Network Marketing is a business model in which companies distribute their products to the end user through a word-of-mouth, direct selling type of method. This eliminates the middle man - there are no advertising, wholesaling, or retailing costs involved whatsoever.
What's the problem with "Middle Men"?
One of the benefits of this is that more money can be spent on research, development and manufacturing, which usually results in much higher quality, unique products.
The other main benefit of the Network Marketing business model is the fact that some of the money spent on advertising and the distribution channel (wholesalers, retailers, etc.) can now go to the people who actually promote the products by their word-of-mouth advertising.
These people are referred to as associates, distributors, independent agents, and other terms. They are unsalaried salespeople that basically have their own business, and develop their organization by either building a customer base that buys their company's products directly from the parent company and/or by recruiting a downline of independent distributors who also build their own customer base, thereby increasing the size of the overall organization.
Associates can earn money in the form of commissions based on the efforst of their organization, which includes themselves and everyone in their downlines. These commissions are calculated based on the individual company's compensation plan, which determines how an associate gets paid. There are usually many levels of people getting paid from one person's sales. Also, associates can earn money by retailing products that they buy from the company at wholesale prices.
What's the Difference Between Network Marketing and Multi-level Marketing, or MLM?
In a word, nothing! The terms Network Marketing and Multi-level Marketing refer to two aspects of the same type of business.
First, network marketing. This term describes how the products are promoted, which is through a bunch of different people talking to each other, or networking.
Multi-level Marketing is how the people in the network are compensated for their efforts. It simply means that commissions are paid on multiple levels of the organization, thereby creating leverage.
And leverage is....
When you are talking about leverage in this context you are talking about earning money from somebody else's efforts.
Obviously, this concept is used by most businesses with employees. An employee earns money for a company, and in turn is compensated with a salary, which is hopefully less that he's bringing in. The owner of the company gets to keep the difference. So he is leveraging his income by making money off his employees.
Network Marketing compensation plans are similar in the leverage aspect, but different in one major way: There are no employees, or the associated costs and hassles. They are leveraged off other independent associates instead. These people are also going to work harder, because they own their own business and are more motivated to succeed.
Is This What's Called a "Pyramid Scheme"?
If distributors are paid primarily from money received from new recruits, or if they're required to buy more product than they are likely to sell, then the company may be a pyramid. Pyramids are illegal in all states and most countries. Legitimate Network Marketing companies are not only legal, but thrive in every state and in most countries.
Network marketing companies are not pyramids, though some pyramid schemes try to pass themselves off as legitimate MLM businesses. In most legitimate MLM companies, commissions are earned only on sales of the company's products or services. No money can be earned from recruiting alone, as in sign-up fees.
Here are a couple of good resources for learning more about the Network Marketing Industry.
These resources, from a third-party perspective and not created by any specific company, are Brilliant Compensation by Tim Sales and The 45 Second Presentation That Will Change Your Life by Don Faila. I recommend both of these as not only informational, but as good resources to use in your prospecting efforts with skeptical people. - 15485
What's the problem with "Middle Men"?
One of the benefits of this is that more money can be spent on research, development and manufacturing, which usually results in much higher quality, unique products.
The other main benefit of the Network Marketing business model is the fact that some of the money spent on advertising and the distribution channel (wholesalers, retailers, etc.) can now go to the people who actually promote the products by their word-of-mouth advertising.
These people are referred to as associates, distributors, independent agents, and other terms. They are unsalaried salespeople that basically have their own business, and develop their organization by either building a customer base that buys their company's products directly from the parent company and/or by recruiting a downline of independent distributors who also build their own customer base, thereby increasing the size of the overall organization.
Associates can earn money in the form of commissions based on the efforst of their organization, which includes themselves and everyone in their downlines. These commissions are calculated based on the individual company's compensation plan, which determines how an associate gets paid. There are usually many levels of people getting paid from one person's sales. Also, associates can earn money by retailing products that they buy from the company at wholesale prices.
What's the Difference Between Network Marketing and Multi-level Marketing, or MLM?
In a word, nothing! The terms Network Marketing and Multi-level Marketing refer to two aspects of the same type of business.
First, network marketing. This term describes how the products are promoted, which is through a bunch of different people talking to each other, or networking.
Multi-level Marketing is how the people in the network are compensated for their efforts. It simply means that commissions are paid on multiple levels of the organization, thereby creating leverage.
And leverage is....
When you are talking about leverage in this context you are talking about earning money from somebody else's efforts.
Obviously, this concept is used by most businesses with employees. An employee earns money for a company, and in turn is compensated with a salary, which is hopefully less that he's bringing in. The owner of the company gets to keep the difference. So he is leveraging his income by making money off his employees.
Network Marketing compensation plans are similar in the leverage aspect, but different in one major way: There are no employees, or the associated costs and hassles. They are leveraged off other independent associates instead. These people are also going to work harder, because they own their own business and are more motivated to succeed.
Is This What's Called a "Pyramid Scheme"?
If distributors are paid primarily from money received from new recruits, or if they're required to buy more product than they are likely to sell, then the company may be a pyramid. Pyramids are illegal in all states and most countries. Legitimate Network Marketing companies are not only legal, but thrive in every state and in most countries.
Network marketing companies are not pyramids, though some pyramid schemes try to pass themselves off as legitimate MLM businesses. In most legitimate MLM companies, commissions are earned only on sales of the company's products or services. No money can be earned from recruiting alone, as in sign-up fees.
Here are a couple of good resources for learning more about the Network Marketing Industry.
These resources, from a third-party perspective and not created by any specific company, are Brilliant Compensation by Tim Sales and The 45 Second Presentation That Will Change Your Life by Don Faila. I recommend both of these as not only informational, but as good resources to use in your prospecting efforts with skeptical people. - 15485
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