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”?

The key benefit of not having middle men is that the company can spend more money on making the product better and more unique.

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.

Indepedent agents earn their money in at least two ways – through the efforts of their downlines, and by purchasing products from their company at wholesale prices then turning around and selling them for a profit. Commissions are paid based on what’s called a “compensation plan”, which determines how many levels of people will be receiving income from one person’s sales.

There is also a term called “multi-level marketing” or “MLM”. What’s the difference between MLM and network marketing?

Basically, nothing! The two terms network marketing and multi-level marketing refer to 2 different aspects of the same business.

Network marketing is just how it sounds: a network, or group of people, communicate with each other and products are marketed this way.

Multi-level Marketing is how the people in the network are compensated for their efforts. It simply means that commissions are paid on multiple levels of the organization, thereby creating leverage.

What exactly is 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”?

A company is a pyramid if the distributor mainly makes money from new signups or they have to buy more products than they can sell or use. Pyramids are illegal everywhere, but network marketing is legal in all states and most countries.

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.

Want to learn more about the industry of Network Marketing?

The two resources are The 45 Second Presentation That Will Change Your Life by Don Faila, and Brilliant Compensation by Tim Sales. These are both excellent third-party tools that are not only informational, but extremely useful for showing to prospects that are dubious.