Network Marketing, also referred to as Multi-level Marketing (MLM), Direct Sales or Party Plan, is a sales and marketing strategy often used by Direct Selling companies such as AVON, Usborne Books and The Pampered Chef.
The independent Representatives who join these companies gain commission for sponsoring/recruiting others to join the business model as well as making money on product sales.
How does Network Marketing work?
Most network marketing programs work on the following principles or similar, although the compensation plan varies depending on the company:
- Mary joins a direct selling company – she is ambitious, enthusiastic and wants to build a full time business
- Mary will gain a typical 20 – 30% commission on what she sells
- There may also be more bonuses available for high sales over a certain amount in any given month
- In order to tap into more of the financial incentives via MLM, Mary wants to sponsor/recruit other people to join the business
- Anyone that Mary sponsors is referred to as her ‘downline’
- Mary is referred to as the ‘sponsor’ or ‘upline’
- For each person that she sponsors to join the business, Mary will receive a percentage of that persons own sales (usually between 3-8%)
- There is no limit for the amount of people Mary can sponsor
- During Mary’s MLM journey she will achieve various targets which will enable her to gain more commissions
- If Mary’s downline start to sponsor, Mary will be able to earn commissions on those people too
- To maintain her business, Mary must help her downline to grow their own businesses by training and supporting them
- Mary’s business will continue to grow over a number of years – MLM is by no means a get rich quick scheme
Mary’s story gives a simple overview of how network marketing works and there are many other factors to consider before joining any network marketing business.
Is Network Marketing Like Pyramid Selling?
In a word, NO! This information from Wikepedia explains Pyramid Selling as follows:
A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula which is used for profit. The essential idea is that a “con artist” Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the “business” expands.
Such “businesses” seldom involve sales of real products or services to which a monetary value might be easily attached. However, sometimes the “payment” itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. The flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the “pharaoh”) and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Individuals at the bottom of the pyramid (those who subscribed to the plan, but were not able to recruit any followers themselves) end up with a deficit.
Most direct selling companies have structures in place to ensure that the upline cannot benefit from recruiting alone. Often they have to be personally active in their own business, obtaining and maintaining a high level of sales themselves whilst continuing to train and motivate their downline/team. This is what gives network marketing its credibility. You can be assured that the people at the ‘Top’ have worked very hard to make a success of their business over many years.
The Pros of Network Marketing
- You can work around existing work commitments earning additional income
- Start up costs are low (ranging from free to join up to £300 – average is £30 – £70)
- The hours are flexible
- You can work from home
- You can work online if you have an eCommerce website
- You don’t have a boss but instead have a Team Leader who can make suggestions/give directions
- There is no glass ceiling – you can continue to grow your business and the potential earnings are huge
- You get to meet lots of new (like-minded) people
Most successful Network Marketers say that since starting their business they have been on a self-development journey which has enriched their lives.
The Cons of Network Marketing
- You need to be very self-motivated and dedicated to make a success of your business
- You need to motivate not only yourself, but your downline too
- Not everyone in your downline will engage in the business model – approx. 30% of people joining will leave within a year
- You will need to keep positive; as with any business, there are high points and low points
- It may take years before your earnings meet your required level consistently
- You will need to put in many hours as you won’t reap the rewards straight away
Things to Consider…
- MLM is not a get rich quick scheme
- Research thoroughly before choosing a company. If you are UK based choose a company that is registered with the Direct Selling Association (DSA)
- What are the products like…are they good quality…will people re-order? You need to be passionate and confident in what you are selling.
- Does the company have a good reputation? some simple web searches will provide you some ideas
- When did the company start trading – how has their growth been….will they continue to grow?
- Is the compensation/commission structure sound…..can you understand it?
- Does the company offer training and support? What support and guidance will your upline offer?
Useful Links
- UK Direct Selling Association member companies – the DSA have a strict code of conduct so this gives member companies more credibitity: http://dsa.org.uk/index.php
- Understanding compensation plans in Network Marketing: www.network-marketing-business-school.com/compensation-plan.html
- MLM Tips, advice and success: www.networkmarketingelite.com/category/mlm
Where to find Network Marketing Opportunities and other flexible jobs
