Yoli Founder Daren Falter answers the question “What is Network Marketing or MLM?”
What is Network Marketing or MLM?
By Daren C. Falter, Author of How to Select a Network Marketing Company
I’d like you to pretend, for a moment, that you’re an entrepreneur and you’ve just purchased themarketing rights to an all natural, whole food nutritional supplement that helps people feel moreenergetic without adding any stimulants to the product. Extensive surveys show that most customers will reorder this product after they purchase it for the first time. You’re convinced that it has multihundred million dollar potential, so you drop all other projects and commitments and you dedicate yourself to marketing this product. The first thing you must decide is the method by which you’ll take this product to market.
As an entrepreneur, you have several different choices on how to get this product from the manufacturer to consumers. The traditional path involves raising millions of dollars and launching a corporation with a large headquarters building, hundreds (maybe even thousands) of employees, and thousands of retail locations world wide supported by local, regional, and national warehouses. An alternative to starting with a large corporation is to franchise your business. You’ll still need start-up capital and employees, but now you can allow other entrepreneurs to invest in your retail locations throughout the world. The franchisees share in the risks and rewards. Still, another option is to simply sell the marketing rights to a giant national or worldwide retail establishment like Wal-Mart or Costco. You’ll sacrifice some of your profits in exchange for a ready made distribution machine, but it might just
be worth it. However, if you really understand the model of network marketing, you might consider this form of distribution as the perfect alternative to the others mentioned. Network marketing was made for distributing products that have great word-of-mouth (sharing person-to-person) appeal. Everyone is choosing network marketing
Considered just fifteen to twenty years ago to be the domain of the housewife and blue collar worker, network marketing has now come of age. Network marketing or multi-level marketing (MLM) is now considered a white collar industry by the millions of people worldwide who are bold enough to look past the stereotypes and see this business for what it is.
Network marketing has become the business model of choice for those seeking extra income, or those wishing to completely replace their full-time income in a short period of time. With extremely low start-up costs, and extremely high income potential, home business hopefuls are turning to network marketing as an alternative to the expenses and hassles of traditional businesses or franchising. In the past, network marketing was considered by many to be the last resort for people down on their luck who refused to seek traditional solutions. To others it was a social club for people who enjoyed adult interactions, camaraderie, and recognition. Today, network marketing is a high-tech,
sophisticated, and professional business model. According the Direct Selling Association, it’s now a $100 billion per year industry worldwide. Pep rallies, prayer meetings, and the all to common “ambush” approach of “old school” network marketers has been replaced by webinars, email, search engines, and video conferencing.
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With all of these advancements in network marketing in recent years, it’s no wonder that top business consultants, authors, and celebrities have good things to say about network marketing. Just ask best selling authors Robert Kiyosaki, Robert G Allen, Mark Victor Hansen and Jack Canfield, T Harv Eker, Denis Waitley, Brian Tracy, Paul Zane Pilzer, Richard Paul Evans, Tom Hopkins, Anthony Robbins, and even Donald Trump what they think of network marketing. MLM is going main stream and now is the time to find out if it’s right for you. Before we can know if network marketing will work for you, it’s important to understand just how this business model works.
Network marketing defined
Network marketing is part of what is often referred to as the direct sales industry. Both network marketing and direct sales are often referred to as industries but they’re really a method of distribution where instead of selling a product through a retail store, products are retailed or sold by independent business owners called distributors. These distributors don’t earn a salary and they’re not employees of the companies they represent. Instead, they’re independent contractors who have signed a legally
binding distributor agreement giving them the authority to represent a company’s products or service. In direct sales, distributors earn commissions mainly on the products they sell. Sometimes there are some bonuses that can be earned by distributors for recruiting and assisting other distributors, but this is not the emphasis of direct sales. In network marketing, a form of direct sales, distributors are paid on
the number of retail sales they generate, but they’re also paid special bonuses on the sales produced by the distributors that they recruit or sponsor into their sales force. Not only are they paid commissions on the sales produced by their own independent distributors, but they’re also paid bonuses on the selling activity of distributors their distributors recruit for several generations. In network marketing, more
emphasis is placed on recruiting distributor than with direct sales because more incentives are paid on sponsoring and training new distributors. Affiliate programs are another form of direct sales which usually indicate a one or two generation compensation structure. Though similar to network marketing, affiliate programs are mostly promoted and maintained on the Internet, and they generally do not offer
substantial full time or six figure income potential like network marketing programs based on only paying one or two generations of commissions.
Recruiting an independent distributor into a network marketing business is called sponsoring. As a sponsor, you’re responsible for the training and support of your new distributors. Sponsors ideally work hard to help their new recruits learn everything they need to know about starting a successful distributorship. The more distributors you help to be successful, the more money you’ll make. The formula for paying distributors is commonly referred to as a network marketing compensation plan
or pay plan. Although distributors can earn commissions when they purchase product wholesale and sell it retail, they can earn even more commissions as they sponsor a sales force of other independent distributor, or what is referred to as a downline. Commissioned earned from your downline distributors are called bonuses. There are usually special bonuses and recognition associated with the sponsorship of new
distributors and helping your downline grow. As you accumulate more distributors, generally you will produce a larger group sales volume and with that comes a larger commission check. As mentioned previously, you’re ultimately paid not just on your own personally sponsored distributors, but on the distributors they sponsor, and on the distributors they sponsor, and so on for multiple generations. The number of generations or levels paid and the percentages paid on each of those generations are
determined by the company’s compensation plan. Distributor leaders can even earn special override bonuses based on top performance. In order to qualify for commission in network marketing, you generally must be an active distributor, which indicates that you’re agreed to receive an automatic order of product every month. When you’re active, you qualify to earn residual income (income that will continue to flow month after month) from your downline’s (sales organizations) monthly purchases of product. You can earn commissions from the personal consumption of your distributors, from the products they purchase to sell to customers, and from the purchases of customers direct from the company who were originally introduced to the product by someone in your downline. The automatic reordering of product every month is generally referred to as an autoship or auto order. This autoship is usually around $40-$300. Sometimes you can earn larger bonuses based on the level of autoship you’ve committed to. In modern day network marketing, all autoship orders are generally drop-shipped from your company’s warehouse so independent distributors don’t have to inventory or deliver products to their downline. Your upline is the key to learning how to build your business. The word upline refers to distributors positioned in the compensation plan above you including your sponsor, and their sponsor, and so on. Your downline is the key to your profits. The word downline refers to everyone below you or your sales force. Your upline will teach you how to prospect (attempt to sponsor) and recruit (to
sponsor) new distributors into your downline and how to maintain a high level of retention (to maintain or retain active distributors or customers), so you don’t experience customer and distributor attrition (inactivity or fall-out rate).
Throughout the articles on compensation plans, we’ll be referring to terms such as back end and front end. The back end of a compensation plan usually refers to the advanced stages or the long-term money that can be earned over time. The front end usually refers to the beginning stages of a compensation plan and what you’re earning during the first several months of start-up. I know I’ve introduced a lot of terms here. Hopefully this has helped those new to network marketing pick up on some of the basic jargon and nuances of this business. Please note that if you read anything in this article that is difficult to understand, don’t hesitate to contact me with questions.
About the Author
Daren C. Falter is the author of the network marketing industry-wide best seller How to Select a Network Marketing Company. Daren has been a consultant to the network marketing industry for over 12 years. He has built downline organizations into the tens of thousands of distributors with several different companies. Daren is a popular convention speaker and trainer. You can visit Daren online at his
blog at www.networkmarketingreview.com. You can also order Daren’s best-selling MLM book at www.networkmarketingbook.com.
Daren recently launched a new network marketing company, Yoli, Inc., near Salt Lake City, Utah. Daren and his four partners are excited to introduced the worlds most nutritious beverage using patented BlastCap™ Technology. Visit Yoli at www.yoli.com.
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