Network marketing is a business model that has been around for decades. You have probably heard the term, but do you know what it means? What are some of the advantages and disadvantages of network marketing? Is network marketing a pyramid scheme? Let’s explore these questions and more in this article!
What is network marketing?
Network marketing is a business model that has been around for decades. You have probably heard the term, but do you know what it means? Most often associated with direct-selling companies like Avon or Tupperware, this retail concept is also used in other industries, such as health and wellness. The idea behind it that distributors build up a customer base of clients who are often referred to as “downlines.”
The goal for network marketing companies is simple: create space at the top so those below can move up by selling products or services. And there’s no limit to how many levels you can have. Even the CEO of a company will typically only make up one level in this kind of system.
How does network marketing work?
Yes, network marketing does work. It takes time to develop a solid customer base and grow your team of distributors, but it can be very lucrative once you do. There are many benefits to joining an established company that has been in the business for decades (versus creating your own).
What are the types of network marketing?
There are three main types of network marketing: direct selling, referral marketing and multi-level marketing.
Direct selling involves the company researching and developing a product before distributing it to distributors. The distributor then sells these products, often in physical stores or online. Some examples of direct-selling companies are Avon and Tupperware.
In referral marketing, the company provides affiliates with leads so they can promote products or services in exchange for commission on each sale made by people who were referred to them. This type of business model includes companies like FortuneBuilders and Safelite where their representatives earn commissions from sales that are generated as a result of their marketing efforts.
Multi-level marketing, or MLM, is similar to referral marketing in that there are many people involved. The main difference is that with MLMs you’re not just recruiting others for a chance at making money; you’ll also be part of the company yourself and will make commissions based on your sales volume. Some examples of multi-level marketing companies are Herbalife and Melaleuca.
Advantages of network marketing
The primary advantage of network marketing is that it allows you to make money on your own terms. You are the boss and can work as much or little as you want, for other people if desired, without worrying about somebody telling you where to be or what to do. This is a great choice for someone who wants control in their life and wants to be in charge of how much they earn and when.
The second advantage is that it often offers a wider range of product choice. MLM products are typically offered for sale through the company itself, which means you can choose from one or more vendors based on personal preference–including choices about price, quality, availability, location, and/or other factors.
The third advantage is that you may increase your social circle with people who have the same interests as you and can be a more natural way to make friends. The downside of this, however, is that you are going to end up spending time away from family and old friends because it will require an investment of their time, as well.
Disadvantages of network marketing
The first disadvantage is that the time commitment involved can be significant and it may not fit into everyone’s schedule. It requires at least an hour a day to do what needs to be done for most MLMs. This means no more than 20 hours of work per week–at minimum wage pay rates this would amount to $40,000 a year.
A second disadvantage is that you may be required to purchase inventory for resale in order to participate at all levels and advance in rank. This will require an investment on your part; this can range from $500 to tens or even hundreds of thousands of dollars depending on what you buy into.
A third disadvantage is that you may be required to recruit new members as part of your “downline” at the lower levels in order to receive more benefits in the higher-level MLMs.
A fourth disadvantage is that you may have to purchase more products than what your customers can use or consume.
The amount of time that you put into your business can vary, but it’s important to keep these disadvantages in mind when deciding if network marketing is right for you and which company you should join.
How do you tell if a network marketing company is legitimate?
How do you tell if a network marketing company is legitimate? To avoid wasting time and money on scams, consider these four factors when deciding to invest in a new opportunity:
- Look at the company’s products and services. If they are high-quality, then you’re more likely to find that people will want them for their own use and not just as a way to make money from commissions.
- The company should be be able to show you how they’ve helped others in the past.
- Be wary of any MLM with a high investment amount and low product price (i.e., $250 for an opportunity that will make you money).
- Check their Better Business Bureau rating or online reviews before joining.
- Check social media to find out information about any particular network marketing company before joining up with them.
Network marketing vs pyramid schemes
The Federal Trade Commission defines a pyramid scheme as “an illegal investment operation where the person who brings in new investors – called “salespeople” or “distributors” – is rewarded for doing so by being given financial rewards that come from those salespeople’s commissions on their own investments. Pyramid schemes are often disguised to look like legitimate multi-level marketing plans.
Some people use the term network marketing to refer to a pyramid scheme. However, there are legitimate forms of MLM that don’t operate like pyramids so you have to do your research before joining any particular company and in order not to get scammed or ripped off by the sales people who want commissions.
Pyramid schemes are illegal because they are deceptive, but network marketing is not always about deception.
Network marketing can be a pyramid scheme if it is structured as such and the company’s product or service does nothing to differentiate itself from its competitors in terms of quality or price point. In many cases, network marketing can be a legitimate way to generate income because it’s based on the sale of products or services.
History of network marketing companies
Network marketing has been around for a long time, but it’s only recently that the business model has seen its rise in popularity. The reason behind this is because of social media and other ways to reach people who are not online often or at all. This opened up new opportunities for companies to expand their market and make more money while also encouraging ng more people to join the network.
Network marketing first became popular in the 1920s because of two key factors. First, people were becoming tired of getting ripped off by products that didn’t work or had hidden costs in the form of taxes and shipping fees. Second, many companies running on a model similar to network marketing had seen success with their business model. They created more opportunity for others looking to do the same thing but on a smaller scale, and the popularity of network marketing took off.
Is network marketing here to stay?
This is a good question to ask. The popularity of network marketing has fluctuated wildly over the years, but it never really goes away completely. It’s likely that this trend will continue in the future as well. Network marketing systems are already being used by more than 300 companies worldwide and approximately 18 million people around the world participate as distributors or or customers at any given time. The numbers don’t lie, network marketing is here to stay.
Should you join a networking marketing program?
If you are interested in network marketing, then make sure to do your homework before jumping into it or any other opportunity. A lot of people are interested in network marketing because it offers a way to make money without significant investment. The problem with this is that you might get lured into a scam, which can be very expensive and take up more time than anything else.
I buy and review courses so you don’t have to. Sometimes, I even find courses that are legitimate and worthwhile; and that’s how I accidentally came across one that led me to building a 6-figure business in a little under 5 years. Now, I still review courses because it’s my favorite hobby. 🙂 Learn more about me here.