What Is Network Marketing?

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Network marketing is a business model that involves joining a distributor network to build your own business as an independent contractor. Generally known as multi-level marketing with varying tiers, in this business model individuals can make more money as they achieve higher levels in the organization.

What Is Network Marketing?

Well-known companies like Mary Kay Cosmetics, Avon and Tupperware are just a few examples of the network marketing business model. Network marketing is an attractive opportunity for people looking for extra income, while others make it their full-time career. To start, there is typically a low upfront investment that includes a product kit, brochures and other sales materials. Once you join, you'll need to sell products and share the business model with others who in turn will be offered the opportunity and sign-up. The larger your personal network of recruits becomes and the higher their sales volume, the higher levels you'll reach in the organization. For example, some network marketing companies may need you to recruit six people with a total sales volume of $1,000 per month to reach the diamond level, while another may require selling $1,500 of products and recruiting 10 people to reach the gold level. As you climb through the various levels of a network marketing system, you'll make more money, a portion of it from your recruits' commissions.

Is Network Marketing the Same as a Pyramid Scheme?

Network marketing isn't the same as a pyramid scheme, but aspects of it can seem similar. Pyramid schemes are illegal in the United States. Some signs of a pyramid scheme are: businesses that promise to make you tons of money with little to no effort; your income comes from selling the opportunity and not the products; there are hefty start-up costs and hidden fees. Before joining a network marketing company, you should thoroughly research the company online and check with the Better Business Bureau to confirm they are legitimate.

Network Marketing Types and Examples

Direct Sales: Independent contractors in direct sales work on a commission basis selling a company's services or products. Once a customer orders, the company ships the product directly to the customer. The salesperson does not need to carry any inventory or stock. However, it is helpful to have stock on hand since some customers want a product immediately. With direct sales, the income comes from a percentage of the sale of the product or service; some like Mary Kay will be 40 percent and others higher or lower. The commission varies with each company. As with all other network marketing, when you can inspire others to join, they become your downline and you continue to make a percentage of their sales. Examples of direct sales are Mary Kay and Avon.

Home Parties: This type of network marketing consists of home parties. A long-established example is Tupperware as well as Pampered Chef. Usually, these companies sell household/kitchen items, discovery toys, home decor items or jewelry. The Independent Representative can gather her friends and family for a party, or her customers can host a party and win products for meeting specific sales goals. The income from a home party network marketing business model comes from the sale of products at the party, repeat business and signing up new representatives.

Online: Most network marketing companies offer independent representatives and consultants a professional website presence pre-filled with products and e-commerce ready. Depending on how you well you market your online store through word-of-mouth, your blog and social media, it can be a profitable addition to your direct sales or home-party business.

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About the Author

Heather Burdo has been personally involved in business for six years. Her passion is to help small business owners and entrepreneurs through engaging and insightful content.