~ Network Marketing is a method of marketing products, services, and/or ‘opportunities’ to other people you know, you know of, your relatives know, your friends know, or your cousin’s boyfriend’s mother’s sister’s co-worker’s mailman’s aunt’s father-in-law, etc., etc. knows. “Word-of-mouth” has been proven to be the most effective form of marketing. There are all sorts of names and terminology associated with “network marketing”, such as “relationship marketing” or “referral marketing”, but most of them are redundant. The two main ‘types’, or subsets, of network marketing are “MLM” or “Multi-Level Marketing”, and single-tier marketing.
~ MLM, or “Multi-Level Marketing” – This is a type of network marketing that uses a multi-tiered compensation plan. Unless you were one of the people who formed the company, you will have an ‘upline’. Normally, the person who signed you up for the MLM ‘opportunity’ is the next person above you in your ‘upline’. This is not always the case as you will find some people higher up in the company, perhaps even one of the original founders, will be out giving seminars (usually sales presentations with the fervor of an evangelist) and aggressively recruiting interested parties like yourself, and possibly anybody who came with you, to become new participants / distributors / representatives or other similar titles, now that you have heard the hype about becoming an ‘instant success’; a ‘millionaire’ who gets that way by making ‘money 24 hours a day’ while only actually working a ‘couple of hours a week’. Exciting, isn’t it? “Take your time. Promoters of fraudulent business opportunities are likely to use high-pressure sales tactics to get you to buy in.
If the business opportunity is legitimate, it’ll still be around when you’re ready to decide.” -(from the FTC)- “Consult an attorney, accountant or other business advisor before you put any money down or sign any papers. Entering into a business opportunity can be costly, so it’s best to have an expert check out the contract first. If the promoter requires a deposit, ask your attorney to establish an escrow account where the deposit can be maintained by a third party until you make the deal.” Once you have signed on, you will be expected to build a ‘downline’ of equally passionate ‘followers’ (participants / distributors / representatives / etc.) underneath you who will purchase DVD’s, magazines, flip charts, order forms, websites and other training / selling aids, just like you did when you signed up, and of course, inventory. Your ‘downline’ in an MLM will usually consist of one, two, three, or even sometimes more, people directly under you.
Each of those people will be expected to build a similar ‘downline’, for which you will usually receive some form of compensation or company ‘credit’ whenever they make a sale or recruit a new participant / distributor / representative / etc. This first tier (under you) may provide a source of ‘residual income’ for you as long as they are actively selling &/or recruiting in the organization. Historically, that is not long. ‘Downlines’ are typically the factor most critical to your success in most MLMs. Depending on the compensation plan of the MLM, you may receive compensation, or ‘bonuses’, as far down as seven levels. In the meantime, your efforts will most likely be providing compensation to the members of an equal number of levels above you – your ‘upline’. In the U.S., there is little actual regulation of MLMs, other than on a state level, and that is usually complaint driven after-the-fact. In California, there are some legal requirements spelled out in its Seller Assisted Marketing Plan requirements, but they are only applicable when the initial investment to participate in a company’s MLM ‘opportunity’ exceeds $500, an obstacle that most MLMs easily navigate around with a ‘did you want fries with that?’ strategy.
~ Single-tier marketing (a term not widely used) is also network marketing to other people, similar to MLM, but without the complicated compensation plans. It is a more traditional approach to marketing and selling and is more prone to be successful with total strangers (like the old ‘door-to-door’ business model and the current in-home-party / presentation model) than MLM as it usually does not involve aggressively recruiting or selling an ‘opportunity’ – just a product. If the product is a good product, usually so is your compensation. That compensation is based primarily on the success of your own efforts and sometimes those of a sales force under your direct control, but not the thousands of participants that MLMs can potentially involve. You are almost never more than three levels down from the main office or supplier (Ownership / Regional Manager / General Distributor or such structure). Your commissions on products are usually many multiple times that of those in MLMs.
~ Many people use the term “Direct Selling” or “CDM” (“Consumer Direct Marketing”) interchangeably with Network Marketing and MLM, and there is even a Direct Selling Association that seems to be trying to be all things to all network marketers. But calling most MLMs ‘direct selling’ companies seems to be somewhat spurious when most MLMs make more than 80% of their, and their participants’, monies by recruiting, rather than by selling products. This never-ending recruiting by so many MLMs and their complicated compensation plans is what has gotten the entire business of network marketing associated with the term, “pyramid scheme”. Regardless of whether a compensation plan is structured for you to have two, three, or more people on the first tier directly under you, diagramming the plan on paper gives it the appearance of a pyramid. Most single-tier network marketing companies that provide a good product at a fair price are still unfairly looked at by most of the general population as being pyramid-like in nature and thus share the negative connotation. But this is no more true for them than it is for any business employing independent sales people. In reality, Network and Multi-Level marketing has been around for more than half a century, with three of the top 25 companies based in the U.S., according to Nexera, still going strong after all that time. Eight of them have been in business at least 30 years. Many famous businessmen, such as Robert Allen, Donald Trump, Mark Victor Hansen, Robert Kiyosaki, etc., are proponents of network marketing.
~ One other term that many people use in error when discussing Network Marketing is “Attraction Marketing”. This is a style of marketing that can be used in nearly any venue and is not limited to network marketing.
~ Some of the attractions of network marketing are the ideas of working for yourself (being your own boss, setting your own hours/schedule), creating residual income, and (usually) little up-front investment (unlike franchising). The idea that you can create a business and an income solely from your own efforts has always been part of the entrepreneurial, or pioneer, spirit. But are you really your own boss if you want to be successful in network marketing, particularly MLM? How many hours a day or week will you have to work at this? Are you seeking an alternative source of income? What are your motives? Do you like people? Can you accept the responsibility for the failures and mistakes as well at the rewards?
BE YOUR OWN BOSS: Robert L. FitzPatrick of PyramidSchemeAlert.org reports in his “The 10 Big Lies of Multi-Level Marketing” that “MLM is not true self-employment. ‘Owning’ an MLM distributorship is an illusion. Some MLM companies forbid distributors from carrying additional lines. Most MLM contracts make termination of the distributorship easy and immediate for the company. Short of termination, downlines can be taken away with a variety of means. Participation requires rigid adherence to the ‘duplication’ model, not independence and individuality. MLM distributors are not entrepreneurs but joiners in a complex hierarchical system over which they have little control.” To be your own boss, you will have to be able to generate the same amount or more of the hype, excitement, and passion that attracted you to this business in the first place. Even if you are a gregarious person by nature, you will still have to develop the marketing and ‘people skills’ that it takes to gain followers.
SET YOUR OWN SCHEDULE: Will you be joining a network marketing company on a full-time basis or continue to maintain your current work schedule and ‘work the business’ on a part-time basis? For success in any venture, you will have to put in the hours. Can you spare the time without losing any income? In network marketing, by definition, you have to ‘press the flesh’ with your potential customers. In MLM, as ‘downlines’ are crucial to your success, that interaction requirement will be magnified immensely for you to acquire, not only customers, but, new recruits on an ongoing basis. Your schedule will be dictated by when they are available and when your ‘upline’ is having sales and/or training meetings. At some point, when you are educated enough in your product or promotion, your marketing methods and routines, and the business end of networking / relationship-building, you will have to start scheduling your own presentation meetings, based on the availability of your potential customers &/or recruits. Almost all of these meetings will be in the evenings and on weekends.
CREATE RESIDUAL INCOME: “Residual Income” is cash flow that recurs continually as a result of your initial efforts. This is the goal of almost any participant in MLM, but is statistically rarely achieved. Other than the entertainment industry, there are few industries that can claim success at generating residual income without additional action, such as servicing their clients by way of maintenance. To help achieve this goal, most network marketing companies deal in “consumables” – products that, once used up by your happy customer, will be automatically sent out to the customer for as long as the customer likes without saying, “NO!” A few well-known network marketing companies have been very successful at this with their own unique lines of products, but not many MLMs; particularly those who provide a mediocre product at an inflated price to more recruits or participants than actual retail customers.
WORK FROM HOME: As long as you are working with a ‘small circle of friends’ you can probably hold most of your meetings/presentations in your home or theirs (if they’re looking at joining into your business model). But to actually make a profit in network marketing, you will probably have to widen that circle substantially, or augment your marketing with brilliant use of the Internet (The FTC offers some excellent advice to consumers considering an Internet-related business opportunity). The demographics simply don’t work to support yourself on sales of nearly any single line of products by staying in your own neighborhood. Although you can start out with a ‘localism’ approach, success with limited products &/or services will require you at some point to extend a broad reach. Some network marketers are leveraging the Internet for sales as far away as China. Credible research from the Consumer Awareness Institute and others has deduced that less than 1% of U.S. participants in MLMs make an annual profit. You will likely have to leave home to increase your income to the point of profit.
~ The odds of making a profit in an MLM (remember, not ALL network marketing is MLM) are worse than making a profit from gambling in Las Vegas. The rewards can be very high if you are one of the early-adopters in a company, are gregarious and people “know, like, and trust you”, if you have a large pool of potential customers &/or recruits to work with, and can provide all the support your ‘downline’ needs to prosper. Most network marketing companies have a very low initial investment requirement, or ‘buy-in to play the game’, so the cost to you up front is one of time more than cash. But to increase your odds of success, there are a few things you should try to find out about the ‘opportunity’ before you jump in with both feet:
1. Can the company show that they sell more products directly to consumers than to recruits &/or distributors / representatives / agents / participants / etc.? Most MLMs sell 80% or more of their products to their ‘downlines’ and less than 20% to retail customers. This is why the term, “pyramid scheme” is frequently applied to MLMs and why many of them are sued in states’ courts for their questionable business practices. Do your research.
2. Are the company’s products the same ones you can find somewhere else for less money? If they’re not the same, are they similar? Do they have the same makeup or contents? Besides you, what would be your customers’ motivation for dealing with you as opposed to just picking up the same or similar product on their next trip to the grocery store or mall? The FTC says, “If the business opportunity involves selling products from well-known companies, call the legal department of the company whose merchandise would be promoted. Find out whether the business opportunity and its promoter are affiliated with the company. Ask whether the company has ever threatened trademark action against the business opportunity promoter.” Do your research.
3. What kind of support and warranty does the company provide for both you and its products (They must provide excellent support)? Does it accept returns? Are there restocking fees? Is there 24/7 access to someone in customer support and your ‘upline’ management? Have there been any product recalls? What kind of history does the company have? How long has it been in business? What is its rating with the BBB? Have there been lawsuits against the company? Has Consumer Reports reported on the company or any of its products? What kind of marketing & advertising budget / plan does the company have over & above what you would have to do on your own? What kind of publicity has the company produced or plans to produce? If the company is new and you are looking to ‘get in on the ground floor’, what can you find out about its founders and top-line management and their history and backgrounds? DO YOUR RESEARCH.
4. Who actually makes the money? Make sure that you completely understand the company’s compensation plan and just how & where you will fit into it, and what you will have to achieve to become a “success” with that company. How is that success measured (you can’t eat blue ribbons and trophies)? What percentage of participants in the company are successful. What is the dropout rate? Is the person who interested you in this venture making any money? The FTC says, “If a company claims its participants can earn a certain income, then it also must give the number and percentage of previous purchasers who achieved the earnings. Get these earning claims in writing.” “Results may vary.” The FTC requires most business opportunity promoters to give potential purchasers the names, addresses and phone numbers of at least 10 previous purchasers who live the closest to the potential purchaser. Ask questions. DO YOUR RESEARCH.
~ Besides the FTC, another government agency, the Bureau of Labor Statistics, has information online in their Occupational Outlook Handbook, 2010-11 Edition – This covers Direct Selling vs. MLM, Network Marketing, etc.
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