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.

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.

The benefit that probably means the most to you? It’s the fact that some of that money that’s freed up by not paying for advertising, wholesalers, and retailers, can go in the pocket of the person who is promoting the product by telling his friends and family about it.

This person is referred to as an associate, independent agent, or distributor. He or she is a salesperson who has their own business or distributorship. They create income by building up a customer base that buys the products directly from the parent company, or by recruiting other entrepreneurs who in turn build their own customer base, or usually a combination of both. This increases the size of the overall organization.

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.

There is also a term called “multi-level marketing” or “MLM”. What’s the difference between MLM and network marketing?

Basically, nothing! The two terms network marketing and multi-level marketing refer to 2 different aspects of the same 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 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.

And leverage is….

When you are talking about leverage in this context you are talking about earning money from somebody else’s efforts.

This leverage concept is used by any traditional business with employees. The company pays the employee a salary, which hopefully isn’t is as much as he brings in. The owner of the company gets to keep the difference. He is leveraging his income by making profit from the efforts of his employee.

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”!

Pyramid schemes are illegal in all states and most countries, whereas legitimate network marketing companies are allowed in all states and most countries. A pyramid scheme is recognized when distributors are paid primarily from money received from new recruits, or if they’re required to by more products then they can consume or sell.

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.

Want to learn more about the industry of Network Marketing?

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.