Network marketing as the term suggests is a type of marketing that uses the building of a network to convert sales of goods/services.
It is basically a process involving a large number of people who are in a network and they do processes of sales and marketing.
We will understand this better in this article and we will also talk about the advantages and disadvantages of the same.
A lot of people also question that sometimes network marketing is confused with pyramid schemes and hence they are very skeptical about the whole idea.
So, let’s dive deep into the process and clear the possible doubts that people have.
1. What is Network Marketing About?
According to very easy terminology, the process in which there are a lot of distributors who market and sell products and services.
Now this is done in the following manner; the network of people works towards lead generation, recruiting, marketing, building, selling, and management.
So, when the distributors sell products they make money by a commission they earn on selling.
The big difference here is the fact that these distributors need not be company employees specifically, they can also be independent distributors/contractors.
The whole idea is the same as any other marketing process where new potential clients are searched for.
This involves increasing the customer base in your network simultaneously which also involves adding new partners to sell more.
In the background, there is constant training and motivation going on, which is being done by the management.
2. Multi-Level Marketing
Multi-level marketing involves hiring distributors at multiple levels, which means that each level hires distributors under them, and the more they hire the more money they earn.
It is working in a manner that the top tier hires people under them in 3-4 tiers.
The top of the first tier makes the most money because they earn commission from all the tiers beneath them. This kind of distributor network is known as multiple-level marketing.
But if we look deeply we will see that there can be certain reasons and ways why making money in multi-level marketing is sometimes difficult.
For the first level of distributors, there is a possibility that you will need to buy the company’s products, train the distributors below you, maintain some inventory and all these costs will add up until you can make substantial sales.
Now other than these obvious expenses, there are also ancillary expenses like computers, internet or phone training, and others which add up and eventually affect the overall profit that you will make.
And lastly, the aspect that not everyone is meant for selling, or selling a particular product/service.
It requires a lot of motivation and enthusiasm to obtain that, plus there can not be incentives for all such tasks always.
3. Advantages of Network Marketing
The size of the network and in turn, the company are not restrictive.
This is because a lot of employees are not full-time employed or are pursuing this just as a part-time activity. And there can be a person who is even part of two different companies.
Advertising and the huge money spent on it is saved because of the extensive network of people.
There is in-network marketing, so there is extensive mouth publicity which is stronger than most other forms of marketing, and there is also direct engagement.
Since there are a lot of distributors across different tiers, there is a distribution of profit margins, which not only ensures profit maximization across all levels but also the reduction of a financial burden on the parent company.
The storage and delivery expenditure is also decreased, because there isn’t any one individual who has to maintain a huge inventory or carry out all logistics. It gets distributed across all the distributors.
4. Is Network Marketing Risky?
Well, there is surely a risk involved with network marketing since there are a lot of factors and variables linked to it as we have seen above.
There is money involved in starting and setting up the company, the purchase and storing of inventory bears, and other different costs along with recruitment.
To actually get your money back you will have to sell a lot of products and earn a lot of profit, but the selling has to be continuous and prolonged to keep the profits flowing in.
Only then you will be able to recover from the first investment, the continuous inflowing income will allow you space and money to cover other expenses and carry on the business in the long run.
Yes, there is a lot of misbelief among people about multi-level marketing being a sort of pyramid scheme, but there is a difference between the two.
Pyramid schemes are actually such conversions where you are becoming a distributor by paying a huge amount upfront and getting the product irrespective of the fact that you can sell it or not.
5. Final Thoughts
Although there has been a lot of discussion of what and how network marketing works, and we have seen the advantages and disadvantages, it is still advised only to step in after doing your thorough research and information digging.
There can be a chance that what appears to be network marketing is actually just a pyramid scheme when we zoom in, and you might end up losing a lot of your hard-earned money. Stay aware and invest smartly.