What Is Network Marketing?
Network marketing is a business model that depends on person-to-person sales by independent representatives, often working from home. A network marketing business may require you to build a network of business partners or salespeople to assist with lead generation and closing sales.
How Network Marketing Works
Network marketing is known by a variety of names, including multilevel marketing, cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, or home-based business franchising.
Companies that follow the network marketing model often create tiers of salespeople—that is, salespeople are encouraged to recruit their own networks of salespeople. The creators of a new tier earn commission on their own sales and on sales made by the people in the tier they created. In time, a new tier can sprout yet another tier, which contributes more commission to the person in the top tier as well as the middle tier.
The Advantages and Disadvantages of Network Marketing
There is some stigma attached to the networking marketing business, especially those with multiple tiers, which can be characterized as pyramid schemes—that is, the salespeople in the top tier can make impressive amounts of money on commissions from the tiers below them. The people on the lower tiers will earn much less. The company makes money by selling expensive starter kits to new recruits.
A good rule of thumb, according to the Federal Trade Commission, is that single-tier network marketing operations tend to be more reputable than multi-tier schemes, in which people make money based on the number of distributors they recruit.
Types of network marketing
This single-tier marketing system requires an individual to sign up for a program to sell a product or service. Individuals who sign up for these programs do not need to recruit other distributors and are paid only on the direct sales they make.
Direct marketing is the most immediate form of sales. Find a product you like and get your friends and family to buy into it. A few top companies involved in this type of network marketing are Mary Kay cosmetics, Avon cosmetics, and Pampered Chef kitchen supplies.
A newer aspect of network marketing is using online affiliate marketing programs. Website owners and bloggers integrate links to specific products on their platforms. When people click on those links and purchase products, the website owner is rewarded a referral fee. This provides customers with access to a trusted site where they can immediately purchase the products being advertised.
Multi-level marketing (MLM) is a distribution-based marketing network that includes direct sales and a downline of distributors. These home businesses tend to get a lot of bad press for their similarity to pyramid schemes. In reality, they have one key difference. Where pyramid schemes require people to invest in a false promise of wealth, MLM organizations sell real products or services that distributors believe in.