Network Marketing is a business model in which companies distribute their products to the end user through a word-of-mouth, direct selling type of method. This eliminates the middle man – there are no advertising, wholesaling, or retailing costs involved whatsoever.

What do you mean by “No Middle Man”?

One of the benefits of this is that more money can be spent on research, development and manufacturing, which usually results in much higher quality, unique products.

The benefit that probably means the most to you? It’s the fact that some of that money that’s freed up by not paying for advertising, wholesalers, and retailers, can go in the pocket of the person who is promoting the product by telling his friends and family about it.

These people have their own business, generating income by recruiting like-minded individuals who want to work for themselves, or customers that just want the products and purchase them directly from the parent company, or a combination of the two. They are called associates, distributors, or independent agents, depending on the company. All three mean the sam.

Distributors earn commissions based on the sales efforts of their organization, which includes their efforts as well as the efforts of their downline. Commissions are paid to distributors according to their company’s compensation plan. There can be multiple levels of people receiving commission from one person’s sales. In addition, distributors can earn profit by retailing products which they purchase from their parent company at wholesale price.

I’ve heard of multi-level marketing, or MLM. What’s the difference between this and network marketing?

There is no difference! These two terms, network marketing and multi-level marketing actually refer to different aspects of the same type of business.

Network Marketing describes how the products are marketed, through a network of people in communication with one another.

Leverage is created by paying commissions on multiple levels of associates as compensation for their efforts. This is what is referred to as the term “Multi-Level Marketing”.

What do you mean by leverage?

Leverage can mean different things. In this context, it means the ability to earn commission on something that someone else sells.

The leverage concept is nothing new. It’s used by all for-profit businesses that have employees. The company charges money for something that the employee produces, then only pays the employee part of that. The owner of the company then keeps the rest, thereby leveraging the employees hours to create income for himself.

This is kind of the same as network marketing compensation plans, but there is a big difference: In a network marketing plan, the ones that are being leveraged off of are other independent distributors instead of employees. Therefore, there are no employee costs involved and hopefully these people will be more motivated because they also own their own business.

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

Pyramid schemes are illegal in all states and most countries, whereas legitimate network marketing companies are allowed in all states and most countries. A pyramid scheme is recognized when distributors are paid primarily from money received from new recruits, or if they’re required to by more products then they can consume or sell.

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.

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