What is network marketing all about?
A formal definition of network marketing according to Wikipedia.org, would be:
Network marketing, sometimes called multi-level marketing or MLM, is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of the other salespeople that they recruit. This recruited sales force is referred to as the participant’s “downline”, and can provide multiple levels of compensation.
Most commonly, the salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing.
What is network marketing – the good
There are good points to network marketing for both the company and the salesperson. A company, by choosing the network marketing sales model, has effectively eliminated the costs of advertising. A network marketing company may still advertise, but for the most part, they are relying on their distributors to “spread the word” about the products and services that the company offers.
Since the company doesn’t have the advertising expenses that a regular company has, they are able to compensate the distributors for their personal sales. Don’t give the network marketing too much credit for being nice. The price of the products or services that the company provides are usually higher priced than comparable products in a retail store.
A distributor may also recruit others into their business. These new recruits are knows as “downline.” As the original distributor continues to recruit more people into their business, these new people may also recruit people. This will create a what is known as an “organization” below the the original distributor. The original distributor will also be paid for the sales that their organization create.
The original distributor can be paid on most or all of the levels beneath them. That is dependent on the company’s compensation plan. Hence, the term multilevel marketing.
The cost to join a network marketing company is relatively low. Especially, as compared to other start up businesses or a franchise. Entry fees can range from $300.00- $500.00. There are companies that are called “top tier” companies and it is generally more expensive to join one of these types of companies.
The distributor would need to buy products for their personal use and still more products to sell. They are told to sell their products to people within their “sphere of influence.” This means selling to their friends, neighbors, coworkers and relatives.
If they are lucky, they can find some people, in that group of people, who are interested in earning some extra money each month by doing the same thing that they are doing. That is selling the company’s products and recruiting new people.
Network marketing offers something called residual income. For many, this is the thing that is the most attractive benefit of network marketing. Residual income is money that you are paid for work that you have already done. You can do the work and get paid for it, forever.
What is network marketing – the bad
Some of the same things in the good section are also in the bad section.
The low cost of entry seems like a good thing to most people. Unfortunately, because it is so inexpensive to join, some do not take the business seriously. Even if the new distributor does nothing with their business, they only have $300.00-$500.00 at risk. It’s not fun to lose money, but losing $500.00 probably won’t kill anyone.
As the new distributor goes to sell their products to their relatives and friends, they may ruin their relationship with those people. This usually happens when someone says “No” to buying the products or joining the business and the distributor won’t take no for an answer.
Since everyone in the organization will be getting a small portion of the money generated from each sale, the prices of products are usually higher than most people are paying for the same or similar products at a retail store. Who wants to pay more for the products that hey are buying now? Or it can be worse, if the person isn’t already buying that type of product. That person might not be interested in buying legal services or diet pills. They may not have the budget to support buying something that they don’t want.
These types of situations can cause friction between friends.
What is network marketing – the ugly
Network marketing attracts people who have little or no business experience. This is one of the leading reasons for the high failure rate.
It seems that, in network marketing, a distributor has a 97% chance of making no money, in their business, at all. Most of those are actually going to lose money in their attempt to get rich. It gets worse. Less than 0.2 of 1% will ever reach the top level of any company’s compensation plan.
The company requires every distributor to purchase products, every month, whether they need them or not. This is referred to as “auto-ship.” The products that are bought on a monthly basis, the “auto-ship” can get to be very expensive.
What is network marketing – editorial notes
Owning any kind of business is difficult. It is a lot of work. Network marketing is no different. If you are not totally committed to making it work, I’d suggest saving your time and money and don’t go into business for yourself.
However, if you are willing to do the work necessary to sell products and recruit and train others to do the business, you can have the kind of lifestyle that most people just dream of.
Building a network marketing business is a journey of hard work and personal development. You will become a different person on your journey to success. Not only will you be looking out for yourself and your family, you will need to help and teach others to become successful, as well. Unless others in your organization become successful, you won’t be successful either.
I hope that answers the question “what is network marketing?” for you! If you have any questions about the business, feel free to contact me.
If you do decide to join a network marketing company, I wish the best of luck!!
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