Network marketing is a form of marketing in which a company’s products and/or services are distributed through a network of independent business owners (IBOs). It is often referred to as multi-level marketing (MLM). Some of giants in the MLM industry include Quixtar (Amway Global), Avon, Tupperware, Mary Kay, Pampered Chef, and Herbalife International.
In terms of business models, this form of marketing is very similar to franchising. In a franchise, a business person pays a company a certain amount of money (usually several thousand dollars) for the opportunity to sell that company’s products or services under the company’s brand name and store front. In MLM, a business person pays a company a certain amount of money (usually just a few hundred dollars) for the opportunity to sell that company’s products or services under the company’s brand name but without the additional expense of a store front.
One of the appealing things about network marketing is that, in addition to making retail profits from the sale of the products and services, it offers IBOs (distributors/affiliates) the opportunity to expand their business by recruiting new IBOs.
When a network marketing distributor (IBO1) sells a product or service, he accumulates sales volume upon which he earns a percentage (commission). When he recruits, or sponsors, a distributor into his downline (IBO2) he earns a percentage of the sales volume of that distributor’s sales volume. When that IBO2 recruits a distributor (IOB3), the original distributor (IOB1) earns a percentage of the sales volume of both IBOs. The number of times this can occur varies from one company to the next. It is governed by what is referred to as the company’s compensation plan. Some of the more lucrative compensation plans pay commissions through unlimited levels.
Network marketing, as a business model, has often been confused with illegal pyramid schemes. The United States Federal Trade Commission (FTC) scrutinizes hundreds of new companies (MLM and traditional businesses alike) every year in an effort to wean out the unscrupulous ones. Unfortunately some companies and individuals wreck havoc on the lives of many before they’re discovered and shut down. It seems that everyone knows someone who lost money in network marketing and yet thousands upon thousands of people are attracted to the industry every day. If you’re one of these people do your due diligence and consider these four factors before deciding to join a network marketing opportunity:
1. How long has the company been in business?
2. How much does it cost to participate?
3. How much training is available?
4. What is the compensation plan?
I will cover each of these areas in greater detail in subsequent articles starting with–why it’s important to consider the amount of time a network marketing company has been in business;
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