown people, and these recruits constituent the representative’s downline, and their sales produce income for those above them in the program.
People generally prefer network marketing programs because they feature a low upfront investment – usually only a few hundred dollars for the acquisition of a sample kit. But by purchasing that sample kit, the company gives you the authority to sell the products directly to friends, family, and other acquaintances.
There are many reputable network marketing companies operating across the globe, but people have criticized some companies as pyramid schemes. At the same time, many network marketing companies and their owners for caught red-handed for doing malicious practices to earn more money. Generally, things go wrong when the network marketing company compensates the participants solely for recruiting others rather than for selling the company’s products or services. Hence network marketing system in which most of the revenue comes from recruitment may be considered an illegal pyramid scheme.
The participants of network marketing business models get paid on a commission basis. That is, people in this industry get a commission when they either sell a product or one of their recruits make a sale. In simple words, the model involves a structure of non-salaried participants who get their income whenever they or a person below them in their structure or tier makes a sale.
In the early eighties, the term multi-level marketing was replaced by network marketing. Right now, many famous business people and economists agree with the fact that network marketing is poised to become a giant that will outshine any other form of conventional business. Network marketing is considered to be the fastest-growing method of distribution in the world.
History of Multi-Level Marketing
Network marketing is now more than 60 – 70 years old. Its history comes back to 1934 when a company named California Vitamin Company introduced the concept of multi-level marketing. The company was the first company which started as a direct sales company. They recruited salespeople who were willing to use products for themselves or sell them to their acquaintances. In the process, they would earn an extra $50 per month, which was a very high income at that time, when the United States economy was just recovering from the Great depression. The acquaintances of the salespeople also got themselves recruited in the company in the hope of enjoying the same financial benefits, and hence the business of the company started growing.
It was in 1943 the California Vitamin Company changed its name to Nutrilite Corporation and came up with the first-ever multi-level marketing compensation plan. In this plan, everyone who was involved with the sale of a product got paid on the multiple levels of transactions made by them.
It was in 1949 two people named as Jay Van Andle, and Richard Marvin DeVoss join the Nutrilite company and work for around a decade. They made a good fortune while working for the company but later on regarded the company and its business model as unfair. According to them, the company paid the salesman only once for all the work they did, whereas the company would still go on to make profits. It was because of this reason Jay Van Andle and Richard Marvin DeVoss decided to make their company- Amway in 1959.
While everything was going so well for the company and the owners, the United States consumer protection agency, Federal Trade Commission in 1975, decided to take Amway to court because the thought that Amway was involved in a pyramid scheme. As discussed earlier, a pyramid scheme is a network marketing business model where you sell a system without a product.
They decided to choose Amway because, at that time, Amway was the most prominent multi-level marketing distribution company. During that time, many different pyramid schemes started growing in the name of multi-level marketing. By proving that Amway was involved in an illegal business, the federal trade commission hoped to declare all the multi-level marketing companies as unlawful. But, Amway was able to prove that multi-level marketing was a legitimate business after fighting for over four years and winning the case in 1979. This paved the way for many more multi-level marketing companies to enter the industry.
How does network marketing work?
The business model, network marketing relies on a network of distributors who help themselves and the company as well, to grow the business. These network marketing companies are generally working on lead generation. Here the network marketing companies, give you some hot leads, like making you free from the responsibilities like manufacturing products, paying salary to the staff or parents, because of this you can solely focus on sales and recruiting. There are many types of network marketing models, like single-tire, two-tire, and multi-level.
Single-tier network marketing
In single-tier network marketing, the distributor can get himself recruited directly with the company to sell its products or services. The distributor does not need to hire other distributors, and all the commission and income comes from direct sales. One of the most famous companies that follow the single-tier network marketing is is Avon – the beauty product company.
Two-tier network marketing
Unlike just single-tier network marketing, that two-tier network marketing involves some sort of recruiting. But the income is not entirely dependent on the hiring. Generally, the distributor gets paid for the direct sales he makes and for the direct purchases made by the affiliates or distributor recruited by him. The example of the two-tier program is Ken Envoy’s Site Sell.
Unlike two-tier network marketing, multi-level marketing is a marketing system that generally contains two or more tires. Some multi-level marketing companies even allow you to make money five or more tires deep, and there can also be an incentive for recruiting people. Famous examples of these kinds of multi-level marketing businesses are Forever Living Products and Amway.
Benefits Of Network Marketing
A network marketing company brings a lot of benefits to the company, it’s distributors, and even to other companies. Some of the major benefits of network marketing are:
Benefits to the company
The company which adopts the network marketing strategy has several benefits. Two of the most significant benefits are listed below.
- The company saves a lot of amount of their advertising and marketing budget that they had to spend otherwise. For that, the company uses its distributor to advertise its products and business. Since most of the business experts are of the opinion that word of mouth is the best way to promote anything, many prominent companies, take the help of famous superstars, sports stars to advertise their product, with the later’s word of mouth. In the Network marketing, the distributors are required to promote the products with their word of mouth, thus saving the company’s millions of dollars worth money on marketing and advertising.
- When the distributor works in a network marketing company, the first thing he does is to bring sales to the company. Then only the company gives him the commission. Hence the company received the amount first, and the pays letter does saving it from getting into losses. This is an excellent advantage for the company.
For example, in the case of a big company like Samsung, the company quotes millions of dollars first on advertising and promoting its products in the global market through social media, televisions, etc. it is only after the advertising and promotion, the sale of products gets underway. It basically means that Samsung enjoys the benefits or the profit amount only after spending millions of dollars first. However, in the case of network marketing, the situation is complete upside down.
Benefits to the distributor.
- The distributor gets an opportunity to promote an already tested and proven product or service. This makes the advertisement much easier.
- The distributor can start and expand his business at a little initial cost.
- The distributors do not need to maintain any inventory, infrastructure, pay salaries to the employees, or to pay the rent of the offices. This is done by the company itself, and hence it says a lot of time and money on the distributor’s part, and therefore we can focus more on recruiting and selling the products.
- The network marketing helps the distributor to enjoy exponential growth in his overall business with the help of making networks in multiple tires. This is also a reason for his income to multiply quickly. It generally does not happen in any other business or job in the world where we get exponential growth in the business, as well as in pay, can be witnessed by the person involved.
Benefits to the country
We have seen how network marketing benefits the company as well as distributors, but it has also helped the company in many ways. One of the most significant issues nowadays, big countries like the United States, India, China, Pakistan, and Bangladesh are facing is the problem of growing unemployment. Network marketing helps to cure this problem by giving employment to an almost unlimited amount of people and helping them to earn their own money and become independent. In the process, the distributors are also able to pay taxes to the government hence boosting the economy in the process.
The products of network marketing companies are result-oriented and have an excellent effect on the health of the users. This also helps them increase their lifetime, help improve the average lifetime of a particular country or a region.
Advantages of doing Network Marketing to the distributor
The distributor has a lot of advantages while doing network marketing. Following are some of the advantages for the distributors in the Network Marketing Industry-
- One of the best advantages of doing network marketing for the distributor is that they can work from home and avoid working under a boss.
- Individuals who have a strong network of friends and family can make a lot of money by selling marketing the product to their network.
- Network marketing helps individuals to become entrepreneurs without investing too much money, as this type of marketing requires a secure network rather than capital or money.
- The distributors can earn a lot of passive income, something which is not possible while doing a job or involving in a self-employed business. Once the distributor builds a strong network, and it is effectively working, the distributor will receive benefits for the rest of his life without even working. This is one of the most significant advantages of the network marketing industry. After receiving passive income, the distributor can concentrate all his time and efforts to spend time with his family, develop a hobby, or when going for another startup.
- Another attractive benefit of working in network marketing is that it does not require any professional degree or experience like an MBA to start the business. Hence it is an opportunity for everyone whether they are pensioners, students for housewives, or even people who are working or involved in their own business can also start this network marketing business as part-time. Hence, in short, it gives flexibility to people who want to earn extra income without making too much effort.
- Working in the network marketing industry gives exposure to the real-life business world where he needs to deal with different kinds of people every day. Here, he can develop his sales skills and convincing skills, which are very important in personal life, as well as professional experience.
- In order to become successful in the network marketing industry, you are required to build a strong network of people around you and even guide them to do better. This not only improves your public speaking skills but also improves a lot of personality traits in you, which will somehow help you in other phases of life too.
- Most of the network marketing companies provide the benefit of generating income. Here you can transfer your business to your spouse, children, and other heirs, so in this way, the distributor is not only making his future safety, but he is also securing the lives of his future generations by leaving a legacy worth a lot of money.
Disadvantages of network marketing
- One of the most significant disadvantages of the network marketing industry is that most of the companies and schemes are fraud, and it is challenging to trust the network marketing company. This also so makes it difficult for genuine network marketing companies to win the trust of individuals and convince them about a bright future for the distributor if he works for the company.
- Many individuals who work for the network marketing companies are immature and are not professional summer, even not adequately educated. This results in products being marketed very severely even if the product is excellent and result oriented. This actually affects the reputation of the products of that particular company negatively. Also, if there is one dissatisfied customer, there is a high chance that the company may end up losing 10 – 20 customers. Hence, the strategy of allowing anyone to do network marketing can prove to be disastrous for the company as well as for the distributors.
- Another major limitation of the network marketing industry is that it does not involve advertisements. In today’s world, people believe what they see through the ads either via television, the internet, or newspaper. It thus makes it difficult for potential customers to understand what the distributor is asking regarding the results of the product. Hence, in simple words, a lack of awareness about products makes the sale of products difficult for the distributors.
- A clear majority of multi-level marketing participants work at either insignificant or nil net profit. And many sources estimated that these participants constitute over 99.25% of all MLM distributors. In fact, the most significant proportion of participants generally operate at a net loss. And it is also true that very few individuals are the uppermost level of the multi-level marketing pyramid can derive significant earnings.
- Some multi-level marketing companies generate profit worth billions of dollars annually, which they distribute only some of the said profit to some of the top distributors of the company. The distribution of benefit is generally done in global seminars, and conferences do create an illusion that anyone who joins that particular network marketing company can become financially successful. This is then advertised by the company to recruit more and more distributors, giving them false hope of earning unlimited money.
- It is also widely believed that most of the network marketing business models depend on the failure of the overwhelming majority of participants through injecting money from their own pockets so that the few people sitting at the top can make a significant profit from the company.
- Many people have fallen prey to to “get rich quick” scheme of some network marketing companies where they end up with substantial financial losses as well as deteriorating their image in front of their friends and family.
A pyramid scheme is a network marketing structure, where a distributor gets paid on making new recruitments, and there is absolutely no involvement of any product. It is considered to be a bad practice, which makes a person earn a lot of money by taking advantage of his friends and family. Such companies generally deceive people by telling them that they will earn money in the future (of course, by deceiving more and more people). In such schemes, the company simply circulates the money to the different levels of distributors.
Network marketing scandals
There are many companies in the world that were involved in network marketing scams and were caught red-handed. These are the companies that prefer to give people false hope of earning money by making them invest a lot of money into their business. In such companies, only people at the top level and its owner and a significant amount of money. One such scandal is Sarada Group Financial Scandal in India. It is imperative for the distributor to find a genuine network marketing company to start their business career.
How to be successful in network marketing?
Some network marketers make hilariously exaggerated promises, like having a financially successful life without working too hard and cure different diseases. Generally, most of the claims are false, and one should avoid falling in traps like these. However, there is no doubt about the statement that network marketing can offer you an excellent and secure career. It all depends on how you work and if you choose the right company or not.
Here are some of how, in my opinion, you can be successful in the network marketing industry.
Finding the right company
As mentioned earlier, many network marketing companies are running illegal schemes and are even a part of some scandals. Hence it is imperative to investigate the company properly and avoid using a tremendous amount of money by choosing the wrong company.
- Know the questions you need to ask–
- How old is the company? Is it well established or just starting? Generally, companies which are are 30 years or older are well organized, and it can offer you something incredible in terms of financial success.
- Are the company’s sales rising or dropping? This question will give you to hint about the future of the company.
- What is the general reputation of the company? You can get the answer to this particular question by going through online reviews, blogs, and even YouTube videos. At the same time, you can also enquire about your acquaintance about the reputation of the company.
- Look for the companies owner. You should be aware of the background of the companies owner. You should know if the owners are reputable and law-abiding citizens of the country. Also, make a list of all the controversies in which the owners are involved. This will give you an insight into how it affects your chances of success in a particular company.
- Check the products. Products or services are the base of any company, and almost everything depends on them. If your products are excellent, then there is a chance that you can be very successful. So you should ask the following questions regarding the products-
- Are the products safe to use?
- Does the company make the claims regarding the products backed up by scientific research?
- Would you use the products and let your family handle them? Suppose you are not willing to use the products, then, and there is no use of trying to sell the products and deceive your customers!
- What is the price range of products? The product should not be too expensive for a middle-class man at the same time, and you should also be sure that you are getting sufficient commission from the price range.
- Check for marketing plan- marketing plan is a plan which tells you how you are going to earn money in the company. You should know whether the payment you will receive is for only recruiting members, or it is regarding the business generate. You should see if the company enables you to earn passive income and what are the conditions for it.
- Read the contract carefully. You should avoid signing for the company immediately. You should first go through all the arrangements and conditions put forward by the company to avoid getting deceived.
Starting at a company
After you choose the company where you are going to work, it is imperative to follow specific steps to be successful. Remember, even in the best network marketing company; everyone is not successful. Also, it is more important to know WHAT NOT TO DO rather than what to do. Doing the wrong things can tell upon your business or, in some cases, the company can even FIRE you!
- Choose the right mentor- Since in the network marketing industry, you do not have any boss, it is imperative to have a good mentor. Because everything depends on the mentor only. From giving training to supporting you for growing the business, the mentor is involved in absolutely everything. It is just like a parent nourishing his or her children with all the support they can provide. You should be aware of the educational qualifications of the mentor, at the same time if you also know how much the mentor is earning himself. At the same time, you should see who is in your mentor’s upline and if they are supportive because you are going to receive the same fate.
- Study of products and know them well. Having the right knowledge about your products is very important in business, and this is one of the reasons why a lot of network marketing distributors fail. They do not have sufficient knowledge. After having adequate knowledge, you should also know how to promote the products without going against the rules set by the company. Make sure you use the products yourself before trying to sell it to others.
- Attend company meetings and training. One of the most beautiful things about network marketing is that training and support the company provides to its distributors. If you have joined the right network marketing company with the proper support, the practice can prove to be life-changing and can lead to a successful career. Generally, the meetings and training include the following topics-
- Sales training
- Product knowledge training
- Motivational training
- Business knowledge
- Marketing plan
- Personality development training
- Leadership development training
All these trainings can be Life-changing and can lead to success in various walks of life. So, make sure you attend all these training and help yourself to grow in the business.
- Make customers- The best way to make customers is to start with your relatives and friends and tell them about your products. Make sure that you use a particular product before trying to sell it. It will help you give a personal experience and practical knowledge, which is much more important than having a theoretical knowledge about the product.
- Take the follow-ups of your customers. Taking regular follow-ups with your customers is very important, and it helps to build a strong relationship with them. At the same time, make sure they are taking the products properly and following all the guidelines. You should remember the age-old saying, “One happy customer can bring you ten more customers.”
Building a business
Once you have mastered the sales skill, you should start developing your business by recruiting more and more people and training them.
- Recruit people- you can start recruiting people by approaching your friends and relatives first. It will be easier for you to convince them to join the business.
- Give proper mentorship and support to your recruits- providing recruits with training, knowledge, and mentorship is very important, and it will help them to grow. Also, support them as much as you can buy doing their business meetings, helping them to sell products, and promoting their recruits. The more business they provide, the more you will earn. For me, one of the most beautiful things about network marketing is that you become productive by helping others become rich!
- Attach your recruits with training and your upline. Attaching recruits with training and your upline will help them grow independent just like you, and then you can focus on making more recruitments indirect. After all, network marketing is all about duplicating yourself!
- Take guidance from top earners. One of the most beautiful things about network marketing is that you get supported by the people who are already successful. Since they have already tasted success, they can guide you better by letting you follow the same success path and give you more tips and let you know about the mistakes they made so that you don’t make them in your journey. It will help you to be successful without failing that much. So taking the help of top earners is very important in the network marketing industry.
Everyone has their own opinion regarding network marketing companies around the world. While joining a network marketing company, it is very important to take care of some important things like the company’s profile, products, plans, and your mentor. These things alone can decide whether you will be successful or not. Remember one thing- nobody can spoon-feed you the success you want to achieve. You have to work really hard for it, no matter whether you are in network marketing or corporate business.
- What is Digital Marketing? Its Types, Strategies and Terminology
- Affiliate Marketing Explained and FAQs Answered
- Email Marketing [The Ultimate Beginner’ss Guide]
- What is PPC? Learn The Basics of Pay-Per-Click Marketing
I hope you find this guide useful. If so, do share it with others who are excited to explore the marketing world and other topics that we publish here on our blog. If you have any questions related to this article, feel free to ask us in the comments section.