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Network Marketing is a business distribution model that allows a company to market their products directly to consumers by means of direct selling and referral, or word-of-mouth advertising. It differs from most other types of businesses in that there are no advertising, wholesale, or retail costs involved (no middle men!).

What do you mean by “No Middle Man”?

When companies use “middle men” they spend money, and lots of it, on things that don’t enhance the product. If they don’t have these costs, they can spend more on research and development. This means that they can produce a higher quality, more unique offering.

Another plus of the Network Marketing business plan is that some of the money that formerly went to the middle man – advertising, wholesalers, and retailers – is now available to compensate the people who actually promote the products by their word-of-mouth advertising.

This person is referred to as an associate, independent agent, or distributor. He or she is a salesperson who has their own business or distributorship. They create income by building up a customer base that buys the products directly from the parent company, or by recruiting other entrepreneurs who in turn build their own customer base, or usually a combination of both. This increases the size of the overall organization.

Associates can earn money in the form of commissions based on the efforst of their organization, which includes themselves and everyone in their downlines. These commissions are calculated based on the individual company’s compensation plan, which determines how an associate gets paid. There are usually many levels of people getting paid from one person’s sales. Also, associates can earn money by retailing products that they buy from the company at wholesale prices.

What’s the Difference Between Network Marketing and Multi-level Marketing, or MLM?

Basically, nothing! The two terms network marketing and multi-level marketing refer to 2 different aspects of the same business.

Network marketing is just how it sounds: a network, or group of people, communicate with each other and products are marketed this way.

Multi-level Marketing is how the people in the network are compensated for their efforts. It simply means that commissions are paid on multiple levels of the organization, thereby creating leverage.

And leverage is….

When you are talking about leverage in this context you are talking about earning money from somebody else’s efforts.

Obviously, this concept is used by most businesses with employees. An employee earns money for a company, and in turn is compensated with a salary, which is hopefully less that he’s bringing in. The owner of the company gets to keep the difference. So he is leveraging his income by making money off his employees.

Network Marketing compensation plans are similar in the leverage aspect, but different in one major way: There are no employees, or the associated costs and hassles. They are leveraged off other independent associates instead. These people are also going to work harder, because they own their own business and are more motivated to succeed.

Is This What’s Called a “Pyramid Scheme”?

If distributors are paid primarily from money received from new recruits, or if they’re required to buy more product than they are likely to sell, then the company may be a pyramid. Pyramids are illegal in all states and most countries. Legitimate Network Marketing companies are not only legal, but thrive in every state and in most countries.

The way to tell if a company is a pyramid scheme is if you can earn commission from sign-up fees. If there is no product or service obtained for this fee, then it’s a pyramid. All legitimate network marketing companies pay commission only on sales of the company’s products or services.

Two Good Resources For Learning More About the Industry of Network Marketing.

First is Brilliant Compensation by Tim Sales. Second is The 45 Second Presentation That Will Change Your Life by Don Faila. Both of these tools are highly recommended for your own knowledge and to show to skeptical prospects. They are both created from a third-party perspective and not for any particular company.