Network marketing is a term used to describe a specific marketing strategy where a company will pay a commission for sales and for recruiting new team members. Network marketing is also called multi-level marketing (MLM), affiliate marketing, or tiered marketing.
Companies are increasingly using this type of marketing structure to increase sales and to help spread awareness of their products without the expenses of hiring salaried salespeople. Your recruited referrals are what is considered to be your downline.
Businesses that operate with the network marketing model refer to their salespeople as distributors, associates, dealers, franchise owners, agents, or independent business owners (IBO). They are not employees, therefore they receive no benefits and no salary or hourly wage.
In network marketing, you buy a product at a wholesale price and then resell it to make a profit. You are also compensated for individuals you recruit to become part of the team. You are rewarded financially for your referrals. Referral compensation may go several levels deep, depending on the type of compensation plan the business uses. You will also profit from your recruits referring people of their own. Some business models will permit you to earn a percentage or royalty on their sales volume. The best way to understand this is by thinking of a pyramid.
Some individuals shy away from network marketing because they confuse the pyramid business model with a pyramid scheme. A pyramid scheme is when the main income for distributors is through referrals or if they are required to purchase more product than they can reasonably sell. A pyramid business model differs and is legitimate because the bulk of your income is from sales, and referral commissions are simply an incentive.
One method used to determine whether a network marketing company is a pyramid scheme is by utilizing the 70% rule. The 70% rule requires distributors to sell at least that percentage of their inventory before placing a new order with the company. This rule also prevents distributors from “inventory loading” in order to receive a selling bonus.
Determining whether a network marketing company is legitimate can be a long and confusing process. You can receive guidance in determining if it is a legitimate business by checking with the Direct Selling Association. Each company must go through a Direct Selling Association application process that lasts one year. Additionally, they must continue to abide by the Code of Ethics to remain a member. You can check out businesses you are interested in at www.dsa.org.
Other resources to help you weed out the scams are the Better Business Bureau, Federal Trade Commission, the Consumer Fraud Division at your local district attorney’s office, and the National Fraud Information Center.
Although scams do and will always exist, there are many genuine opportunities available in network marketing.
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.
