Mike Dillard and Magnetic Sponsoring

If you have ever heard of network marketing, you have surely heard about the polarized views about network marketing. I have never seen any other business model that has attracted so much criticism and hype in recent years. In this article I take a hard look at the facts of the network marketing and what it is and what it isn’t.

Network marketing is business model where companies recruit direct sales representatives or distributors to sell on their behalf. These distributors are customers of the products themselves also.  They recruit other distributors and create a network of people who market the same products. That is how network marketing works. It has been a successful business model and like any other successful model it has drawn some unscrupulous people and practices. These have given the whole network marketing community a bad name and overshadow what is fundamentally a strong and proven business model.

What is network marketing?

Network marketing is a business distribution model that aims to build a network of distributors or sellers who sell a company’s products directly to the consumers; cutting out the middle-men. These distributors will then build a further network of their own and so a downward chain of distributors or sellers is built.

Amyway is the company that is most commonly associated with network marketing and they have been running it successfully for a long period now. In a common network marketing arrangement, the parent company will recruit distributors or resellers, who in turn will recruit their own distributors and resellers. A distributor will earn commissions on the sales that they have made plus earn commissions on the sales of the people who they have recruited.

So, in principle, a distributor will earn commissions from not only their own sales, but additionally, sales of other distributors as well.

Why does network marketing draw so much flak?

Network marketing has drawn a lot of flak from different quarters of the public over the last few years. This sometimes overshadows fact that network marketing is a serious business and it has generated millions of dollars of revenues for companies who have successfully practiced it for years now.

There are some malpractices and bad business behavior that has tarnished the image of network marketing, but in principle and practice, network marketing remains to be a strong business model.

The most common malpractice that has given a bad name to network marketing is the illegal “Pyramid Scheme” or the “Ponsi”. In such a scheme, you don’t have to really sell anything to make money. Recruiting new members in the network is sufficient in order for you to make a commission. This is obviously a flawed scheme and is not part of the mainstream legitimate network marketing business.

Network marketing aims at getting serious people to promote good products that they are themselves comfortable in using and works as a micro franchise business. Over the years like any other successful business model this has also drawn some unscrupulous characters who have tried to misuse it and have given the whole network marketing community a bad name in return.

Network marketing is serious business

The truth is that network marketing is serious business and is like any other small business. If you are thinking about entering a network marketing business, then you should prepare yourself, like you will, if you were entering any other small business.

The principles of network marketing are very similar to the principles of franchising and that is why it is often referred to as micro – franchising. Much like franchising the parent company will give you an inventory of goods and a set of rules and guidelines with which you should carry out your sales.

The parent company will spend money on advertising that will help you sell their products. In addition to that, you will have to spend your own resources in selling and marketing yourself as well as the product line, directly to the potential customers.

The distributors and sellers need to manage their inventory wisely so that they do not end up over stocking and have steady flow of cash from sales. They can then buy more of the popular products from the parent company and keep the cash register ringing.

Network marketing companies operate for royalty much like franchise fees and they earn a percentage, every time a sale is made. So you can see that the business model is fundamentally the same.

The key difference is that cost of capital required to set up a network marketing business is quite low and almost everyone can start it. The main similarity is that you need strong sales skills in both types of businesses to succeed.

If you see closely you will realize that like most other concepts, network marketing is not good or bad, per se. It is the practice of network marketing that will determine whether it helps you make decent income or just leave you stranded with no money in your pockets.

S Babu

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