How Does Network Marketing Work?
By Matt Hellstrom
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.
How Is 'No Middle Men' a Business Benefit?
The key benefit of not having middle men is that the company can spend more money on making the product better and more unique.
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.
This person is referred to as an associate, independent agent, or distributor. He or she is a salesperson who has their own business or distributorship. They create income by building up a customer base that buys the products directly from the parent company, or by recruiting other entrepreneurs who in turn build their own customer base, or usually a combination of both. This increases the size of the overall organization.
Independent agents earn their money in at least two ways - through the efforts of their downlines, and by purchasing products from their company at wholesale prices then turning around and selling them for a profit. Commissions are paid based on what's called a "compensation plan", which determines how many levels of people will be receiving income from one person's sales.
There is also a term called "multi-level marketing" or "MLM". What's the difference between MLM and network marketing?
Basically, nothing! The two terms network marketing and multi-level marketing refer to 2 different aspects of the same business.
Network Marketing describes how the products are marketed, through a network of people in communication with one another.
Multi-level marketing is simply the means by which the people in the network are paid for their efforts. Commissions are paid to multiple levels of distributors, which creates 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.
Hey, this sounds like a "Pyramid Scheme"!
Pyramid schemes are illegal in all states and most countries, whereas legitimate network marketing companies are allowed in all states and most countries. A pyramid scheme is recognized when distributors are paid primarily from money received from new recruits, or if they're required to by more products then they can consume or sell.
The way to tell if a company is a pyramid scheme is if you can earn commission from sign-up fees. If there is no product or service obtained for this fee, then it's a pyramid. All legitimate network marketing companies pay commission only on sales of the company's products or services.
Two Good Resources For Learning More About the Industry of Network Marketing.
First is Brilliant Compensation by Tim Sales. Second is The 45 Second Presentation That Will Change Your Life by Don Faila. Both of these tools are highly recommended for your own knowledge and to show to skeptical prospects. They are both created from a third-party perspective and not for any particular company. Get more information about these 2 products at our website listed below.
Learn the new methods of attraction network marketing today! Network marketing not for you? Then you've got to visit our online business ideas website for other money-making internet-based businesses.
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