Network Marketing, also known as Multilevel Marketing or MLM, is a business model that companies have relatively recently adopted. The basic idea is that the company relies on its customers to market its services or products instead of using the traditional media channels. In return for introducing new customers, the referrers get a commission on sales.
The company benefits by not needing an extensive marketing budget, and the customers benefit by being able to turn their association to the company into a profitable business.
Also since commissions are usually sale-based, referrers will continue to earn as long as the customers they introduced to the company continue to purchase the products or services, making networking marketing a very lucrative passive income vehicle.
From a business perspective, customers who choose to also build a business have the freedom to work that business when they feel like it, they are their own boss (essentially owning their own business), and can work from home. Often, however, there are strict rules governing how one may promote the parent company’s products or services. In the model, traditional media such as tv, cinema and radio is usually never used.
Creating a business through a network marketing company is very similar in concept to franchising. You essentially run your own business while piggy-backing on the parent company’s infrastructure, marketing and selling their products and services. In some cases, distribution may also be handled by the parent company. The difference between a networking based business and a franchised business is the former requires very small startup capital (anything from R500 to R10,000), can be run from a home-office and, therefore, has small monthly overheads. The disadvantage is that for most compensation plans, return on investment are long in coming. That said, a properly run network marketing business can break even in anything from 3 to 36 months.
Unfortunately because of the stigma attached to the networking model due to relatively unsavoury practises when the model first gained public attention, many people still shy away from the concept. Also, apart from some US tertiary establishments that offer Networking Marketing degrees, there are very few proper training options available to startup network marketers. As a result, and partly because of the low capital factor, those people that do see its potential often tend to treat their business as a hobby, not spending sufficient enough effort to make it a worthwhile venture. One very successful network marketer proclaimed that he may have started his business with $4,000 but he treated it as though he’d invested $4,000,000, and he (and I) strongly recommend every network marketer do the same.
Over the years, pyramid schemes have been strongly associated with the network marketing model. The two are distinctly different. Businesses that use the networking model to market their products or services are genuine businesses that can only create a turnover by selling said products and services. Pyramid schemes are illegal and are focused on the movement of money only, often only bringing in menial products in order to pretend legitimacy. These schemes, once discovered are often cracked down on immediately and don’t last very long. Many networking businesses, on the other hand, have been in operation for many decades.
Networking is merely the model that a business has decided to use as its marketing plan. It isn’t a get rich quick scheme. Regardless of the success of the sponsoring company, building a network marketing business, like any business, requires work and dedication. In the same way that people have failed to make a substantial profit in any home-based business, so too have many been forced to give up on their networking business, often because of this initial misconception.