What is Network Marketing

Network Marketing, or Multi-Level Marketing (MLM), is a system for distributing products from the manufacturer to the consumer.

Traditional forms of distribution employ “middle men” (or women) such as wholesalers and retailers. Sales are encouraged by advertising, usually designed by specialist agencies, communicated through media ranging from TV to leaflet dropping. All of these contributors incur costs which, together with their profits, form part of the price to the end consumer. These distribution costs can easily amount to 60% of the final price.

Physically transporting the products from manufacturer to consumer also adds to the cost but this is common to all systems of distribution.

Network Marketing replaces the “middle men” with independent distributors or representatives. Each distributor sells a small amount of the product to a modest number of customers. These customers are approached through personal contact and are encouraged to try the products based upon his or her personal recommendation. Repeat business, the mainstay of any enterprise, depends upon the product matching the promises made and on the standard of customer care given by the distributor. The distributor’s reward for this is the difference between the retail price to the customer and the price to the distributor, the retail profit.

The business grows by recruiting new distributors. New distributors are introduced by existing distributors, who coach and support their new recruits in order to help them sell more product and recruit more distributors. The reward for this support is a “commission” or “bonus” paid on the value of sales made by those they have recruited.

A distributor’s income is, therefore, in two parts; the RETAIL PROFIT and the COMMISSION. In addition, INCENTIVES are usually available to reward particular levels of performance. These may include holidays, cars and profit sharing, amongst many others.

A distributor who recruits a new distributor is the first level in the new distributor’s “up-line”. The new distributor is the first level of his/her recruiter’s “down-line”. The commission may be paid for members of a down-line through several levels. So, for example, suppose commission is paid through three levels, and suppose A recruits B, who recruits C, who recruits D. A will be paid commission for B, C and D at, say 3% for B. 2% for C and 1% for D. If D recruits E, A will receive nothing for E but B will receive 1% for E, and so on.

The advantages for the up-line are obvious. Less obvious but equally important are the advantages for the down-line. Because the up-line has a financial interest in the success of his or her down-line, in this case to three levels, there is powerful encouragement for the most experienced distributors to coach and support the least experienced, to their mutual advantage. The transfer of experience is self-sustaining because by the time A no longer has a direct interest in the next level of his or her down-line, i.e. E, B has quite sufficient experience to provide the required support.

This article does not describe a particular company’s arrangement. Rather. It attempts to describe the broad principles of MLM as I understand them. There are many variations, some of which I shall attempt to explain as this site expands. Unless you are merely curious, and are considering Network Marketing for yourself, please read “MLM – Qualities Needed for Success”. If you are put off by what you read there you could save yourself some valuable time!