Definition: Network marketing is a business model that relies on a network of distributors to build a business. Usually such businesses are also Multi Level Marketing in nature in that commissions occur at more than one level.
According to Wikipedia, network marketing is a way of doing business in which a sales force earns a commission not only for sales of products and services they personally generate, but also for the sales of others they recruit and bring into the business, which creates a downline of distributors and a hierarchy of multiple leveraged levels of compensation.
Some of the world’s wealthiest men including Donald Trump and Robert Kiyosaki have often described network marketing as a business model of the future. A business concept and opportunity allow ordinary people to exploit the lucrative product distribution chains that have been dominated and controlled for centuries by major distributors, wholesalers and retailers. As you will find in this detailed article, network marketing allows anyone to profit and earn bonuses and commissions by selling and recommending useful products to their friends, family and other people. This article will help you to understand the brief concept of network marketing.
How does Network Marketing work?
If you are interested to know how really network marketing works, then here you go, read ahead further.
Network marketing is one of the most exciting and interesting business opportunity that is currently helping more than thousands of families across the globe, to earn a standard handsome income. Before we even continue with this realistic article, here, it is of utmost importance for us to completely understand the concept and how it is to be useful in our real life situation.
As an example, let us consider one of the most popular products of the world that is well known to all of us, from any part of the world. People do consume a whole lot of this and that is nothing but the Coca Cola. The chilled bottle of Coca Cola is finding its place in your fridge most often conveniently, how it is happening so. There are so many middle men that have brought it to your fridge. Even before you had purchased it from the nearby shop or got it door delivered from the retailer nearby, there are so many hands that had handled the bottle already, to bring in from the manufacturing facility to the spot of consumption. The product was produced in a factory originally where it was bottled too. Major distributors of the product will then be receiving the item. It is kept in their warehouse for a while. Then it is sent to the wholesalers. Then the wholesalers sell it in smaller chunks to the retailers.
Then comes in the supermarket and the retail stores and then finally the end user the purchases the commodity. This is quite a conventional method of marketing a product and distributing it to the end user finally. Now, guess what happens here. The actual manufacturing cost of the commodity can be far less from what you are buying it from the retail store. But nevertheless, the major distributors are not going to buy and sell it to the wholesaler without any profits for his own side. So, does the wholesaler and the retailer too. The conventional retail chain is longer.
Most of the middlemen involved in the process of distribution make money with the exception of the end user. The irony is that, you cannot go to a factory and ask for a couple of products to be sold to you. That is impractical. You cannot buy two Coca Cola bottles from the Coca Cola manufacturing facility. They do not sell so. They sell in large cases to the major distributors.
We need to wait to buy the commodity all until the retail store is able to get the goods from the wholesaler. The network marketing and its distribution mode is totally different and discreet though. Referral marketing or the direct marketing is what we call it to be. Producers as well as the network marketers prefer to sell the product or service directly to the consumer. As there are no middlemen involved here, people can sign up into the mode of distribution directly. Distributor gets the commodity from the producers for very low rates. When they sell it to the others in the neighborhood, they make profits out of every single purchase. Along with that you earn commission for all those people that you pull into the network as new distributors.
Products are sold directly to the customers here in the concept of network marketing. There is no big money spent for advertisements or marketing or business promotions. You use the influence of your own in your neighborhood and sell products based upon the genuine trust and relationship basis. Naturally, when the product is good, then more sales can happen and you gain more profits over a period. As there are no big expenses in the form of advertisement costs for the producer, big chunk of commissions are paid as bonuses to the distributors regularly. Apart from that additional amount of money can be made in the form of commissions through referring new people to the business and out of the sales generated in the down line. This makes the network marketing concept to be one amazing method to make some good income either in your free time or even in full time as you please to do so.
So, you make money in multiple streams here in the network marketing concept as a distributor but yet that is not all. There is something more added on to it and that is nothing but the passive income or the residual income. When you are sleeping in the night you will still be making money through this concept. Yes, literally speaking, you get paid for what you are not doing. There are so many passive income modes like trading in the stocks, real estate sector or fixed deposits and so on, but the interests that you accrue or either less, or else you need to invest a lot of money upfront and also there may be risks of blocking money or jeopardizing the money as a whole in some cases as well.
Yet, the concept of network marketing is totally different. You are not paying any big capital money to the bank or to the share traders or any company as such, but you are able to make some decent money as passive income. This is something interesting and that is what pulls in the attraction of the majority of the people to pay heed to what we have to say here. You make money out of the commissions that you earn from all the sales that is happening in your down line for all throughout your life time.
Bigger the down line; bigger is your passive income too. Multi Level Marketing and Network Marketing are very closely related to each other by concept. Many people most often refer to the concept of Network Marketing as the Multi-Level Marketing; as a matter of fact, both terms are purely related. Multi-Level Marketing actually refers to the original compensation plan that is offered to the distributors in the network marketing business. Instead of paying the distributors a commission amount for all the volumes of those products that they actively are selling, the MLM plans also has rewards for the distributors in the form of commissions through the work done by the distributors they recruit.
Guess for instance, if you directly recruit 10 people to join the network marketing company of your own. In that case, you will earn much. It is worth it in your participating in it. This is the actually amazing power and great opportunity of network marketing. You gain a lot out of your participation. It provides you one unique opportunity to just make money from the efforts of your own and also from the real efforts of the others and that is what is called as passive income.
How is Network Marketing different from Pyramid or “Ponzi” schemes?
So far in this article, we have explained that Network Marketing (or multi-level marketing ‘MLM’) is a strategy used by some companies to promote and distribute their products through a network of distributors who are compensated for selling products and recruiting other distributors. On the other hand, pyramid (or ‘Ponzi’) schemes are fraudulent schemes that look very much like multi-level marketing but with some differences that may not look very obvious at first. Pyramid schemes are intended to look like a legitimate marketing strategy in order to deceive and take money away from people who cannot spot them or tell the difference.
Popular pyramid schemes tend to show up from time to time but are soon discovered and shut down. At most times, hundreds of people would lose their money and investments before these illegal pyramid schemes run out of business. Since these fraudsters are likely to convince you that their business or investment is MLM and not a pyramid scheme, we have identified the main differences between them below. These Warning Signs will help you identify the fakes who are really desperate to rob you of your hard earned money!
Warning sign #1 – Pyramid schemes do not sell any real products
Unlike network marketing or MLM companies which use their distributors to sell their products, pyramid schemes do not sell or promote any product that provides any real value to its users or consumers. Network Marketing Co. produces and sells health, skincare and household products that offer real value to people. In fact, the best products for a network marketing business are everyday products (like soaps, toothpaste, makeup and dietary supplements) which ordinary people use in their daily lives. The daily use of these products makes it possible for network marketing distributors to sell huge volumes.
Warning sign #2 – Pyramid schemes emphasize recruitment over sales
Whereas the main goal of a network marketing company is to sell huge volumes of its products through its distributors, a pyramid scheme usually focuses on getting more members. This is not surprising since they do not promote or sell any real products. Pyramid schemes usually focus on recruitment or new memberships because it’s the money taken from these new members that is used to compensate the older members. This is why pyramid schemes usually fall apart when they are unable to get enough new members to sustain the commissions they have promised to older members. Pyramid schemes just recycle money, and the last set of members to join the scheme are often the ones who lose out.
Warning sign #3 – Pyramid schemes usually do not last long
Yes, this is one of the most obvious warning signs of a pyramid scheme. They usually start up with a bang and are very popular; many people join, some make little money and all of a sudden, the pyramid scheme crashes when their game is up. On the other hand, many of the best multi-level marketing companies have been around for a long time; some of them are several decades old. Because their business model is supported by large sales of quality products that their customers appreciate and value, MLM companies are able to survive through the years.
Pyramid schemes are a house of cards that are doomed to crash. It is much better to work with a business with a long history and proven track record than to gamble your money away on a one-day wonder business that promises loads of free money and commissions.
#1 – Join a company that is right for you…
To succeed in networking marketing, you need to join a company with the right products, flexibility, compensation plan and support that works for you. The company must have products that will sell well or ‘move’ in your local market, area or country; there’s no point selling a product nobody is interested in. As a new distributor for the company, there has to be enough guidance and strong support to help you start up and succeed in the business.
Most network marketing businesses are organized around teams which comprise older and experienced distributors who help new members to find their feet. It also helps if you are a ‘true fan’ of the products you are selling and personally use and like them. Many of the successful and high-earning distributors are strong ambassadors of the products they promote. Yes, practicing or using what you preach is very important in this business!
#2 – It’s not a get-rich-quick business!
While you can make a lot of money from this business via profits from the products you sell, bonuses and commissions, you must avoid the temptation to think of this business as a get-rich-quick opportunity. Succeeding as a Network Marketing distributor will require hard work, constant learning and a lot of action. You will need to study the products and know them very well so you can answer any questions you have while you engage with potential buyers or customers. You need to know how to make sales presentations, follow-up telephone calls and e-mail, etc. Entrepreneurs who succeed in this business are go-getters, focused and determined to achieve tough sales targets.
As you can see, it’s not a walk in the park. Although it is very easy to become a distributor for an MLM company, the thing that separates successful distributors from the others is that they are hardworking and remain in the business long enough to reap the benefits.
Becoming a distributor for a network marketing (or MLM) company can be a very rewarding business. Unlike a traditional job, this type of business allows you to be your own boss – flexible working hours, the power to determine how much money you earn and the opportunity to travel on exotic trips. This makes network marketing a good choice as a home business and for entrepreneurs and people looking for a source of additional or side income. The potential to make passive income from a vast network of distributors is also a huge attraction to many people.
We believe that the opportunity we have shared with you in this article can be taken further by your creativity and energy. If you are confident, a network marketing business will work for you. We also recommend that you increase your knowledge of network marketing by reading books on the subject. It could also help to interview existing distributors of the company whose products you would like to promote before you join this business.
Business forecasts indicate that Network Marketing is exploding, which means now is the perfect time for startups to firmly establish their business. There are numerous tactics for nurturing a new Network Marketing Business. If you’re just getting started, now’s the perfect time to make sure all the elements for your business success are in place.
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