Network Marketing Definition, Types & How It Works

KEY TAKEAWAYS

• Network marketing is ideal for outgoing, passionate people.
• Network marketing involves the selling of products or the recruitment of salespeople.
• Be sure to avoid network marketing with tiered plans.

What Is Network Marketing?

Network marketing, also known as direct sales, involves product sales directly to consumers. Instead of a middleman, the products get sold to real customers, whether it be in-person sales, by phone, or through email.

The benefit to consumers is that they have control over the product and can earn money if they are the ones who get interested in the products.

How Network Marketing Works

There are two main types of network marketing programs: direct sales and multi-level marketing. Direct sales is a type of network marketing where you earn money from products you have already sold. You make the sale, and the money gets deposited right into your bank account.

In multi-level marketing, you earn money when people sign contracts with you and get a commission on the sales of people they recruit. People involved in multi-level marketing often have a “business opportunity” they’re trying to sell (whether it be a product or service).

As a network marketer, you’ll find it’s easier to build your network. For example, if you’re interested in real estate, you might approach other people in your network who work in that industry. You can ask if you can talk to them about what they do and what they’re looking for.

Types of Network Marketing

Direct Sales

This is a sales model that involves making sales directly to end consumers. The company does not pay a network marketing commission. Rather, the salesperson earns a sales commission based on retail sales of the company’s products.

Multi-Level Marketing

This sales model involves sponsoring independent distributors that sell products to end consumers. The distributors do not pay a network marketing commission. Rather, the salesperson makes a commission based on the distributor’s sales, either to the public or to other distributors.

Marketing Opportunity

This is a business model that involves selling an “opportunity.” In other words, an “investment” to join a business opportunity and make a profit.

Affiliate Marketing

This is a type of marketing where a company pays the person only if the product happens to get sold. Similarly, there is also Advertisement Marketing. This is a type of marketing where a company pays the person based on the number of clicks they get on advertisements.

Compensation Plan

Sometimes, the compensation plan is just a percentage of sales. It can also be performance-based.

Backend Sales

This is a sales model that involves selling a product that must be purchased immediately. Often, the person doing the selling receives a commission on the product.

Direct Marketing

This is a sales model that involves selling to a distributor that then resells the products to end consumers. The reseller does not pay a network marketing commission. Rather, the reseller earns a commission from retail sales of the products.

Pros of Network Marketing

You Get to Meet People: One of the advantages of network marketing is that you get to meet lots of different people. If you’re interested in real estate, for example, you might approach other people in your network and ask if you can talk about what they do at a local level.

You Get to Learn New Skills: As you meet people, you can also pick up new skills and experience in your field from people you talk to.

You Get to Build a Network: Network marketing can be an effective way to build a network if you’re not very social and meeting new people is difficult for you.

Financial Stability and Independence: Most network marketing companies require you to buy inventory. You then sell it in order to make money. This can be a good way to build financial stability and independence by learning how to make purchases on your own.

You Get to Help People: Network marketing can be a good way to help people in your community if that interests you.

Cons of Network Marketing

It Takes Time and Effort to Build a Network: It takes a significant amount of time and effort to build a network in any field, not just network marketing.

You Have to Procure Products to Sell: In most cases, network marketing companies require you to buy a certain amount of products to sell. You may not like the products or find it difficult to procure them.

You May Not Make a Profit: Many network marketing companies do not provide enough training or guidance for new recruits. As a result, you may find it difficult to make a profit.

You May Feel Pressured to Recruit: Network marketing companies often pressure you to recruit more people.

It Can Be Hard to Drop Network Marketing: It’s easy to stay in network marketing for a long time. But it’s also easy to stay in network marketing for a long time and not make much money.It May Not Work for You: It may take some time to determine whether network marketing is right for you.

Summary

Network marketing companies offer a variety of sales and marketing programs. But many involve some level of investment. While the income can be good, it’s important to understand what you’re getting into and the risks involved.