How Does Network Marketing Work?
Network Marketing is a business model in which companies distribute their products to the end user through a word-of-mouth, direct selling type of method. This eliminates the middle man - there are no advertising, wholesaling, or retailing costs involved whatsoever.
What do you mean by “No Middle Man”?
One of the benefits of this is that more money can be spent on research, development and manufacturing, which usually results in much higher quality, unique products.
The other main benefit of the Network Marketing business model is the fact that some of the money spent on advertising and the distribution channel (wholesalers, retailers, etc.) can now go to the people who actually promote the products by their word-of-mouth advertising.
These people are referred to as associates, distributors, independent agents, and other terms. They are unsalaried salespeople that basically have their own business, and develop their organization by either building a customer base that buys their company’s products directly from the parent company and/or by recruiting a downline of independent distributors who also build their own customer base, thereby increasing the size of the overall organization.
Associates can earn money in the form of commissions based on the efforst of their organization, which includes themselves and everyone in their downlines. These commissions are calculated based on the individual company’s compensation plan, which determines how an associate gets paid.
There are usually many levels of people getting paid from one person’s sales. Also, associates can earn money by retailing products that they buy from the company at wholesale prices.
I’ve heard of multi-level marketing, or MLM. What’s the difference between this and network marketing?
Basically, nothing! The two terms network marketing and multi-level marketing refer to 2 different aspects of the same business.
Network marketing is just how it sounds: a network, or group of people, communicate with each other and products are marketed this way.
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?
When you are talking about leverage in this context you are talking about earning money from somebody else’s efforts.
Obviously, this concept is used by most businesses with employees. An employee earns money for a company, and in turn is compensated with a salary, which is hopefully less that he’s bringing in. The owner of the company gets to keep the difference. So he is leveraging his income by making money off his employees.
This is similar to the concept of network marketing compensation plans, with the distinct difference being that those that the distributor is leveraging off of are independent distributors themselves. This means that there are no employee costs involved, and that these people are going to be much more motivated to succeed.
Wait a minute! Is this one of those “Pyramid Schemes”?
A company is a pyramid if the distributor mainly makes money from new signups or they have to buy more products than they can sell or use.
Pyramids are illegal everywhere, but network marketing is legal in all states and most countries.
There are illegal pyramid schemes that try to pass themselves off as legitimate network marketing businesses. If a company is legitimate, the distributor can only earn commission from sales of the company’s products or services, and not from recruiting sign-up fees alone.
Here are a couple of good resources for learning more about the Network Marketing Industry.
These resources, from a third-party perspective and not created by any specific company, are Brilliant Compensation by Tim Sales and The 45 Second Presentation That Will Change Your Life by Don Faila. I recommend both of these as not only informational, but as good resources to use in your prospecting efforts with skeptical people.
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