If you’re looking to start a side hustle in today’s digitally connected world, chances are good you’ve come across something about network marketing, more commonly known as multi-level marketing (MLM). Detractors say that all MLM ventures are scams, while those that are for MLM businesses say they’re a great way to make extra money.
Here we’ll more clearly define just what network marketing is, what it isn’t, and lay out the facts so you can decide whether or not starting your own network marketing business is the right move for you.
What Is Network Marketing?
Michael L. Sheffield, founder of the Arizona-based Sheffield Resource Network, defines network marketing in an article for Entrepreneur as something that can be hugely beneficial. He writes:
“Network marketing is…a proven system where the design, creation, and expense the corporate team has gone through becomes a road map for your own success. Just follow the simple, proven, and duplicable system that the good companies provide.”
As the name would suggest, network marketing makes use of a network of people. One person will sign on to sell a company’s product, earning a certain amount in commission from every sale. They can then recruit other people to work under them who do the same, and they make a small commission from those sales as well. You’ll often hear this recruited team referred to as a “downline.”
Network marketing operates on three basic principles:
- Lead generation
During the lead generation phase, you’ll locate new customers and clients, or “leads” that can make use of your product, and approach them about buying. The recruiting phase consists of recruiting regular customers to your network and other sellers to your downline. And lastly, in the management phase, you’ll learn and implement methods for training, motivating, and managing the people you’ve recruited.
Network marketing, for the most part, operates on either a one-tier or two-tier system. Avon, the company that sells beauty products, is considered single-tier. One person gets the product, and that person sells it to their customers. Some online affiliate programs are single-tier network marketing, and the marketer gets paid for the amount of traffic driven to the partner website.
Two-tier network marketing, on the other hand, is the kind that utilizes a downline. You get paid for both your sales and the sales of the people under you.
Misconceptions about Network Marketing
Some alarm bells may have gone off in your head when you read the term “MLM,” and for good reason. There are companies that have made use of the network marketing paradigm to run scams that hurt the people working for the company, and the consumers who buy the product.
Legal network marketing companies who are on the level aren’t predatory pyramid schemes. If you’re thinking of starting a network marketing business, make sure you adhere to the letter of the law and do right by your employees. If you’re thinking of joining a network marketing effort, make sure you do the proper homework: check for published average income statistics, make sure there are no inventory requirements for employees, and check that there are refund options for products.
Other misconceptions about network marketing include:
- It’s a cult.
- You’ll never actually make any money.
- The person at the top gets rich off everyone else.
- The market will eventually get saturated.
There are legitimate foundations for these complaints, as there are documented cases of scam MLM companies treating their employees badly, setting up their system so that people in their downline find it very difficult to get ahead, and discouraging them from socializing with people outside the company. Legitimate companies will not engage in this behaviour.
A study published by the Direct Selling Association states that the direct sales industry (of which network marketing is a part) made over $35 billion in sales in 2018. The study further stated that around one million people were in full-time direct sales, and around five million were doing it part-time.
If you aren’t sure about network marketing, shop around. Find a company with a product you believe in, read the fine print, and try it part-time to see if it’s right for you. It could be the start of an exciting new business.