The world has moved to digital marketing. But direct marketing has not lost its charm and effectiveness yet. Many industries still indulge in direct selling. While some companies have a permanent sales force of their own, some companies use network marketing as a business model.
What is Network Marketing?
According to Businessdictionary.com, “Network Marketing is an immediate offering technique in which autonomous specialists fill in as wholesalers of merchandise and ventures. They are urged to construct and deal with their own particular deals constrain by enlisting and preparing other independent agents.”
“It’s all about people. It’s about networking and being nice to people and not burning any bridges.” -Mike Davidson
These independent agents earn commission on their own sales revenue as well as on the sales revenue generated by their recruited sales force and the sales force of their recruits. Network marketing is also known as Multi Level Marketing because of the multitude of levels involved. Network Marketing traces its origin to the United States of America. Some of the pioneers of Network Marketing or Multi Level Marketing are well-known brands like Amway, Tupperware, Herbalife, Avon, etc.
Network marketing is a multi-billion dollar industry growing worldwide. As of 2015, 103 million people were involved in network marketing globally. In the U.S alone, some 20 million people are involved in network marketing. Network Marketing is growing not only in the developed nations but also in developing nations of Asia-Pacific and Africa. The highest contributors to network marketing are health and wellness product companies. Apart from wellness and beauty products, home and family care, personal care, clothing and accessories, and educational and leisure products are also sold through network marketing.
Is Network Marketing a Pyramid Scheme?
Multi Level Marketing or Network marketing is very similar to pyramid schemes. And due to this reason network marketing is banned in many countries. A pyramid scheme is a scheme where people are paid a commission for recruiting more people. Each person who joins the scheme is given a starter’s kit. People often get confused between network marketing and pyramid scheme. It leads to many of them getting duped by fake companies and fake schemes.
The main difference between multi level marketing and a pyramid scheme is the area of their focus. Multi level marketing or network marketing focuses more on the sales of their products. The commission is earned on the sales revenue generated by the agent or their recruits. While in the case of a pyramid scheme, the main area of focus is recruitment. The commission is paid for recruiting people and not for selling products. The commission is based on how many starter kits were you able to sell. There are huge starting costs involved with the non-refundable membership fee.
Although many hoaxes are going on in the name of Multi Level Marketing, it is still a growing industry.
- The main reason for its growth is that it doesn’t require any set qualification. Anyone can join an MLM and get trained.
- Another reason is the growing positive attitude towards entrepreneurship. These days everyone fancies being their own boss and network marketing seems to be a great way of fulfilling that dream.
- It also requires less investment compared to standard business ventures.
- Network marketing has also been leveraging social media to build teams online as well as sell products through social media.
- One more reason for the success of network marketing is that it adds a human touch. People sell the products that they use themselves. This personal recommendation from a user adds a lot to the success of network marketing.
Now that we have seen what network marketing is and why it is a successful business model, let’s move on to how network marketing works.
How Does Network Marketing Work?
The Network marketing business model is quite simple. Any common man can become an agent by investing a small amount of money in a company. The company will train you and then give you products to sell. You are required to first consume the products yourself and then recommend them to your friends and family and start selling.
“The bigger your Rolodex, the bigger your business.” -Anonymous-
Your income will be commission based. You will earn a percentage of the sales revenue. To increase the sales flow, you will need to hire more independent agents. You will also earn a commission on their sales revenue and the sales revenue generated from their recruits, too. Apart from the commission, you can earn through discounts, incentives, etc. Products can be sold both online and offline.
4 Steps to Start With Network Marketing
1. Sign up for a Multi Level Marketing Scheme
An existing distributor of a company that uses network marketing will approach you personally or through social media. They will tell you about the program and try to convince you to join. A word of caution here — If you are planning on signing up for network marketing, try to join only well-known companies like Amway, Tupperware, etc. If a company is unknown to you and the offer seems too lucrative to refuse, then be aware that it might be a fraud.
After being satisfied that this is a genuine scheme, you can sign up for it.
2. Go Through the Introduction
While signing up for the network marketing program, you enter into a contract with the Company. Now you are an Independent Business Owner and the distributor who introduced you is your sponsor now. After signing up, you will be extensively trained either by the company or by your sponsor. You will receive training in various selling methods, recruiting and establishing a network among other things.
After you are familiar with their products and selling techniques, you will have to pay them a small amount to get started. Afterward, you are your own boss and your success or failure depends entirely upon you.
3. Enter the Selling Phase
Initially, you will be asked to buy the products for you and your family’s consumption. You will get these products on a certain discount on MRP. After that, you can start selling to your friends, neighbors, and extended family. Network Marketing or Multi level marketing works through word of mouth. And word of mouth is said to be the most effective form of marketing. After being in touch with the product, you can recommend it to your acquaintance. And if they like the product, they will spread the word further. The more products you buy the more discounts you will get. So you will be buying the products at a discount and selling them at MRP. At the end of the day, the difference will be your profit.
4. Start Building Your Network
As your confidence increases and you start selling more, you can start building your own network of distributors. You can talk to your friends and family members first. You can also try contacting people on social networking sites. You can tell people about your business and do your best to convince them to join your network of distributors. As people start joining through you, you become their sponsor. And, there is a direct relation between how big your network of distributors is and the revenue you will be generating. Keep in mind that you can not only earn through the sales generated by your direct recruits but by their recruits, as well. It becomes a continuous network. You can earn through commissions, recruitment incentives, discounts as well as bonuses and royalties. It works in the following way.
When your network is small, say, 5-15 people, you will buy products from your sponsor at a higher discount, about 40%, which you can be selling to your recruits at a discount of 30%. The difference in the discounts will be your earning. And as your network keeps growing, these earnings will increase, too. But then, there will be a time when the network has grown to an unmanageable level. This is the time when the second in line distributors start dealing directly with the company instead of their sponsors.
But that doesn’t mean that your earnings as a sponsor will stop. This is the time when you will earn royalties and bonuses on account of the network created by you. The amount of royalty or bonus a sponsor can earn is pre-decided by the company.
It is noteworthy that network marketing or multi level marketing is not a way to become a millionaire overnight. It is just like any other form of business coming with its own risks. Like any other business, network marketing also requires efforts and a lot of dedication from your side. It is not as easy as it sounds. And network marketing will also take 5 to 10 years for you to call yourself rich.
You might come across many websites and advertisements claiming to make you a millionaire by signing up for their multi level marketing program. Don’t believe it. It is just another hoax. There are no shortcuts – a lot of patience and hard work are required in network marketing too.
If you have a job, it is better that you don’t quit it in the initial stage or at least until you start earning a stable income from your network marketing business.
The only thing that makes network marketing different from any other business is that the amount of initial investment required is very low. Also, you get proper training from those who have been in the field for a very long time. You also have an added advantage of selling a known brand that is absent if you start something of your own from scratch.