Network marketing is also popularly known as multi-level marketing (MLM), affiliate marketing or tiered marketing. It is based on a company distributing products and services through a network of independent contractors. Examples of these are Avon, Tupperware and Mary Kay.
Network marketing can be compared and contrasted with franchising. In a franchise, an independent company pays for the right to do business under a particular company’s name, product and services. The parent company agrees to provide the owner with training and development, as well as advertising and marketing support. They operate with the name of the parent company using a privately-owned building or location. Popular franchise companies include McDonald’s and Dunkin Donuts.
On the other hand, network marketing works in a similar fashion but is not actually a franchising model of business. Large companies sometimes call it “private franchising”. In network marketing, the parent company distributes its products and services through independent business owners or IBO, who in turn market the products and services to customers of their own. It allows business owners not only to sell products and services to retail customers but to expand their business by setting up others in their own businesses as well. It is commonly known as sponsoring. The business owner does not only profit from what he directly sells, but also allows him to profit from the sales production of those he has sponsored.
For example: Owner A is an existing IBO who sells 300 US Dollars (USD) worth of goods each month. He earns a profit from his retail and receives a monthly bonus for his sales volume. He decides to expand his business and sponsors Owner B. Owner B develops a business that also sells $300 USD worth of goods each month. Like Owner A, Owner B receives a bonus for his sales volume on top of the retail profit he has made. By sponsoring Owner B, Owner A who has generated $300 USD of sales is also credited for the $300 USD produced by Owner B. This makes Owner A’s total business sales volume to be $600 USD. If Owner B decided to expand his business and sponsors Owner C, Owner B will be credited for any sales volume that Owner 3 produces and at the same time, Owner A will also be credited for the sales volume of both Owner 2 and Owner 3.
It is the opportunity to generate revenue streams from multiple sources that has made network marketing a popular and profitable business. Because of its structure, it is often mistaken as illegal pyramid schemes. MLM companies are legitimate network marketing companies and not pyramid schemes.
However, not all companies who claim to be legitimate business are indeed legal. Talking to MLM consultants will give one an idea on what factors to be considered before connecting with a particular business. They assign you with a networking marketing coach who will work with you throughout the dealing process. With the help of network marketing consultants, you can be assured that everything is done fairly and legally.