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What is Network Marketing? Multi-level marketing (MLM), also known as Network Marketing, is a business-distribution model that allows a parent company to market its products directly to consumers by means of relationship referrals and direct selling. Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, franchise owners, sales consultants, consultants, independent agents, etc. ), represent the parent company and are awarded a commission based upon the volume of product sold through each of their independent businesses (organizations).
Independent distributors develop their organizations by either building an active customer base, who buy direct from the parent company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the parent company at wholesale price. Distributors earn a commission based on the sales efforts of their organization, which includes their independent sale efforts as well as the leveraged sales efforts of their downline.
This arrangement is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager. Commissions are paid to multi-level marketing distributors according to the company’s compensation plan. There can be multiple levels of people receiving royalties from one person’s sales. THIS IS A VERY BRIEF OVERVIEW OF NETWORK MARKETING. Network marketing is, in short, a “business in a box”. For a nominal fee, you can register with a certain company in order to build up an organisation based around their products or services.
You are classed as an independent business owner: registered with, but not employed by, the parent company. Over our lives, we have all recommended goods or services to those we know. Think back to the last time you went to see a film in the cinema (or, if this doesn’t help, think about the last time you ate out at a fine restaurant or listened to some music. ) If you saw a film that you really enjoyed, the chances are you would have recommended it to people you know. Why? Because you wanted them to be able to enjoy the same experience that you had been fortunate enough to find.
So let’s say that you told six friends, and all six of them went to see the same film on your recommendation. They probably bought some popcorn with their film, and maybe a drink. Perhaps they paid some money to park in the cinema car park. All told, they might have spent at least forty pounds together. That’s forty pounds that the cinema got thanks to your efforts. But how much did you get paid for doing them such a favour? Not a penny! The cinemas and the film-makers spend all of their money on hugely expensive advertising campaigns and rely on these to encourage people to see the movies.
Except that there are two problems: Firstly, millions of dollars are spent advertising to people who have already seen the movie, or have no intention of ever doing so; Secondly, have you ever been to see a movie because it looked good from the commercials, but actually it was terrible?! So network marketing came about to solve these problems. Network marketing companies sell practically everything you could ever think of, but very few of them ever advertise. They rely on ‘referral marketing’ to spread the word about their products.
That is to say, they make sure that they have an exceptionally good product, and then rely on people to spread the word for them. In thanks for doing this, they pay those people for each sale made as a result of their efforts. This is much more efficient than blanket advertising, because the company is only paying for sales made, so it saves a huge amount of money which can be funneled into producing better, cheaper products, and paying its distributors (that is, those who are doing the ‘referring’) very well indeed. In a real network marketing business, every person joining the company forms the head of their very own business.
They usually do some personal retailing, which may involve talking to their friends and relatives about a particular product or service. Some organisations encourage the development of a substantial retail base, which is always a good idea. As you will be making a tidy sum of money on the side, you might now want to recommend this business model to some of your friends. After all – they probably want to earn some extra money too! They start at the head of their own business, and they also build up a small retail turnover. They make exactly the same money from that as you do from your own retail business.
However, because you introduced them, you also get a small bonus payment from the company by way of a reward for spreading the word. After all, because of your efforts, the company is now making more money. This first person is a member of your downline. They are on your first level. As time goes on, you will introduce other people to the organization, and these people will in turn introduce a second level and so on. These are all members of your downline, and you are their upline. Your own upline is the person who introduced you to the business.
Your upline will offer you help and advice because they won’t succeed until they help a number of their downline also to succeed! The more money you make, the more money they make. Clearly your organisation will never be as large as theirs, because yours is a part of theirs, but most network marketing companies reward those who bring in most of the distributors. If you do very little work, but just happen to register someone who works extremely hard, then it is only fair that they should get far more money from their group than you do.
So network marketing is a fair and ethical way to do business. It avoids waste, it rewards people for the work that they do, and does so on a continual basis – as long as the company continues to make money from your efforts, you will get paid. Even if those efforts were ten years ago! Moreover, it encourages people to help you to succeed, which for many people is a truly welcome break from the backstabbing and office politics that accompany so many conventional jobs. Many people worldwide have developed a very substantial residual income from network marketing.
A residual income is one that keeps coming in month after month based on work you have already done. The more work you do, the more your income increases. If you do no work then your income will usually remain about the same but you still get paid! If your organization is big enough then it might even continue to increase without any further input for you – there are lots of people in your group making money too, and they want to make even more! HOW DID NETWORK MARKETING START? Network marketing has been around for nearly fifty years.
It started in the US, and the first major modern network marketing business was formed in 1959. This company was created by business partners Rich DeVos and Jay VanAndel, originally with just one single product and a new and unique business vision. They regarded conventional sales jobs as unfair – being paid only once for the work that they did even when the company continued to make a profit from their labours for many years afterwards. They believed that they should be paid relative to the benefit the company continued to get from their original work.
The only problem with this was that no company would sanction their model of business, and the extra costs of paying the salesmen on an ongoing basis would have pushed the price of the products far too high to be saleable. So DeVos and VanAndel broke away and formed their own company, returning a few years later with enough money to buy out their original employers and incorporate the vitamin business into their growing corporation. Their company is now a multi-billion dollar business operating in virtually every developed country in the world.
Within a few short years, many more companies followed in their footsteps and now network marketing is responsible for a turnover of tens of billions of dollars in the US alone. IS NETWORK MARKETING LEGAL? Network marketing is absolutely legal, and is governed by strict regulations in most countries. However, be aware that some companies masquerade as network marketing companies whilst failing to conform to the required regulations. In most countries, the network marketing industry is regulated by the Direct Selling Association. There is lots more information on their website regarding regulations and legal issues.
They charge hefty fees for membership, so it is certainly possible that a legitimate network marketing company might not be a member of the DSA. IS NETWORK MARKETING ETHICAL? Lots of people worry about this question. It as a huge problem many people have in the beginning of their time as a network marketer. Network marketing is highly ethical, though there are sadly many people within the industry who act in an unethical way. Some people have registered with NM opportunities and behaved in a non-ethical manner, but this is not at all a criticism of the industry – just on those particular individuals.
Plenty of people abuse their privileges in jobs. Conventional business is very much a tiered system. IssueConventional BusinessNetwork Marketing Leadership positionsLimited. Usually one or two CEOs, presidents etc. Many at lower levels unable to promote until somebody above them leaves. Unlimited. Anyone can progress to any level regardless of when they started or under whom. PromotionLimited availability. Decided by candidate’s boss or supervisor. Unlimited. Decided by each individual and dependent only on the value they bring to the organisation, i. e. urely on merit. SupportSuperiors don’t want their employees rising up the ranks and taking their jobs! It is in the upline’s interest to help and support their downline as much as possible, even if that means helping them to reach higher levels than themselves. AdvertisingAdvertising designed to be as manipulative as possible, e. g. appealing to sexual instincts or desire for personal acceptance. Most NM companies do not advertise. Products are sold based on recommendations, demonstrations or just low prices. RewardsMost sales posts offer one-off commissions.
Often very little personal recognition or encouragement. Commissions based on the ongoing sales volume of your downline group. Lots of personal recognitions and encouragement from the entire team. Starting PositionGenerally dependent on education levels and occasionally on favouritism. Often linked to family background, with rich families able to send their children to prestigious schools. Everyone starts at exactly the same level regardless of initial wealth, background or education. WHAT TYPE OF GOODS ARE AVAILABLE THROUGH NETWORK MARKETING?
Anything you could ever name, from disposable chemicals such as soap and washing powder, vitamins, beauty products etc. right the way to gas, electricity, telephone calls and life insurance. BENEFITS OF NETWORK MARKETING ?One of the major benefits of a Network Marketing business is that the startup costs are so small. In fact, in many countries there are restrictions limiting the size of the maximum signup cost. This is because some unscrupulous companies were making most of their money from signing up new people, and not enough from selling products. Network Marketing works well because practically anyone can do it. The ideal business opportunity will cost little to set up, and little to run. However, this is not always possible, and in most cases the first few months, or years (if you build your organisation slowly) will not run at a significant profit, if any at all. ?Some Network Marketing companies encourage you to enter training schemes in order to help you build your business. ?The benefit of being around positive, like-minded people is enormous. It rewards people for the work that they do, and does so on a continual basis – as long as the company continues to make money from your efforts, you will get paid. COMAPANIES INVOLVED IN NETWORK MARKETING This is a list of companies which utilize multi-level marketing, also known as “network marketing”, for most of their sales. ???Avon Products ???BioPerformance ???Cobra Group ???Excel Communications ???Forever Living Products ???Freelife ???Mini IQ ???Monavie ???National Safety Associates ???Neways ???Oriflame ???Quixtar ??? Telecom Plus ???XanGo REFERENCES http://en. wikipedia. org/wiki/Multi-level_marketing ttp://www. networkmarketingexplained. net/ http://en. wikipedia. org/wiki/List_of_multi-level_marketing_companies Why would a company choose the MLM route to product distribution? There are several good reasons: – Low overhead. There are virtually no up-front advertising costs. Unlike a typical retail company, the MLM company doesn’t have to spend massive amounts of money to “pull” customers in. Instead, it pays distributors to “push” the product out into the marketplace. In addition, the company only has to pay the distributors for *results* — that is, a percentage of products actually sold.
Ordinarily an MLM company will use the money that *would* have gone into advertising to pay its distributors. (Using Procter & Gamble as an example: I have an unconfirmed report that says P&G’s sales in 1992 were $25billion. Their advertising budget was $10billion. So they spent 40% of their sales on ads. MLM companies typically pay 40-80% of their sales volume to their distributors. ) – Low distribution overhead. Typical retail companies generally use: a series of national, regional, state, and local warehousers to distribute their product to the retail stores.
Each of these intermediaries wants to make a living, and marks up the cost of the product. Using P again: my unconfirmed report says that a tube of Crest that sells for $2-3 in a store costs P roughly 13 cents to manufacture. If it sold for $2, 40% (80c) would go to advertising, leaving $2 – 80c – 13c = $1. 07 for distribution costs and P’s profit. – Rapid growth. A well-managed MLM company can grow at an amazing: rate — as much as 20%, 50%, even 100% per MONTH. (In fact one of the biggest reasons for MLM company failure is inability to keep up with explosive growth. It would be difficult or impossible to generate this kind of growth in an overcrowded retail market. – Specialized and motivated “sales force. ” There are hundreds of thousands of products cramming the shelves of retail stores. It’s almost impossible for a new product to make a dent in the market, unless the company spends megabucks on advertising. Also, many MLM products need more explanation than can be done in a 30-second TV spot. A person-to-person word-of-mouth campaign can solve both of these problems. That’s the company’s perspective.
For the individual, MLM can offer an opportunity to build a part-time income source that can, with enough effort, grow into a significant income. With hard work (and a little luck) you can earn incredible incomes. How? MLM is all about “a lot of people doing a little bit. ” In an MLM you are rewarded for the sales you create — not only directly, but indirectly as well. You get profit for any retail sales you make, plus you get a bonus on the sales made by people you enrolled into the company, and people they enrolled, and people THEY enrolled, and…
By getting a small percentage of many people, your income can grow to a very large number. But wait. It’s not that simple. It takes a lot of time and work to build up a group (called a “downline”) in any MLM. What’s more, even if you’re a real hard-working go-getter, YOU can’t do all of it. You can’t enroll the 90,000+ people in this group by yourself. Each person has to find 5 of his own — and the sad truth is, most people are not that ambitous. It’s hard to find the ones that will work. So it’s almost unheard-of for someone to actually build an idealized group like this.
Some “legs” in the downline will build faster than others, and some will grow slower. If you don’t work hard yourself, you might never start ANY legs that go anywhere. But that’s the concept: a whole lot of people doing a little bit each, and you getting a small reward on each one. If you have the initiative and work ethic to build that group, you can make a very nice income in MLM — maybe even get rich. But MLM **IS NOT** a get-rich-quick deal. It DOES take a lot of work, and most people won’t put in the work it takes.
The large majority of people will never get rich; quite a few hardly make a dime. But the beauty of it is, as long as you pick a good company with a good product or service, the size of your success is up to YOU. Why do companies choose Network Marketing to distribute their products or services? Below the 2 diagrams show the standard and network marketing models for distribution of goods and services. REFERENCES http://en. wikipedia. org/wiki/Multi-level_marketing http://www. networkmarketingexplained. net/ http://en. wikipedia. org/wiki/List_of_multi-level_marketing_companies