What is Network Marketing? Everything You Need To Know

Network marketing is a business model that relies on one-on-one sales by independent representatives, many of whom work from home. A network marketing business may necessitate the formation of a network of business partners or salespeople to assist with lead generation and sales closing.

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There are many legitimate network marketing companies, but some have been labeled as pyramid schemes. The latter may focus less on consumer sales and more on recruiting salespeople who may be required to pay for expensive starter kits upfront.

KEY TAKEAWAYS

People with high energy and strong sales skills who can build a profitable business with a small investment are drawn to network marketing.

A network marketing business can be either a single-tier program in which you sell the products or a multi-tier program in which you recruit additional salespeople.

Be wary of network marketing companies with multiple tiers of salespeople or require you to buy expensive products or training material upfront. Before you join, do extensive research on the company.

What is Network Marketing?

Multilevel marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, and home-based business franchising are all names for network marketing.

Companies that use the network marketing model frequently create tiers of salespeople, which encourage salespeople to recruit their own networks of salespeople. The creators of a new tier (or "upline") earn commission on their own sales as well as the sales of those in the tier they created (the "downline"). With time, a new tier can sprout, which contributes more commission to both the top and middle tiers.

Network Marketing's Benefits and Drawbacks

There is some stigma associated with the networking marketing industry, particularly those with multiple tiers that can be characterized as pyramid schemes—that is, salespeople in the top tier can make impressive amounts of money on commissions from the tiers below them. People in the lower tiers will earn significantly less. The company generates revenue by selling costly starter kits to new recruits.

The allure of network marketing is that a person with a lot of energy and good sales skills can build a profitable business with a small initial investment.

According to the Federal Trade Commission (FTC), an operation that guarantees compensation based on actual sales to real customers is more reputable than multi-tier schemes in which people make money based on the number of distributors they recruit.

Particular Considerations

Anyone thinking about joining a network marketing operation should do their homework first. Consider the following:

• Was it an opportunity to make money by selling products or recruiting others?

• What is the company's founders' track record?

• Are you personally enthralled by the products?

• Are the products popular among those you know?

• Is the product effectively promoted?

• Do you see a relatively quick path to profits or a long period of treading water?

Is there a pyramid scheme in network marketing?

While network marketing and multi-level marketing programs have been accused of being pyramid schemes, there are some key distinctions. While those who can recruit more members into the program often enjoy higher residual commissions, network marketing is a legitimate and legal business structure that sells real products and services to customers.

Conclusion

The majority of people who participate in legitimate network marketing programs make little or no money. Individuals may lose money. Some people may become involved in an illegal pyramid scheme without realizing it, and they may lose everything they invest. Before you jump in, do some research and ask around.