What is Network Marketing
and How Does it Work?
Try mentioning that you’re a network marketer these days, and you’ll often get unsavory, sometimes even disgusted, stares. Indeed, network marketing gets a bad rap because of its shady past full of pyramid schemes and scams.
But when done right, network marketing is a legitimate and effective strategy to grow your business. In fact, a lot of successful and reputable brands, from Avon to Tupperware, owe their success to network marketing.
That said, to ease your fears and doubts regarding this controversial marketing approach, we first need to clarify what exactly is network marketing?
What is Network Marketing?
While network marketers and MLM companies will have various (often convoluted) structures and schemes, the network marketing definition is actually pretty straightforward.
At its core, network marketing is a form of direct sales that involve a network of independent salespeople, often called representatives, to sell a product or service. These salespeople are then incentivized to recruit salespeople of their own, essentially growing the sales network exponentially.
A legitimate network marketing model is an effective way to market and sell a product or service to a broader audience at a minimal cost. For sales representatives, it has the potential to bring in considerable income with minimal investment.
While we’re here to define network marketing, it’s vital you also know how it differentiates from a pyramid scheme. A true network marketing model relies on revenue from the sales of actual products and services to keep the business going. If the business is paying salespeople purely using fees from recruiting other people, then that is an illegal Ponzi or pyramid scam.
Types of Network Marketing?
There are three types of network marketing models you need to know, each differentiated by the number of levels or tiers they have.
One Tier Network Marketing
One tier or single-level network marketing models focus solely on selling a company's products or services, without requiring representatives to recruit. Most one-tier network marketing programs are also called affiliate programs.
A single-tier network marketing model is the simplest type and is almost always legitimate.
Two Tier Network Marketing
In two-tier network marketing, the focus is still on selling a product or service. However, it does allow for recruiting salespeople of your own. You get paid a small percentage of any sales that your recruits make.
Multi-level Marketing (MLM)
Multi-level marketing, or MLM, is a network marketing model where you get a percentage of the sales of not only your recruits but of your recruit's recruits as well. Some programs allow you to earn up to five levels deep or more, so there's the potential to earn big as you grow your network.
How Does Network Marketing Work and What Does a Network Marketer Do?
Network marketing is a relatively simple business model to understand, despite what MLM companies would have you believe.
Potential sales representatives pay an investment fee to opt-in, which often includes a starter kit of products they can either use or sell. They might also be given marketing collaterals or support, but are expected to market or sell the product on their own.
Representatives earn by buying products at a distributor’s price, then selling it at retail for a profit. For single-tier networks, the process ends here.
Multi-tier network marketers, however, also have the option of recruiting new members. These recruits opt-in essentially the same way they did – by paying an investment fee. Sales reps who recruit are called the upline, while people they recruit are called their downline.
On top of earning from their sales, uplines also earn a percentage of the sales that all their downlines make. Often, uplines also earn whenever they recruit someone successfully.
With that in mind, it is vital that uplines use extreme care when recruiting. Treat the process similar to how you would with new hires for a traditional business. Doing so will only benefit you, as the bigger the downline network an upline has, the bigger the revenue potential.
Pros and Cons of a Networking Marketing Business
Despite its reputation, many companies still adopt a network marketing approach because it’s a cost-effective way to market and sell a product or service to a broad audience in a short time. Plus, all that’s needed to start a networking marketing strategy is a team of high energy and passionate salespeople.
The disadvantage, of course, is the stigma that’s associated with network marketing. Even today, there are still plenty of scams out there. This creates a big hurdle for legitimate network marketers to overcome.
You also run the risk of ruining your company’s reputation if a few of your independent representatives decide to resort to unsavory tactics just to land a sale.
But the fact remains – network marketing is a legitimate business model if executed properly. If you’re considering this approach to promote your financial seminars, you need a platform like LeadJig to coordinate everything successfully. Contact us today for a free demo.
