What is Network Marketing and how does it work?

By Akilesh Manchikanti | 6th November, 2020 | 6 min Read

Network Marketing is one of the most fun and rewarding businesses in the world.Network Marketing is based on team-building philosophy rather than a supervisory one.In order to be successful in network marketing it is important for you to understand what is network marketing, benefits of network marketing and how does network marketing work.

what is network marketing and statistics in 2020

What is Network Marketing?

Network Marketing is defined as a strategy where a person sells the products of a company and earns a commission on their sale as well as recruiting new distributors. Network Marketing is sometimes called MLM(multi level marketing) or direct selling.

In network marketing a company sells its products directly to the consumers with the use of sales persons and eliminates the costs involved in promotion and using middlemen.

You can join a distribution, sell their products , recruit new distributors who become your downline.

Types of Network Marketing

types of network marketing

Best Network Marketing Book

Machine_Learning_Speech_Recognition_Application_Example


This is the first book any new distributor should read after joining Network Marketing.

The book doesn’t gloss over the hard work that is needed to make network marketing work.

It tells you the reality of how much you will grow at what time of your career and what exactly you need to do to achieve that goal.

Any marketing program involves strategies to achieve success. The first and the foremost strategy is lead generation which involves locating new customers and clients. The second strategy involves Recruiting which includes adding customers and business partners to your network and the third and last strategy is building and management which means training, motivating and managing your people.

The 3 different types of network marketing models/programs are :

  1. Single-tier Network Marketing
  2. Two-tier Network Marketing
  3. Multi-Level marketing

Single-tier network Marketing:

In this type of marketing , you can register with the company as an affiliate to sell their products and services.You will be directly paid by the company or organization for the sales you have made in that particular month. You do not need to recruit distributors in single tier network marketing.

Two-Tier Network Marketing:

Unlike single-tier network marketing you need to recruit distributors or affiliates to work under you. You will not only be paid for recruiting distributors but also for direct sales made by you as well as the sales made by the distributors or affiliates you recruit to work under you.

Multi-level Marketing:

As the name implies it involves more than two tires. Some MLM companies allow you to make money 6 or more tires deep for recruiting people. Some of the companies practicing MLM are tupperware and Amway.

How does Multi Level Marketing or MLM work ?

how does multi level marketing or mlm work?

To know about how MLM works, lets try to understand the working of MLM companies by taking an example.

For example, Consider a company X,that sells beauty products. The company plans to sell their products directly to the consumers and recruits few people to perform sales for their company.

Company X has recruited a person named A to sell their products. Person A receives a commission from the company for every sale made. Suppose person A hires person B to do the same job, A will get the commission for every sale he/she has made and also if B makes a sale, A will receive a part of B’s commission.

Now if B hires an individual C under him to sell the products, and if C makes a sale, along with C, person A and person B also receive commission from the company and this forms the hierarchy. This is the reason it is called network Marketing.

In our example A is considered as upline to B as he/she is the one who has introduced the business and helps in selling the products. Person C is considered as downline to B as he/she is registered under B and it's the responsibility of B to help C in the business.

As you can see there are many people involved in performing sales and this results in forming a network which involves sales representatives at many levels. So this is called network marketing or multilevel marketing.

The ideal work of a network marketing organization is that high-quality products are sold to the salesperson who then successfully sells these products to the consumers. For this kind of model to work, the company or organization needs to sell the products to the sales people at a lower cost so that the salesperson can make good profit after selling the products to the consumers.

Related content:

Key terms that you should now:

Customer: Customer is a person who buys the product

Distributor: A distributor is a person that has enrolled with the company, wishes to build Downline(s) and participate in the compensation plan.

Downline:The person who register to the company under you

Upline: The distributor who introduced the business to you is your upline.

Qualification: The conditions that must be met to achieve benefits within the compensation plan structure.

Examples of Network marketing:

There are many companies that have used network marketing and have become successful Here are a few companies which use network marketing for most of their sales.

Amway:

Amway is a short form of “American Way”. Amway is one of the most successful companies and have been practicing direct selling and multilevel marketing for the past 60 years.Its products range from skin and beauty care to high quality nutrition and home consumer goods. Amway calls it distributors as Independent Business Owners or IBO’s. These distributors earn money by marketing and selling the products directly to potential consumers. IBO’s may also receive a performance bonus based upon the sales they have made and also their downline.

Harvard business school described Amway as “one of the most profitable direct selling companies in the world”.

Avon:

Avon is a multi level marketing company in beauty, household and personal care categories. Avon is the fourth largest beauty company and second largest direct selling company after Amway. Avon uses door to door salespeople("Avon ladies", as well as "Avon men") and brochures to advertise its products. Avon uses training center to train their potential representatives and uses multi level marketing to recruit their sales representatives who sell beauty products, jewellery, and clothing

Avon has 5 million to 6 million sales representatives operating in more than 100 countries.

Tupperware:

One of the most famous brands that everyone of us must have heard at least once is Tupperware. Tupperware is a home products line that includes preparation,storage and serving products for kitchen and home. Tupperware promotes its products via direct selling salesforce,who perform home demonstrations to groups of people and sell products to customers. Tupperware adopts a multi level marketing strategy to recruit people and sell their products and commissions are paid depending upon the sales made by the upline and downline. Tupperware recruits only women for selling their products.

Herbalife Nutrition:

Herbalife nutrition is a multi level marketing organization that develops and sells dietary supplements.The Herbalife Independent Distributor compensation plan, which we refer to as Herbalife Marketing Plan, pays out up to 73% of product revenues to Distributors. Distributors are responsible for providing receipts for sales and proving they have legitimate customers.

Network Marketing as a career:

benefits of network marketing and network marketing as a career

The greatest advantage of network marketing is you can build a prosperous business without developing a product or a service. The company provides you with the products and your job is to build a good network of people and sell the company's products or services.

Network marketing as a career is a very good choice. Just like any other job or business you have to work harder to achieve goals. Here are the few points that one needs to consider before starting network marketing

  1. Effort: Many people nowadays become fascinated when they hear about network marketing because they expect to make easy money. After a few months they feel demotivated and either quit or become inactive. Network marketing is similar to starting a company and running a business. You have to be patient and work with lots of effort and build a network to become successful. If you can’t put in the efforts then this is not the right option for you.
  2. Finding the right company: If you are ready to put in the efforts and develop the business then it is important to find the right company to work with. Nowadays there are a lot of scams happening in this field.

    There are a lot of people who keep on jumping from one network to another network as they realize that this network does not suit them. So before you choose a company here are a few points that needs to be take care of:

    1. Whether the company’s product /service is good
    2. Are you fascinated about the product
    3. Whether the company offers training programs to train their recruiters/distributors?
    4. The firm’s marketing plan
    5. The compensation plan(Is it sales based or recruitment based or any another)
  3. Check for the company's reviews before you sign up. There are many reviews that say MLM is a scam. In my personal research about MLM, I have never seen an MLM business without bad reviews on the internet. The main reason for such negative reviews is because people get demotivated very soon as they are not able to make sales or drive traffic and feel that they were ripped off.

    As mentioned above to thrive in the business it takes time.

  4. Income/Money: Income in any business is not stable and is not guaranteed. As an early network marketer you won’t be able to get the money you think off and there might be some scenarios where you won't be able to make any money at all. So it is important for you to be prepared and manage the money that you make carefully.

*Affiliate Disclaimer - If you click on one of the links mentioned in the article and purchase via our link, it is likely that we will receive some sort of commission at no extra cost to you. The reviews given are our genuine and commissions have no impact on the review.


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