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Your image of network marketing (also known as multi-level marketing or direct sales marketing) has probably been greatly influenced by who explained the system to you. Network marketing companies include such well known corporations as Amway, Mary Kay Cosmetics, Avon and Tupperware, along with thousands of smaller companies. These companies have successfully recruited millions of people to be independent distributors for their products by explaining the huge amount of wealth which can be earned working within the network marketing system. Those who have been successful claim that network marketing is the best thing since sliced bread, while detractors often say it is nothing more than a "sell to your family and friends" scheme. The truth lies somewhere between the two opinions.
The first, and most important, issue to make clear is that legitimate network marketing companies are not illegal pyramid schemes. Part of network marketing's huge image problem, however, comes from the fact that many illegal pyramid schemes today promote themselves as network marketing ventures and there are quite a few network marketing companies that live on the edge of being one or the other. Since it is often difficult for someone who has not thoroughly researched network marketing to tell the difference between the two, it is essential that you do your homework before committing any money to a network marketing venture.
The easiest way to distinguish between an illegal pyramid scheme claiming to be a network marketing company and a reputable network marketing company is to understand where the company makes the majority of its profits. Illegal pyramid schemes grow by requiring large initial sign-up fees or expensive initial product purchases from new members which make up their main revenue source. Reputable network marketing companies, on the other hand, derive the majority of their revenue from the products or services being sold to the public by their independent distributors. If a company claims to be a network marketing entity, yet demands a large fee before you can start selling their product, or requires you to invest a significant amount of money for "inventory" before you begin selling, the red flags should be raised and you need to take an extra careful look to make sure the venture is legitimate.
Another red flag is when the company explains that you can make huge amounts of money by simply recruiting others. When sales pitches wander off the subject of the companies products and begin to focus on recruiting others as your main revenue source, there is a good chance that the venture is an illegal pyramid scheme and not a legitimate network marketing enterprise. Another sign that things may not be legitimate is the company only having a single product for sale.
Network marketing's appeal is obvious to anyone who has heard a network marketing network company's sales pitch. Not only do you get commissions on the products you sell, you will also receive commissions on the products which other independent distributors sell that you have recruited. The extra commissions can often come from a number of different independent distributor layers (called the distributors down-line) and it is easy to see even by those who aren't strong in math the potential earnings which can be made if a large down-line is created.
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Network marketing companies are able to offer commissions on products sold by down-line distributors because their operating cost structure differs greatly from a normal retail company. For instance, network marketing companies don't need to spend huge amounts on advertising since their products are sold by word of mouth. They don't have to deal with the high cost of retail space since most independent distributors work from their home, while products are distributed directly to the buying customer avoiding distribution middlemen. The biggest savings, however, comes from the fact that network marketing companies don't have to pay a sales force (you, the independent distributor) a fixed base salary. The network marketing companies pass these savings onto their independent distributors for recruiting more independent distributors to sell their product so the company can grow.
For example, after you become an independent distributor, you recruit person A to also be an independent distributor for the company. Person A in turn recruits person B and person C. Person C then recruits three more independent distributors, D, E and F. Each month you would not only receive the commissions on the products you sold, but you would also receive a smaller commission (i.e. 5%) on all the products that person A sold, a slightly lower commission (i.e.3%) on all the products which person B and person C sold, and an even lower commission (i.e. 2%) for any products which persons D, E and F sold even though you may have no idea who persons B,C,D E and F are. Since you can potentially earn commissions on products that you don't actually sell, creating a down-line below you can be quite financially rewarding and is what influences most people to join without fully researching what it will take to succeed.
The actual commissions received and how deep the independent distributor down-line goes varies greatly depending on the network marketing company, although between three and seven layers is common. One issue to carefully investigate when considering a network marketing company is whether or not there is a monthly quota which must be maintained to keep your down-line distributors' commissions coming to you. This is vitally important because one below par month when you don't meet your quota can destroy years of network building. Quotas can also force an independent distributor to buy unneeded merchandise in order to not lose their down-line distributor commissions.
One factor that is essential to understand to be successful in network marketing is that you have to enjoy sales. Becoming a independent distributor is basically becoming a sales agent for the company. Those with little or no sales experience will find success in network marketing difficult. Although the recruitment of others holds the potential to make you extra money, you should never join a network marketing company for the sole purpose of recruiting others if you don't feel that you can also sell the products they offer yourself.
The start up costs for a legitimate network marketing company are small compared with most business ventures available. You may need sample products to show potential customers, but a catalog of the company's products should suffice for most of you sales. Costs for a network marketing service industry company should be minimal to nothing since you won't need to show any sample products to your potential customers.
If you are considering getting involved in a network marketing venture, you should approach it with the same discretion you would with any other investment you would make. The biggest mistake people make when they decide to become a network marketing independent distributor is assuming it will be easy money. The potential to make a respectable second income exists, but it won't happen overnight. It will take years of hard work just as if you were beginning any other new business venture. SavingAdvice.com encourages thorough research in order to make a quality and informed decision when it comes to your money.
The first, and most important, issue to make clear is that legitimate network marketing companies are not illegal pyramid schemes. Part of network marketing's huge image problem, however, comes from the fact that many illegal pyramid schemes today promote themselves as network marketing ventures and there are quite a few network marketing companies that live on the edge of being one or the other. Since it is often difficult for someone who has not thoroughly researched network marketing to tell the difference between the two, it is essential that you do your homework before committing any money to a network marketing venture.
The easiest way to distinguish between an illegal pyramid scheme claiming to be a network marketing company and a reputable network marketing company is to understand where the company makes the majority of its profits. Illegal pyramid schemes grow by requiring large initial sign-up fees or expensive initial product purchases from new members which make up their main revenue source. Reputable network marketing companies, on the other hand, derive the majority of their revenue from the products or services being sold to the public by their independent distributors. If a company claims to be a network marketing entity, yet demands a large fee before you can start selling their product, or requires you to invest a significant amount of money for "inventory" before you begin selling, the red flags should be raised and you need to take an extra careful look to make sure the venture is legitimate.
Another red flag is when the company explains that you can make huge amounts of money by simply recruiting others. When sales pitches wander off the subject of the companies products and begin to focus on recruiting others as your main revenue source, there is a good chance that the venture is an illegal pyramid scheme and not a legitimate network marketing enterprise. Another sign that things may not be legitimate is the company only having a single product for sale.
Network marketing's appeal is obvious to anyone who has heard a network marketing network company's sales pitch. Not only do you get commissions on the products you sell, you will also receive commissions on the products which other independent distributors sell that you have recruited. The extra commissions can often come from a number of different independent distributor layers (called the distributors down-line) and it is easy to see even by those who aren't strong in math the potential earnings which can be made if a large down-line is created.
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Network marketing companies are able to offer commissions on products sold by down-line distributors because their operating cost structure differs greatly from a normal retail company. For instance, network marketing companies don't need to spend huge amounts on advertising since their products are sold by word of mouth. They don't have to deal with the high cost of retail space since most independent distributors work from their home, while products are distributed directly to the buying customer avoiding distribution middlemen. The biggest savings, however, comes from the fact that network marketing companies don't have to pay a sales force (you, the independent distributor) a fixed base salary. The network marketing companies pass these savings onto their independent distributors for recruiting more independent distributors to sell their product so the company can grow.
For example, after you become an independent distributor, you recruit person A to also be an independent distributor for the company. Person A in turn recruits person B and person C. Person C then recruits three more independent distributors, D, E and F. Each month you would not only receive the commissions on the products you sold, but you would also receive a smaller commission (i.e. 5%) on all the products that person A sold, a slightly lower commission (i.e.3%) on all the products which person B and person C sold, and an even lower commission (i.e. 2%) for any products which persons D, E and F sold even though you may have no idea who persons B,C,D E and F are. Since you can potentially earn commissions on products that you don't actually sell, creating a down-line below you can be quite financially rewarding and is what influences most people to join without fully researching what it will take to succeed.
The actual commissions received and how deep the independent distributor down-line goes varies greatly depending on the network marketing company, although between three and seven layers is common. One issue to carefully investigate when considering a network marketing company is whether or not there is a monthly quota which must be maintained to keep your down-line distributors' commissions coming to you. This is vitally important because one below par month when you don't meet your quota can destroy years of network building. Quotas can also force an independent distributor to buy unneeded merchandise in order to not lose their down-line distributor commissions.
One factor that is essential to understand to be successful in network marketing is that you have to enjoy sales. Becoming a independent distributor is basically becoming a sales agent for the company. Those with little or no sales experience will find success in network marketing difficult. Although the recruitment of others holds the potential to make you extra money, you should never join a network marketing company for the sole purpose of recruiting others if you don't feel that you can also sell the products they offer yourself.
The start up costs for a legitimate network marketing company are small compared with most business ventures available. You may need sample products to show potential customers, but a catalog of the company's products should suffice for most of you sales. Costs for a network marketing service industry company should be minimal to nothing since you won't need to show any sample products to your potential customers.
If you are considering getting involved in a network marketing venture, you should approach it with the same discretion you would with any other investment you would make. The biggest mistake people make when they decide to become a network marketing independent distributor is assuming it will be easy money. The potential to make a respectable second income exists, but it won't happen overnight. It will take years of hard work just as if you were beginning any other new business venture. SavingAdvice.com encourages thorough research in order to make a quality and informed decision when it comes to your money.
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