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Network Marketing is a business distribution model that allows a company to market their products directly to consumers by means of direct selling and referral, or word-of-mouth advertising. It differs from most other types of businesses in that there are no advertising, wholesale, or retail costs involved (no middle men!).

What do you mean by “No Middle Man”?

When companies use “middle men” they spend money, and lots of it, on things that don’t enhance the product. If they don’t have these costs, they can spend more on research and development. This means that they can produce a higher quality, more unique offering.

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.

This person is referred to as an associate, independent agent, or distributor. He or she is a salesperson who has their own business or distributorship. They create income by building up a customer base that buys the products directly from the parent company, or by recruiting other entrepreneurs who in turn build their own customer base, or usually a combination of both. This increases the size of the overall organization.

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.

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

In a word, nothing! The terms Network Marketing and Multi-level Marketing refer to two aspects of the same type of 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 simply the means by which the people in the network are paid for their efforts. Commissions are paid to multiple levels of distributors, which creates leverage.

What exactly is leverage?

When you are talking about leverage in this context you are talking about earning money from somebody else’s efforts.

This leverage concept is used by any traditional business with employees. The company pays the employee a salary, which hopefully isn’t is as much as he brings in. The owner of the company gets to keep the difference. He is leveraging his income by making profit from the efforts of his employee.

Network Marketing compensation plans are similar in the leverage aspect, but different in one major way: There are no employees, or the associated costs and hassles. They are leveraged off other independent associates instead. These people are also going to work harder, because they own their own business and are more motivated to succeed.

Wait a minute! Is this one of those “Pyramid Schemes”?

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.

Network marketing companies are not pyramids, though some pyramid schemes try to pass themselves off as legitimate MLM businesses. In most legitimate MLM companies, commissions are earned only on sales of the company’s products or services. No money can be earned from recruiting alone, as in sign-up fees.

Here are a couple of good resources for learning more about the Network Marketing Industry.

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.