Network marketing (or multi-level marketing), is a business model where a company can distribute a product direct through a distributor network to consumers.
Network marketing has been touted as an amazing opportunity for the masses, and their supporters can sometimes border on fanatical. Network marketing has also been criticized for some of the unsavory marketing techniques and methods that are taught to distributors.
In this articles, I will provide an unbiased review of the pros and cons of developing or participating in a network marketing business, and see if network marketing is a great business opportunity…or a great scam.
Network Marketing – The Good
In order to participate a network marketing business, you first have to pay. This is a standard franchise model, but the difference is that to get started in a regular franchise is drastically more expensive than any network marketing business.
Compensation is usually distributed in one of the following plans:
Matrix – limit the width of each level in a distributor’s group, forcing strong distributors to pile (“spillover”) their recruits over people who did not sponsor them.
Binary – limit the width of each level to two legs. Commissions are based on “cycles,” where a distributor is paid a fixed amount whenever both legs achieve a certain number of sales units each. Commissions are paid incrementally when the sales volume in each leg matches.
Elevator – features a board or a list on which each distributor pays in one or more product units to participate. When a certain number of units have been paid in, the structure splits and the earlier participant receives consideration.
Unilevel or Stairstep Breakaway – plans are the oldest and most popular. They feature two types of distributors — managers and non-managers — and three types of pay:
* Baseshop overrides are overrides (commissions) paid to managers by their subordinate non-managers, collectively called a baseshop. This is the same as any other sales organization.
* Generational overrides are overrides of managers from the baseshop of managers who were previously their subordinate. Most plans compensate at least three generations of such managers.
* Executive bonuses are commissions for managers who exceed a sales quota. For example, 1% of the total company sales revenue may go to a bonus pool that is shared monthly pro rata to managers who exceed $20,000 in that month.
The best aspect of network marketing is the concept of residual income. Network marketing is based on residual income, the idea that you will be paid tomorrow on the work you do today. Residuals can be a powerful form of income, and by growing an organization, you can leverage your time to build that type of income.
Network Marketing – The Bad
The first big problem with network marketing is how the distributors are taught to market. Most companies teach their representatives to sell to their friends and family members, and everyone in their “warm market”. This can lead to some big problems, such as:
over-selling the opportunity
inappropriately discussing business in social situations
coming across as desperate
over-focused on new recruits and neglecting existing customers as a result
being either inaccurate or deceptive when talking about their business
These are big issue, and can lead to loss of friendships and relationships if marketed this way.
Network Marketing – The Ugly
Network marketing can get ugly if a distributor begins to desperately spend money on product (front loading) to qualify for positions in the company. They can also get sucked into a mindset where the parent network marketing company becomes a “lifestyle” or even a “belief system”. This has happened in times past, and why some network marketing companies are criticized as being “cult-ish”.
Growing a network marketing business can be a great opportunity. There are some companies that have great products, and good opportunities to grow a business. At the end of it, the difference between success and failure is the marketer, and their ability to target their market effectively.
In closing, I would say that starting and developing a network marketing business is lucrative if you know how to effectively use effective marketing tools and techniques. It is not a scam, but like any business, success will be determined by the skill-set of the marketer. Network marketing is definitely not a lottery ticket or a stock option – meaning, you do not just buy in and wait for a payout.
If someone does not have the first clue on how to market effectively, then I would suggest they either learn how to be an effective marketer, or else just go start a regular “brick and mortar” business.