A foolproof way to get rich fast or illegal scam? People who want their own schedules are increasingly turning to network marketing. So are parents and people with mobility, health, and disability issues who want to earn money from the comfort of their own house.
The top concern seems to be this: Exactly what is network marketing? We’re here to break it down for you.
How Does Network Marketing Work?
Quite simply, network marketing happens when you sell a product to customers and get a cut of the profit. You then recruit people to work under you, and you get a cut of the profit they make. They recruit other people and do the same thing, and so on and so forth.
Typically, you and other recruits are called distributors or independent sales representatives. Your recruits are your downline, and the person who recruited you is your upline. The upline earns commissions on the sales they make and the sales their downline makes.
Because representatives sell directly to customers, the company doesn’t need to distribute its products to stores. Most of the distributors start as customers passionate about the product, interested in pursuing a flexible side hustle, or both.
Is It Yet Another Fad?
Network marketing is not recent. It’s actually a very old marketing model that has been used successfully and legally as far back as 1959 with Amway, and 1886 with Avon.
The formula still works because the end users get a real product that they want at a fair price, and the distributors earn a commission for selling it directly to them, making it a win for everybody involved.
Another reason this marketing model has stood the test of time is that it’s not a get-rich-quick scheme or a way to scam the gullible out of their money. It’s honest work that people usually begin as a side hustle.
Types of Network Marketing
Here are the three main types of network marketing.
Single-Tier Network Marketing
Also known as affiliate marketing, this means you sign up as an affiliate to sell a company’s product or services. You don’t recruit anyone since you’re only paid if somebody buys the product.
The world-famous beauty company Avon is a popular example.
Two-Tier Network Marketing
You recruit distributors, but your pay doesn’t depend solely on that. The company pays you every time you refer an affiliate to its website, whether they buy the product or not. They also pay you every time your recruits drive traffic to the company’s website or cause direct sales.
Ken Envoy’s Site Sell is one example.
Multi-level marketing or MLM for short is a distribution-based marketing network with over two tiers. Usually, you can keep making money up to six tiers deep.
Well-known examples of MLM include Tupperware, LuLaRoe, and Amway.
Is Network Marketing Worth It?
To help you decide whether network marketing is worth it, we’ll take you through two side-by-side scenarios: Selling the product to a regular customer, and network marketing by selling it to someone you’ll recruit to start your downline.
In both cases, you start by buying the product you’re going to sell. You get to buy at a discount instead of the regular rate, which is the first boost you get from the company. Let’s assume your commission for selling one product equals $50.
Now you find two people interested in the product. One of them buys the product and you earn $50. The other person, like you, is interested in a side hustle. They buy the product, and you earn another $50 again.
The second customer then sells the product. You now automatically earn a certain percentage of your recruit’s sale, say 50%. This means you made $25 on top of the original $50.
If your second customer recruits two more people, you automatically earn a smaller percentage of what they make. If we assume it’s 25%, this means you just made $12.5 from each sale, earning you $25 in total.
So how big is the difference? With the first customer, you made a one-time $50. You conducted a successful sales transaction but it stopped there because there’s no residual income.
With the second customer, you earned $50 by selling them the product, $25 when they sold the product, and another $25 when their downline sold their products. Add them up and you have $100 through one customer you recruited.
If the new recruits sign up two people each, you’ll make another smaller percentage through their sales, maybe 5%.
So you made $50 through the person who bought the product, but you made over 100 through the other customer you recruited and the people they recruited. Even when you didn’t do any selling, you still earned a residual income through your downline.
Network Marketing vs. Pyramid Scheme
It’s easy to mistake network marketing for a pyramid scheme, but there’s an easy way to spot the difference: Does the company offer an actual product or service?
If there’s a product, it’s legitimate network marketing or MLM and not a scam. If, however, the distributors seem keen to expand their downline with no product or service in sight, then you’re looking at a pyramid scheme or a Ponzi scheme.
Network Marketing and Social Media
Social media has made network marketing incredibly easier: You no longer need to peddle anything over the phone to strangers. More importantly, it’s made the process more accessible. Young baby or mobility issues? No need to leave the house to earn money.
You can use social media to your advantage and set up a Youtube or Instagram channel to sell the product. A clear, friendly video of yourself using the product teaches people about it and earns you their trust, which is essential for making money in the long term.
Using the correct tags can also get you a much wider exposure than phone calls or door-to-door marketing.
Companies sell their products and keep expanding their reach while saving on the costs of marketing and full-time workforce.
Distributors enjoy many unique benefits. Take a look.
- The freedom to work from home
- A flexible working schedule
- A possible side hustle for extra income
- The opportunity to gain experience in starting and running what is essentially their own small business.
- Continued support from superiors because your success earns them money
- Residual income, even if you stop selling for a while
Here’s a look at the top challenges faced by distributors today.
- Finding leads can be difficult if it’s a saturated market
- You start making a quite modest profit
- Strong selling skills are vital
- You need to have the skills to build and maintain a team
- Meaningful commissions typically only go five or six tiers deep
John Rockefeller, the richest man who ever lived, famously said, “I would rather earn 1% of a 100 people’s efforts than 100% of my own efforts.” This is why network marketing remains a sought-after marketing model decades after it started.
If you’re eager to put time and effort into your work, it can be a good fit for you. And in an emergency, you’ll keep making money through the people you’ve recruited from the comfort of your own home.