What is Network Marketing?We've all heard it mentioned before. But, what is network marketing really? Network Marketing, also known as Multi-Level Marketing (MLM), is a legitimate business model that compensates independent distributors of direct selling companies for the sales of products or services.As an independent distributor, you are compensated for sales of products you personally generate, as well as, the volume of sales of others you sponsor into the company. These products are marketed directly to retail customers and business prospects by the independent distributor. As an independent distributor, you are not an employee of the parent company. You only represent it. Independent distributors develop their own home-based businesses by building an active customer base or by sponsoring a downline of other independent distributors who do the same. Thereby building the overall organization. Like a franchise, which receives royalties from sales of their individual franchise owners, network marketing distributors earn a commission on the sales efforts of their downline and are paid according to your company's compensation plan.
What Is Network Marketing?... Pyramid Schemes?After answering the common question of, "What is Network Marketing?" it's usually followed up with..."Oh, so it's a Pyramid scheme!"The simple answer to that statement is...NO! Pyramids are illegal! A pyramid scheme is a non-sustainable business model that involves the exchange of money for enrolling others into the scheme. No product or service is delivered. In a Pyramid scheme, large numbers of people at the bottom of the pyramid pay money to a few people at the top of the pyramid. Every new enrollee pays for the chance to move closer to the top and gain a profit from payments from those who join later. Pyramid Schemes are very similar to a chain letters... Here's an example: For $2000 you are placed at the bottom of the pyramid. $1,000 of your money goes to the person who enrolled you into the scheme, while the other $1000 goes to the person at the top, sometimes called the Pharaoh. Once all of the open positions fill up with new enrollees, the Pharaoh will collect $32,000. And those at the bottom have just lost $2000. When the Pharaoh collects his money, his position is removed and the next level moves up to the Pharaoh position. Only then do the two people on the second level get paid. In order for these two people to be removed, 32 empty positions are added to the bottom of the pyramid. And the process starts all over again. Every time a level moves to the top, a new level is added to the bottom. Twice as large as the one before it. For all of those in the scheme to make money, there would have to be a never-ending supply of new enrollees. And there isn't...
What is Network Marketing?: A Brief History Through The AgesAlthough the term "Network Marketing" is relatively new (introduced a little over 50 years ago), the product distribution of network marketing is centuries old and has played an important role in the way we do business today. And history is filled with tales of hawkers, peddlers, traders and caravans who distributed their wares on behalf of kings, queens, and wealthy businesses.Long before doorbells and catalogues, direct sellers made a living through trading their goods and developed easily accessible trade routes to trade with neighboring people. These direct sellers provided everyday articles, tools, cookware, clothes, ivory, and even provided weapons to the armies stationed in the fields. There are many accounts of peddlers from Europe, Egypt, Syria, India, Greece, Babylonia and Asia. As early as 2000 B.C. Babylonian Law, the Code of Hammurabi, protected the welfare of the direct seller. It states, "the peddler shall swear the oath of God if any enemy caused him trouble on his travels." It goes on to say that the merchant who sells the goods must also be properly compensated. In the 5th century, Greece was heavily involved in direct selling. Producers of goods, who sold directly to consumers, continued to sell in this manner despite new classes of retailers and markets in growing city populations. Native merchants in Europe during the middle ages helped bring about the Commercial Revolution of the 10th century, saw great progress in the building of roads, and brought "novelties" from large cities to small villages. In France, towns were given the opportunity to buy wool, silk, bonnets, brass, sewing items, and writing tablets from the direct seller.
From this concept evolved the door-to-door salesman and persisted well into the twentieth century. The W. T. Rawleigh Company and the J. R. Watkins Medical Company distributed bibles, encyclopedias, spices, tonics, perfumes and other goods. And in the late 1800's the California Perfume Company, now known as Avon, was born. What Is Network Marketing? As We Know It Today...The network marketing industry as we know it today began in the 1940's. There is much debate as to which company was the first true MLM, but most agree that Nutrilite, also known as The California Vitamin Company, was the first to roll out with the type of compensation plan we associate with network marketing today.Nutrilite realized that larger sales forces actively selling small volumes of product was more profitable than a small amount of sales reps selling large quantities. So, the company began a compensation plan to encourage its distributors to actively recruit new distributors and promote the company products. Distributors would market their businesses and products to family members and friends and encouraged them to join their organizations and do the same. In most cases, this was done by group get-togethers or house parties. Each distributor was then compensated on the sales generated in their "network". The company quickly began to see how much money it was making with this new model of sales and quickly changed its compensation plan to minimize the amount of commissions being paid out. Two of Nutrilite's most successful independent distributors, Jay van Andel and Rich DeVos, soon left because of it. In 1959, DeVos and van Andel founded The American Way - or Amway for short, taking with them the same idea of multi-level marketing which had proven so successful for them in Nutrilite. Not surprisingly, with growth and success -- it attracted attention. Soon, the Amway Corporation found itself answering to the Federal Trade Commission (FTC) in a test case that would both help and hurt the network marketing industry as we know it today. To make this short, the decision in the case proved that Amway was NOT a pyramid scheme, but a legal and legitimate way of doing business. For the full ruling on the case
click here.
Today, network marketing is continually evolving and further developing into a variety of companies, products, and reward plans. This unique and powerful system continues to grow companies and people everyday. The network marketing industry is well over 50 years old. But, most network marketers today continue to use the same 50 year old techniques to market their business -- recruiting friends and family at social gatherings. In today's modern world, we have some very sophisticated tools to help us reach thousands, even millions of people. The internet. Social networking. Blogs. Pod-casts. E-zines. And countless other ways to promote our businesses, sell our products, and have new prospects find us! Long gone are the days of making a list of names and cold-calling. It's been said that if you're not doing business on the internet, you'll soon be out of business... What Is Network Marketing? Interesting Facts
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New England, in the late 1700's, saw the emergence of the Yankee Peddler. These "Trunk Peddlers" walked from town to town selling smaller items like combs, pins, cheap jewelry, knives and woodenware, knitted goods, and books. Each Yankee Peddler was an independent entrepreneur who owned his goods. Most were willing to trade their goods in exchange for farm products from their cash-strapped and isolated rural customers and then carry those goods for resale at a cash profit in country stores and town markets.
