Network Marketing Business Model: Is It Right for You?

The answer to this question depends on the type of network marketing.

What is Network Marketing?

Network marketing relies on individual distributors who market and sell a product to their network of friends, relatives, and people they know or meet. Distributors earn money through commissions on the products they sell. They are often not employees of the company, but work as independent contractors.

Distributors in network marketing companies typically use three strategies to achieve success: lead generation, recruitment, and building and management.

Multi-Level Marketing

In some businesses, distributors also earn a commission when they recruit more distributors to sell the product. The more people they recruit, the more money they can make.

The result is multiple layers of sellers: the original top layer (called “upline”), and then one or more layers below them (“downline”). Each new distributor can also recruit additional distributors, forming the “downline” at that level. This type of network marketing is called multi-level marketing (MLM).

Some MLM programs allow you to earn money at five levels or more. The upper layers earn more money because they receive commissions from all the layers below them. It can be difficult for new distributors to make money.

Examples of MLM companies include LuLaRoe, Magnetic Sponsoring, and Amway.

Does Network Marketing Pay Well?

Network marketing does not pay equally for everyone. The amounts you earn depend on the volume of sales you can generate on your own and, in the case of MLM companies, the success of the downline as well.

A study published by the Consumer Awareness Institute indicates that most of the commissions paid out by MLM companies go to a very small portion of distributors, with 99% of new distributors actually losing money in their efforts.

There are many reasons why it can be difficult to make money from multi-level marketing. First, the company may require you to buy its products, pay training costs, or maintain a certain amount of inventory. These costs often come before you can make your first sale, so you start from behind.

Then, the exciting promotions or rewards offered by the company are often only available to sellers who “pay to play” by making motivational purchases of a certain amount. This inventory must also be sold if the seller wants to make a profit. Sometimes this purchase is required if the seller wants to advance, and reselling the product can be difficult because the seller needs to price the product above the imposed price to recoup costs.

Finally, there are often operational expenses, such as computers, phones, internet access, and “training tools” required by the company. These costs erode the potential for profit, requiring the seller to meet strict sales or recruitment goals to the point that it is almost impossible to advance.

Not everyone who wants to sell something will be good at it. However, honesty and genuine enthusiasm about the company or product is a form of marketing in itself. If the only incentive for the sales team is money, they may cut corners or mislead others in an attempt to earn more for themselves. For network marketing to be successful, distributors must also be genuinely enthusiastic about the product.

Note: Research your state’s laws regarding network marketing. Deceptive marketing practices and pyramid schemes can land you in legal trouble if you are not careful.

Multi-Level Marketing vs. Network Marketing

Marketing

Multi-level marketing is a form of network marketing with several levels of distributors. A large part of the success of a multi-level marketer depends on recruitment.

However, there are two other simpler types of network marketing: single-level network marketing and two-level network marketing.

Single-Level Network Marketing

With single-level network marketing, you sign up for a program with a company to sell its products or services. You do not need to recruit other distributors, and all your income comes from direct sales. The well-known beauty company Avon uses single-level network marketing.

In some online affiliate programs, you get paid for the visits you make to the affiliate company’s website. Pay-per-click (PPC) affiliate programs and pay-per-lead (PPL) affiliate programs are other examples of single-level marketing.

Two-Level Network Marketing

Unlike single-level network marketing, two-level network marketing involves some recruitment, but not all of your income depends on it. You earn money from direct sales (or visits you make to a website) and from the direct sales or referred traffic generated by the affiliate partners or distributors you recruit to work under your supervision. An example of a two-level program is Ken Envoy’s Site Sell.

Frequently Asked Questions (FAQs)

Can you make money from network marketing?

Yes, it is possible to make money from network marketing. However, it is not easy. Success typically requires dedication of effort, time, and money. Casual sellers will find themselves losing money quickly.

Is network marketing risky?

Yes, there are risks associated with network marketing. You risk the money spent on startup costs and purchasing inventory and training materials. You will also spend time and money filling out paperwork and processing and shipping orders and recruiting new sellers. To recover your money, you will need to sell a lot of product. And to continue making a profit, you will need to keep selling (and sometimes recruiting new sellers to work under your supervision). Evaluate whether your network actually has enough buyers to support your business needs and conduct thorough research on the network marketing company before getting involved.

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Sources:

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we verify facts and maintain the accuracy, reliability, and quality of our content.

Federal Trade Commission. “Case (for and) Against Multi-Level Marketing,” Chapter 7, pages 7-1, 7-32.

Federal Trade Commission. “Case (for and) Against Multi-Level Marketing,” Intro page 4.

Federal Trade Commission. “Case (for and) Against Multi-Level Marketing,” Chapter 7, pages 7-5, 7-7.

Federal Trade Commission. “Multi-Level Marketing Companies and Pyramid Schemes.”

Avon. “Make Beauty Your Business.”

SiteSell. “Solo Build It! (SBI!) – The Proof of Success.”

Source: https://www.thebalancemoney.com/the-network-marketing-business-model-is-it-right-for-you-3515493