What is Network Marketing, and How Does It Work?

In the world of business, having contacts is the most powerful weapon a person can have. By leveraging these connections, people can not only rise to the heights themselves but also help millions of people working for them to reach high up as well.

This is where network marketing comes in. Network marketing enables individuals, entrepreneurs, and marketing representatives to turn their personal and professional connections into tangible business opportunities, boosting business success in the competitive industry.

In this article, we shall examine network marketing and its pros and cons.

Let’s begin.

What is Network Marketing?

Network marketing is a business model that generates sales through independent representatives who build a network of business partners or salespeople to assist with lead generation and closing.

It is also known as multilevel marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, or home-based business franchising.

How Does Network Marketing Work?

Here is a short guide to the workings of network marketing:

1. Joining a network marketing company

Companies allow new marketing representatives to work independently or be associated with the company. They also provide them with the necessary starter kits, which include product samples, catalogs, and training materials. 

2. Selling products and services

The representative’s primary responsibility is to sell the company’s products and services directly to consumers through various platforms, such as in-person, social media, websites, and events organized by the company.

3. Recruiting and training 

To increase earning and distribution potential, representatives are encouraged to recruit other interested participants to expand the network. These new recruiters become part of the original representative’s “downline”.

The new recruiters are then trained in various skills, particularly communication, sales, and leadership skills, to work in the field.

4. Earning commissions and bonuses 

Network marketing representatives earn through compensation plans, direct sales, team commissions, recruitment bonuses, residual income, and performance bonuses. This job serves as a way to earn active as well as passive income.

5. Advancing through the ranks

If any representative does well, they are promoted to higher positions and may receive additional bonuses, perks, and a higher percentage of their downline sales. Being in a higher-up position also guarantees job stability.

What are the types of network marketing?

The various types of network marketing are as follows:

1. Single-tier network marketing

Single-tier marketing is the simplest form of marketing, where participants earn commissions by selling products and services themselves without recruiting others. It is also known as direct selling or affiliate marketing.

2. Multi-level network marketing (MLM)

Multi-level network marketing is a complex form of marketing in which participants earn commissions mainly from their sales and the sales of their recruits. It is considered risky because it resembles a pyramid scheme. 

The types of MLM are:

• Binary network marketing
• Unilevel network marketing
• Hybrid network marketing

3. Matrix network marketing

In this kind of marketing, only a specific number of recruits are allowed per level. Although this creates more scalability and opportunities for recruiters to earn more commissions, it also limits scalability for top earners.

What are the Benefits of Network Marketing?

Network marketing offers several notable benefits, especially for individuals interested in independent and flexible careers. Here are some primary advantages of network marketing:

1. Low Initial Investment

Network marketing requires a low investment compared to traditional business models, making it easy for new businesses and entrepreneurs to start their businesses without any huge financial risks. Many companies offer affordable starter kits at a budget-friendly price. 

2. Flexible Working Hours

Flexible working hours are one of the most important perks of network marketing. As long as they have access to the Internet or cellular networks, people can work from anywhere, anytime. This enables businesses to operate efficiently remotely and have a wide customer base.

3. Personal and Professional Growth

Network marketing offers individuals opportunities to develop their communication, sales, management, and leadership skills. Developing such skills helps individuals flourish in their lives personally as well as professionally.

4. Residual Income Potential

When it comes to network marketing, there is no limit to how much a person can earn. Earnings of an individual usually depend upon their sales performances, commissions on their sales, bonuses, and residual incomes from team sales. As the business grows in the market, so does its earnings. 

Further, network marketing can serve as a passive income for many people due to them being trained and successfully established in this field for a long time.

5. Incentives and access

Many networking companies offer representative and networking professionals products at discount rates, rewards, travel incentives, and public recognition for top performers. These perks inspire individuals to work harder with much more productivity and satisfaction, thus boosting self-confidence and employee morale.

6. Supportive community

Since people from multiple industries and statuses get a chance to meet each other, people can get motivation, training, and valuable guidance from people in various fields. 

Further, network marketers continue this chain of motivation creating a positive ripple effect in the business community globally.

Examples of networking for marketing

Some most applicable and practical examples of network marketing are:

1. Attending industry events and conferences

Marketers can raise awareness about their products and services and obtain business partners and clients at trade shows, conventions, and industry conferences where all top-level business executives gather.

2. Using LinkedIn for professional networking

In this age of digitization, every company relies on web platforms to promote their businesses. Networking professionals can use platforms like LinkedIn to showcase their products and services through posts and articles and connect with potential clients. 

Also, users can join industry-specific online discussion forums and platforms to engage in meaningful discussions, learn new things, and establish their brand’s presence in the community.

3. Hosting webinars and workshops

Businesses organize webinars and workshops about network marketing to train their employees, potential marketers, or anyone interested in the field. This not only enables people to gain knowledge about this field but also helps make lasting connections with the attendees. 

4. Partnering with influencers and bloggers

In this age of social media usage, it would highly benefit small businesses to partner and collaborate with influencers and bloggers to increase their visibility and reach a broader audience. Influencers and celebrities have significantly amplified business marketing and sales.

5. Publishing case studies and white papers

Businesses and marketers can share their stories and insights through case studies and white papers. By distributing these on online platforms and numerous industry channels, they can attract connections interested in learning more and collaborating on similar projects.

Top Challenges of Network Marketing

Network marketing, although seemingly lucrative for new entrepreneurs and start-ups, has its shortcomings. Some note-worthy challenges of network marketing are as follows: 

1. High Attrition Rates

Many people join network marketing due to its great advantages. However, people opt out when they do not see any immediate results. This high turnover can make it extremely challenging for businesses to achieve stable and sustainable growth.

2. Misconceptions and Skepticism

There seem to be numerous misconceptions and skepticism surrounding network marketing. It is usually associated with scams and pyramid schemes, which can cause marketers to not achieve their sales targets as they hoped.

3. Hard Work with No Guarantee of Success

Although business professionals and marketers spend significant amounts of time and money in generating leads, increasing sales, and establishing contacts, success is not guaranteed. This can lead to employees being discouraged, frustrated, and having low work morale.

4. Financial Risks

Network marketing is financially risky to both marketers as well as distributors.

Some network companies may lead their contacts to purchase goods and services by making exaggerated income claims or pressuring them. When something goes wrong with the investment, distributors suffer great losses, straining relationships between the client and the company.

Further, even if the start-up costs are low, the cost of training professionals and acquiring all the resources required for network marketing is high. 

Also, the lack of stable income is highly discouraging for those relying on it as their primary source of income. 

5. Training challenges

Network marketing requires strong sales, communication, and leadership skills, which not many people possess at the start. Companies have to spend time and money on training them, and even after that, there is no guarantee that people can effectively apply those skills and bring the desired results.  

6. Legal risks

Most marketing companies must go through extreme vetting to comply with all existing legal laws and regulations in order to legitimately run their businesses and reduce any potential legal and financial risks.

Final Words

Network marketing deals with both aspects of networking as well as marketing. Understanding this subject well will lead you to numerous opportunities, collaborations, projects, and partnerships with reputed and potentially great businesses, all while strengthening your position in this competitive industry.

FAQs

What is the difference between MLM and network marketing?

The major differences between MLM (Multi-level Marketing) and network marketing are as follows:

DefinitionMLM is an uncertain marketing approach in which non-salaried employees are used to sell products and services, earning the company profits.Network marketing is a direct marketing approach that uses sales representatives and independent and paid employees to sell products to customers.

How do network marketers make money?

Network marketers primarily make money through the following ways:

• Direct sales commissions
• Recruitment commissions
• Residual income from downline sales
• Team bonuses and incentives
• Monthly and volume-based bonus
• Product discounts for personal use
• Mentorship bonuses
• Promoouional and contest-based rewards.

Can anyone succeed in network marketing?

Networking offers a highly flexible and entrepreneurial opportunity to any individual who has excellent communication and leadership skills. However, other requirements to master network marketing are sales skills, recruitment ability, a training and learning mindset, and the right access to the right support networks.

Along with these skills, one must also be highly disciplined and consistent in this career passionately to succeed in it. 

Is network marketing a full-time career?

Yes, network marketing is a full-time career, though not everyone in the industry reaches this level. This is mainly because it doesn’t always grant the results you hoped for and can seem highly disadvantageous at times. To ensure that it becomes your long-term career and not a side hustle, you must be highly knowledgeable and dedicated to this field.

Is network marketing ethical?

The ethicality of a network marketing model largely depends on the specific company, its policies and practices, and the actions of individual representatives. Given that network marketing is sometimes related to pyramid schemes, its reputation is not very good in the market. 

Network marketing is only considered ethical if it follows all the legal rules and regulations and emphasizes transparency, high-quality services, and respect for its customers and representatives. 

What are the cons of network marketing?

Some notable cons of network marketing are as follows:

• Purchasing inventory and starter kits can be highly costly.
• Most participants earn very little compared to the top-tiered members in this field.
• Network marketing requires extensive time and effort, which can negatively affect work-life balance.
• With many distributors selling the same product, it can be extremely hard to find customers.
• Distributors have little control over pricing, company policies, and product lines.

Can I earn a commission on the sales of my team members in network marketing?

Yes, in network marketing, you often earn a percentage of the sales made by your direct recruits and sometimes their team, known as downline commissions.