How Does Network Marketing Work?

Welcome back!

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.

How Is ‘No Middle Men’ a Business Benefit?

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.

These people have their own business, generating income by recruiting like-minded individuals who want to work for themselves, or customers that just want the products and purchase them directly from the parent company, or a combination of the two. They are called associates, distributors, or independent agents, depending on the company. All three mean the sam.

Indepedent agents earn their money in at least two ways - through the efforts of their downlines, and by purchasing products from their company at wholesale prices then turning around and selling them for a profit. Commissions are paid based on what’s called a “compensation plan”, which determines how many levels of people will be receiving income from one person’s sales.

I’ve heard of multi-level marketing, or MLM. What’s the difference between this and network marketing?

There is no difference! These two terms, network marketing and multi-level marketing actually refer to different aspects of the same type of business.

First, network marketing. This term describes how the products are promoted, which is through a bunch of different people talking to each other, or networking.

Multi-level Marketing is how the people in the network are compensated for their efforts. It simply means that commissions are paid on multiple levels of the organization, thereby creating 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.

Network Marketing compensation plans are similar in the leverage aspect, but different in one major way: There are no employees, or the associated costs and hassles. They are leveraged off other independent associates instead. These people are also going to work harder, because they own their own business and are more motivated to succeed.

Hey, this sounds like a “Pyramid Scheme”!

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.

Network marketing companies are not pyramids, though some pyramid schemes try to pass themselves off as legitimate MLM businesses. In most legitimate MLM companies, commissions are earned only on sales of the company’s products or services. No money can be earned from recruiting alone, as in sign-up fees.

Two Good Resources For Learning More About the Industry of Network Marketing.

The two resources are The 45 Second Presentation That Will Change Your Life by Don Faila, and Brilliant Compensation by Tim Sales. These are both excellent third-party tools that are not only informational, but extremely useful for showing to prospects that are dubious.