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What Is Network Marketing?
Let me explain network marketing to you directly: it's a business model where independent representatives generate sales by building a network of business partners or salespeople who help with lead generation and closing deals. You might also hear it called multilevel marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, or home-based business franchising.
Key Takeaways
If you're considering this, know that network marketing representatives need strong sales skills. In a single-tier program, it's just one salesperson selling products independently. But in a multi-tier setup, representatives recruit a network of other salespeople. And yes, MLM salespeople often face pressure to target friends and family aggressively—not just to buy products, but to join as new salespeople.
Understanding Network Marketing
Network marketing companies use the relationships of their salespeople to find customers and push products. This approach serves as an alternative to traditional advertising or complements it. As a representative, you're encouraged to go after your friends and family hard, getting them to buy and recruit others.
In a standard setup, each sales rep recruits their own network, creating multiple tiers. The people who start a new tier—the 'upline'—earn commissions on their own sales and those of their 'downline'. Each new tier can branch out further, adding more commissions for those higher up.
Your earnings depend on both recruitment and product sales, with the top tier making the most money. I've seen network marketing compared to pyramid schemes because of the heavy focus on recruiting. The Federal Trade Commission has noted that many MLMs might be pyramid schemes but hasn't called the model fraudulent outright.
Be aware that some MLM schemes do operate as pyramid schemes, where earnings from lower levels funnel up to the top. The FTC keeps an eye on these multi-level marketing companies.
Examples of Network Marketing
If you have energy and solid sales skills, you can build a profitable business in network marketing with a small investment. Operations that pay based on real sales to actual customers are more reputable than those where income comes mainly from recruiting distributors, according to the FTC.
Take Herbalife: in 2016, the FTC settled a lawsuit claiming the company misled people about earning potential from selling diet supplements and personal care products. Herbalife paid $200 million in compensation and restructured.
Rodan and Fields was a billion-dollar skin care MLM until 2024, when it shifted from multilevel direct sales to a new affiliate program, influenced by online marketing and platforms like Amazon or TikTok Shop.
How Should an Individual Research a Network Marketing Company?
If you're thinking about joining, you should independently use or genuinely like the products. Get familiar with the company structure and confirm that earnings come from selling products, not just recruiting others.
What Are Some of the Oldest Network Marketing Programs?
Some long-standing ones are still around in 2024. Avon started in 1886, Tupperware in 1946, and Amway in 1959.
What Are 'Buyback Provisions' in Network Marketing?
Buyback provisions let participants return unsold products to the MLM for a refund. This FTC-mandated feature helps reps stuck with excess inventory who can't make commissions.
The Bottom Line
The FTC regulates network marketing operations. Remember, it can include MLM, cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, or home-based business franchising.
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