What is network marketing?

Network marketing is a business marketing model that relies on person-to-person interactions to generate leads and drive sales. It often involves individuals harnessing their personal networks – such as friends, family members, and co-workers – in order to build a customer base, sell products, and even recruit new colleagues.

Also known as multi-level marketing (MLM) or referral marketing, network marketing uses independent salespeople – called distributors – who earn commissions on sales of a particular product – covered under the company’s compensation plan – rather than working as salaried employees within the business. These distributors are effectively salespeople who buy products at a reduced price from the business in question, and then sell the products on within their personal networks, meaning they keep the full amount earned from each sale. Well-known examples of network marketing businesses include Avon and Tupperware, which originally sold products exclusively through individual distributors.

Another common feature of network marketing is that distributors are also encouraged to recruit other distributors in addition to direct selling. Recruiting new salespeople typically earns distributors a small percentage of each sale made by their new recruits, known as their downline distributors. These new distributors are similarly encouraged to recruit their own downline distributors, forming the multi-level network that MLM is known for.

What are the benefits of network marketing?

Flexibility

Distributors often say that one of the primary benefits of network marketing opportunities is that they are their own boss, effectively running a small business or home business. They can work from home and make their own hours around other commitments, such as parenting and other family responsibilities.

Because of this flexibility, many people take on network marketing as a second income, working around their full-time jobs in order to save money, pay off debt, or just have a little more disposable income and financial freedom.

Skills development

Becoming a distributor in a network marketing organisation typically involves a robust training programme, and often provides mentorship opportunities that can enable both professional and personal growth.

The skills gained as a distributor within a network marketing role are often widely transferable as well. For example, distributors need to:

• Build strong professional networks and relationships with everyone from upline distributors to potential customers.
• Demonstrate leadership, particularly for downline distributors.
• Communicate clearly and effectively, both in one-on-one interactions and during presentations and public speaking opportunities.
• Develop and adapt marketing strategies. For example, network marketing distributors are increasingly building new networks online or even operating as an online business, so creating social media marketing strategies for platforms such as Facebook and LinkedIn can help generate new business and reach new target markets.
• Keep on top of the latest trends in everything from sales techniques to events planning.

Profit and income

People who demonstrate strong sales abilities, along with energy, enthusiasm, and passion, can build a profitable business through network marketing. It’s particularly suitable for those with an entrepreneurial mindset, or who want to start their own business without many of the risks typically associated with this endeavour, and can therefore create a steady income for themselves through an MLM business opportunity.

Network marketing versus pyramid schemes

Network marketing is sometimes confused with pyramid schemes – largely due to the fact that they can both form a multi-level network – but they are not at all the same thing. Network marketing is a legitimate business model used by many reputable organisations, while pyramid schemes are scams and criminal operations that will masquerade as a network marketing company.

Signs that an alleged network marketing business is actually a pyramid scheme may include:

• The operation is focused more on distributor recruitment than on product sales, and pays more for new recruits than it does for actual sales.
• Distributors are required to pay for expensive starter kits in advance.
• Information about the business is difficult to find online or elsewhere.
• The products seem illegitimate or the compensation too good to be true.
• Distributors are expected to pay significant amounts of money for registration fees, membership fees, and large quantities of product straight away.
• The company won’t buy back unsold products from distributors, even at a reduced price.

How to be successful in network marketing

Successful network marketing requires a number of key elements. Whether a distributor is just starting out their operation, or is looking to expand their MLM business, it’s important to examine what network marketing success looks like. 

How to start off in network marketing

When first starting off in network marketing, it can be tempting to just sell whichever product is likely to earn the most money, or just ask friends and family members to buy things. But for long-term success, distributors need to ask themselves:

• Is this the right company for me? MLM companies come in all shapes and sizes, and it’s important to work with one that feels like a good fit. For example, does it sell products that the distributor can speak about passionately and honestly? 
• What is my long-term business plan? Distributors should never assume that the bulk of their direct sales will come from friends and relatives. Instead, they should develop business goals, an action plan, and think like a marketing professional, developing a marketing plan to help stand out from the crowd and ensure long-term viability.
• Do I know everything I need to know? Distributors should take advantage of any training or mentorship opportunities available to them through their MLM business.

Tips for success in network marketing

Once established as a distributor, there are a number of network marketing tips that can help increase a person’s success rate.

1. Consider new ways of generating leads and marketing products. Think of online opportunities, such as websites, blogs, and social media.
2. Use events to meet new people, educate potential customers about the products, and build or expand networks.
3. Follow up with leads as well as with past customers to demonstrate commitment and reliability.

Understand the different network marketing systems

There are a few different systems or categories within the network marketing industry:

• Single-tier network marketing, in which direct sales are the only source of a distributor’s income. Single-tier network marketing also includes affiliate marketing.
• Two-tier network marketing, in which direct sales and recruited distributors are both a source of income. 
• Multi-level network marketing, which is similar to two-tier network marketing, but in which distributors often earn a portion of their recruits’ sales.

Deepen your knowledge and skills in marketing

You could develop a robust understanding of business, leadership, and management in a marketing context with the 100% online MSc Management with Marketing from the University of Lincoln. 

This part-time Master’s degree is designed to provide you with a well-rounded understanding of the fundamental subjects needed to manage a business within a complex and ever-changing environment. You will also have the opportunity to develop your understanding in key areas of marketing, such as:

• International marketing and planning
• Digital marketing
• Global relationship marketing
• Applied consumer behaviour