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Network marketing (MLM)

What is network marketing, and how does it work

What is network marketing, and how does it work

Network marketing is a business model based on a network of distributors who attract potential customers and make sales and expand the business structure, turning customers into partners. Thus, within the network marketing framework, each participant is a seller and an entrepreneur, managing his own subnet (business).

Going beyond the definition, in practice, network marketing means sales are made by a single but extensive network of business partners. They can attract customers and sell and grow a business anytime and anywhere in the world, including without leaving home but using the Internet. You create a business based on another larger and better-known business, which immediately gives you the whole set of tools, the finished product, and the knowledge.

History of network marketing

Network marketing has been around for over 50 years. It first appeared in 1934 when California Vitamins, a company specializing in the production of vitamins and dietary supplements, hired sellers for direct sales who could use the product themselves and offer it to their friends and family. In exchange for such promotion, they also earned $ 50 per month, motivating to attract as many acquaintances as possible to the product. When friends and acquaintances of sellers realized that they could also make money on this, they joined California Vitamins as "independent sellers": they bought goods in bulk at the lowest price and sold to others at the standard price.

In 1943, by changing its name from California Vitamins to Nutralite Corporation, the company developed the first actual Multi-Level Marketing Compensation Plan, which structured sales networks by rank and gave them the name "distributors."

In 1949, Jay Van Andel and Richard Marvin Devoss also joined Nutralite as distributors. However, dissatisfied with the revenue received (after all, the company still paid once a month regardless of the amount of work performed), they founded their corporation, the fastest growing network marketing company known to this day - Amway.

Future of network marketing

The 2020-2021 coronavirus pandemic has forced many companies to rethink their approach to development and sales. In quarantine conditions and forced remote work, many have switched to the MLM model, if not wholly, then at least partially. Thus, the number of hybrid companies has increased significantly over the past two years. And even though multi-level marketing is shrouded in stereotypes about fraud and unflattering myths due to some unscrupulous persons who used this model to cover up a financial pyramid, this type of business is still famous and flourishing.

Also, the need for additional income was, is, and will be. Many people turn to MLM as a source of passive income, which is especially important during crises, including epidemiological ones. Due to the reduction of jobs worldwide, the demand for network marketing is also constantly growing. All this suggests that global network marketing has a promising future ahead.

Is network marketing good or bad

Is network marketing good or bad

Multi-level marketing is a business model like many others, so it's impossible to tell if it's good or bad. MLM sphere is entirely legal, and it is just specific and suitable only for those satisfied with the advantages of network marketing and its shortcomings.

Benefits of network marketing

  • Low entry threshold and minimum risk

If you need serious capital, a business plan, and investors to launch a full-fledged startup, then to start a career in MLM, you only need to have an average budget, which is enough to buy a starter kit. This model does not require you to make serious investments, which means you do not risk anything.

  • Commission for the success of the team

The bigger your network and the more distributors make sales, the more you earn. As the network leader, you will be paid a percentage of their income if you can train your network correctly and help others succeed in MLM.

  • Training and support in the form of a large company

Your journey starts with an established brand, so you don't have to start from scratch. You also get access to the experience and knowledge of the company's experts, get the opportunity to take their webinars, and learn sales, presentations, and other soft skills from the best mentors.

  • Working at your own pace

Distributors build their schedules. That's why network marketing salary is up to them, and the time they are willing to devote to the business. MLM can also be combined with their primary job.

Network marketing disadvantages

  • The Human Factor

Because your network will be made up of people, you will need to approach each of them the same way you approach your customers. You have to build contacts and long-term relationships, and you have to be able to determine which network members are worth betting on and which ones will quickly lose interest and leave.

  • Unprofitable marketing plan

This disadvantage can be easily avoided if you carefully study the company's compensation plan before starting cooperation. Also, not all companies offer bonuses for recruiting new partners or income from their sales.

  • Long-term strategy

There is no quick buck in the network marketing industry, so not everyone succeeds in this field. According to AARP statistics, 73% quit within six months. However, this figure is lower than the percentage of startups closing in the first year of existence, which exceeds 80%.

  • Great responsibility

Since the success and earnings of a business depend only on one person's efforts, it is essential to spend a lot of time on training, marketing, and sales, to promote your network and use business connections.

Types of network marketing

There are the following main types of multi-level marketing:

  • One-level network marketing

Under this model, you subscribe to a company's affiliate program to sell its products or services. You do not need to create your network of distributors to earn money. There are no ranks or vertical careers either. Instead, you profit solely from direct selling, buying products in bulk at cost, and selling them at your price. For example, this is the model used by the cosmetics company Avon.

  • Two-level network marketing

This model involves building your team of distributors, but it is not the only source of income. You also get paid for direct sales (or traffic attracted to the website) and the sales of your partners who work under your brand. This type includes, for example, Ken Envoy.

  • Multi-level marketing

The most popular type of MLM is the company structure with two or more levels. First, it is based on many distribution networks, resembling a spider's web. So, you create your team of partners, and each partner makes their team, and so on, up the chain. You, as a rule, get a percentage of income not only for those partners you brought into the business but also those brought in by your distributors. Thus, the company offers a whole career ladder and several sources of income. Examples of network marketing, could be Amway, Oriflame, or Magnetic Sponsoring.

Network marketing vs. traditional business

Why is network marketing preferable to traditional business for newcomers? Factors such as the low cost of entering the business and minimal risk make MLM a much safer and more attractive solution. A conventional business is much more challenging and requires special economic knowledge, an already cohesive, stable team, and a lot of things that network marketing simply doesn't need at the start. Here you also reinvest your earnings, which means you turn your spending into new sources of income. However, MLM is focused on the longer term than a business, as it usually takes a year to create a developed network of distributors.

Traditional business is also a wholly independent and uncontrolled field of activity, where the newcomer has no one to lean on and no one to ask for advice. It is also subject to more severe market fluctuations, especially in times of crisis, which carries additional risks for the entrepreneur.

Thus, the traditional business best suits professionals and those with direct experience in team management, sales, and marketing. For newcomers, however, multi-level marketing is recommended.

Network marketing vs. job

Network marketing vs. job

Network marketing is one of the business models because it implies complete independence, flexibility, and the ability to adjust work individually. In hiring a job with a clear schedule of 8 to 6 people, however, you have to put up with such negative things as:

  • Controllability and accountability to those above you in status
  • Inability to distribute your tasks and schedule (as a rule)
  • Work exclusively within limits established by the company
  • Strict deadlines and quality criteria are imposed by the boss, not you personally
  • Fixed salary
  • Slow career growth depends more on objective factors than on your efforts

Affiliate marketing vs. network marketing

Affiliate marketing, or affiliate marketing as it's also called, is the same as network marketing but uses personal online links. As an affiliate of a company, you get your unique link, which you can place on your blog, on other sites, promote on social networks, etc. You get a proportional interest for the clicks on this link or purchases from it. Thus, the difference between affiliate marketing and network marketing is only in the absence of the selling part itself and the approaches used for promotion. You earn money by promoting a certain product or company online.

The critical network marketing advantages of this type are that you do not have to interact with buyers personally. You can also easily combine this earning with any other activity, which is especially beneficial for students. For example, Amazon, Partnerize, and Google have similar affiliate programs.

How to start a network marketing

Here's how to join network marketing in a few steps:

STEP #1. Understand what you are interested in

People sense when you are trying to sell them something solely for profit but don't believe in your product yourself. So before you choose an MLM company, decide on a niche. What are your hobbies? How might they overlap with what you sell? For example, selling special supplements to build muscle mass or lose weight would probably be easy if you are an athlete.

STEP #2: Choose the right company

The choice of a company should be approached comprehensively because it is not enough to follow your intuition or the reviews about it on the Internet. Be sure to check the company against the following criteria:

  • It has been in existence for at least five years.
  • Open to public financial statements and data
  • Your own customer base
  • Availability of mentorship and training
  • Transparent and fixed terms for payments
  • It is easy to find information about the director of the company on the Internet
  • Positive , genuine reviews from former or current employees (best to contact them directly through Facebook or LinkedIn).

STEP #3. Complete network marketing training

It is worth doing your professional development as early as possible, ideally even before starting a career in MLM. Be sure to attend all the seminars and events your company holds, interact with your mentor, exchange experiences with colleagues, and not be afraid to be the first to make acquaintances within the company. Also, for a quick start in multi-level marketing, it is recommended to take special educational courses.

Network marketing courses

Lectera can also offer you its own online network marketing training. Its main advantage is that you choose the pace of the course yourself and can study only when it suits you. Also, you can master all standard courses in 10-12 hours. Therefore, the best way to start your MLM journey is with:

  • "​Business Without Mistakes. Financial Literacy and MLM" This course will help you protect yourself from scams and pyramid schemes, choose the best networking campaign, create your business plan, formulate an invitation for partners, and master modern technologies. If you are new to the network marketing business, this course is just what you need.
  • "Digital Recruiting. Launch and development of the MLM business" This is a detailed guide to digital network marketing! Learn how to work effectively with your network of distributors, use digital tools, attract customers online, and fully automate the work with them. Suitable for both beginner and advanced levels.
  • "Network Marketing. A comprehensive program" This comprehensive mega training program combines seven superpower Lectera courses explicitly designed to build a brilliant career in MLM. In addition, the program provides a complete mastering skills from storytelling and objection handling in negotiation skills to develop your leadership skills and other valuable character traits.

You can also find other helpful courses on success network marketing in Lectera's catalog in a special section.

Top 10 network marketing companies in the world

Top 10 network marketing companies in the world

Companies that give the world the best business opportunity in network marketing:

  • Amway - 9 billion (network marketing turnover worldwide per year). The ancestor of MLM, the most famous cosmetics and food company. It includes such brands as Nutrilite, eSpring, iCook, etc.
  • Avon - $5.9 billion. The most popular cosmetics brand based on network marketing in the United States.
  • Herbalife is a $4.7 billion nutritional supplement company, top-rated in the U.S. and Latin America.
  • Vorwerk is a $4.3 billion German company specializing in high-tech and high-end household appliances.
  • Mary Kay - $3.7 billion. It is the second largest MLM cosmetics company.
  • Infinitus is a $3.61 billion Chinese traditional medicine company.
  • Perfect is a $3.06 billion wellness and household products company.
  • Quanjian is a $2.89 billion company selling food products and supplements.
  • Natura - $2.48 billion, specializes in self-care and spa products.
  • Tupperware - $2.45 billion. It offers cooking and storage solutions.

Best network marketing books

Here are the most in-demand and relevant network marketing books advised by Lectera's international experts, which will help you find the answer to the question of how to be successful and how to run a truly profitable company:

  • "Your First Year in Network Marketing" by Mark Yarnell
  • "How to Sell Anything to Anyone" by Joe Girard
  • "The Complicated Effect" by Darren Hardy
  • "Beach Money" by Jordan Adler
  • "21 Irrefutable Laws of Leadership" by John Maxwell
  • "10 Lessons on Napkins" by Don Failla
  • "Rich Dad, Poor Dad" Robert Kiyosaki

Network marketing success secrets & tips for beginners

Every scope has secrets that only professionals know and help achieve success. Here are some recommendations from Lectera experts for those who are wondering how to build a network marketing business quickly:

  • Start with your friends, but don't stop there.

Although the MLM model was initially conceived as targeting a close circle of familiar salespeople and their families, this concept has changed dramatically in today's world. Don't expect your friends to become businessmen and join you. Also, if they express a desire to do so, don't have high hopes for them. Not everyone is cut out for business, especially in multi-level marketing. Listen to your intuition and evaluate candidates rationally regarding their skills, experience, and goals. Of course, it's worth starting with your inner circle, but if it doesn't work out, it doesn't mean it won't work out with those brought in from the outside.

  • Use online network marketing and SMM tools

Social media is now an essential marketing tool for all types of businesses. Not only can you use it to talk about your product and find customers, but you can also make valuable contacts, assemble a team and attract partners. Start creating a Facebook account for your business and gradually master it from creating content to running targeting ads. You may also need additional training.

  • Invest in knowledge

Many people hope to learn how to work in network marketing on YouTube. Still, the secret to successful entrepreneurs and investors is that they do not rely on publicly available knowledge but on personal mentors. After all, a mentor - is not only moral support but also a source of professional knowledge and techniques developed on practical experience. Of course, really good mentors are always paid, but that does not mean all of them charge exorbitant price tags. Instead, investing both time and money in your development is especially important at the beginning of your journey, when the network and your mind are in complete chaos.

  • Be disciplined

And train your team to comply with it. Just because your schedule is flexible and personalized doesn't mean you can only work according to your mood. Top managers and self-made millionaires like Warren Buffett are always consistent and strict in their actions. This is the only way to get the most results.

  • Automate everything automated

Since you're an entrepreneur, salesperson, and marketer at the same time in network marketing, you may find that you don't have enough hours in the day. So to take some of the load off, automate your business processes with AI, chatbots, software, and apps that will attract and "warm up" your audience for you. We also advise you to automate your network marketing partners.

  • Do the research

As with any business, you must know your audience well, their needs, and the triggers you can use to promote and sell. Study the data from the MLN company itself, but also make an effort and research your potential buyers yourself.

  • Invest time in those you believe in

Not all of the distributors you invite will become leaders in your network. And not all of them will even stay with you. So you must be able to spot who has potential and network marketing motivation. It is such partners that you need to train in the first place.