What Is Network Marketing?
Saturday, November 22nd, 2008Network Marketing is a way that companies market their products to the consumer. It is different from most other types of businesses because it doesn’t have any advertising, wholesaling, or retailing costs involved in it. It is done entirely by direct selling and referral, word-of-mouth type of advertising. This eliminates the middle man.
What’s the problem with “Middle Men”?
When companies use “middle men” they spend money, and lots of it, on things that don’t enhance the product. If they don’t have these costs, they can spend more on research and development. This means that they can produce a higher quality, more unique offering.
Another plus of the Network Marketing business plan is that some of the money that formerly went to the middle man - advertising, wholesalers, and retailers - is now available to compensate the people who actually promote the products by their word-of-mouth advertising.
This person is referred to as an associate, independent agent, or distributor. He or she is a salesperson who has their own business or distributorship. They create income by building up a customer base that buys the products directly from the parent company, or by recruiting other entrepreneurs who in turn build their own customer base, or usually a combination of both. This increases the size of the overall organization.
Distributors earn commissions based on the sales efforts of their organization, which includes their efforts as well as the efforts of their downline. Commissions are paid to distributors according to their company’s compensation plan. There can be multiple levels of people receiving commission from one person’s sales. In addition, distributors can earn profit by retailing products which they purchase from their parent company at wholesale price.
There is also a term called “multi-level marketing” or “MLM”. What’s the difference between MLM and network marketing?
In a word, nothing! The terms Network Marketing and Multi-level Marketing refer to two aspects of the same type of business.
Network Marketing describes how the products are marketed, through a network of people in communication with one another.
Multi-level marketing is simply the means by which the people in the network are paid for their efforts. Commissions are paid to multiple levels of distributors, which creates leverage.
What do you mean by leverage?
Leverage can mean different things. In this context, it means the ability to earn commission on something that someone else sells.
The leverage concept is nothing new. It’s used by all for-profit businesses that have employees. The company charges money for something that the employee produces, then only pays the employee part of that. The owner of the company then keeps the rest, thereby leveraging the employees hours to create income for himself.
This is kind of the same as network marketing compensation plans, but there is a big difference: In a network marketing plan, the ones that are being leveraged off of are other independent distributors instead of employees. Therefore, there are no employee costs involved and hopefully these people will be more motivated because they also own their own business.
Wait a minute! Is this one of those “Pyramid Schemes”?
If distributors are paid primarily from money received from new recruits, or if they’re required to buy more product than they are likely to sell, then the company may be a pyramid. Pyramids are illegal in all states and most countries. Legitimate Network Marketing companies are not only legal, but thrive in every state and in most countries.
The way to tell if a company is a pyramid scheme is if you can earn commission from sign-up fees. If there is no product or service obtained for this fee, then it’s a pyramid. All legitimate network marketing companies pay commission only on sales of the company’s products or services.
Want to learn more about the industry of Network Marketing?
First is Brilliant Compensation by Tim Sales. Second is The 45 Second Presentation That Will Change Your Life by Don Faila. Both of these tools are highly recommended for your own knowledge and to show to skeptical prospects. They are both created from a third-party perspective and not for any particular company.