What Is Network Marketing & How It Works (With Examples)

What is network marketing? Network Marketing (also known as multi-level marketing, referral marketing, social selling, or direct sales) is just as it sounds: a marketing program utilized by a business to increase product sales by using word-of-mouth recommendations instead of alternatives such as TV commercials, direct mailing, or emailing programs, internet ads… etc.

Network marketing is essentially a method used to market a company's goods and/or services by compensating people for recommending their products to others through a sales commission program. This type of program is designed to be worked from home on the individual's desired schedule. 

Is Network Marketing Legal?

Network Marketing has several conflicting reputations, depending on who you ask. 

Many people don't know anything about it. 

• Some mistakenly compare it to an illegal pyramid scheme, also widely known as a “Ponzi scheme.” 
• Some view the business model as “too good to be true.” 
• Others view it as something with potential; however, they either have not experienced success with it or feel they won't succeed if they try. 

And some find their efforts, endurance, and persistence wildly profitable, among other attention-grabbing benefits.

According to the Federal Trade Commission (FTC), network marketing is a lawful and legal business model and is heavily regulated. 

How Does Network Marketing Work?

Multilevel marketing focuses on product referrals and recruiting bonuses. 

As a network marketer, you are compensated sales commissions based on the financial value of the company's products you sell to real customers each month, just as you would in a traditional store setting. 

If you choose to take on another layer of lead generation and training new recruits, you would also be compensated for teaching new distributors (marketers) to do the same by receiving a smaller commission based on your protégé's sales and even a few “generations” down the line, depending on your company's compensation plan. This is where the multi-tier potential income is generated, helping you scale your business and keeping you excited to continue promoting your chosen company.

This process is essentially duplication: recruiting and teaching team members to duplicate what you are doing: sharing info, closing sales, and providing a layer of customer support to earn repeat sales. Your marketing team of sales representatives grows by duplicating yourself multiple times (training multiple people to sell and train others). Over time and through your training efforts, those small commissions add up.

It Seems Too Good To Be True. Does It Work?

The short answer: Yes, network marketing businesses do work. 

The essence of network marketing is the same concept as affiliate marketing. You sell a product or service, whether physical or digital, and you receive a commission, giving you a percentage of money earned from that sale. 

** Be sure to check your company's (or prospective company's) compensation plan to understand what qualification requirements there are for you to earn commissions and bonuses.

Don't overwhelm yourself with myths and negative opinions found scattered throughout the Internet. Network marketing works so well that many businesses implement the marketing model or create hybrid multi-level affiliate programs, and new successful network marketing millionaires regularly develop worldwide. 

Regardless of when you sign up for a program like this, your success solely depends on the effort you put into it and the attitude you carry with you. And of course, having a solid leadership team helps a lot through the process, especially when getting started. 

What's the Catch? Is It Worth My Time?

Like everything else, it takes work. 

Network marketing is not some get-rich-quick scheme. It does, in fact, need time and effort. Everyone's timeline is different and should not be compared. However, no other business opportunity or job will offer comparable income advancement opportunities. Where could you potentially double your paycheck every year? What about every month? 

With the right amount of effort, that is realistically achievable through network marketing.

Building a network marketing business is absolutely worth the time if you don't quit before you find success. If you are regularly using the products you sell and are teaching your protegé's to do the same (especially if your company has a recurring order program), you will find the perks of having a residual income. This income, when developed, may fluctuate from month to month, but offers the opportunity to keep it lasting.

It's an excellent plan B for if you or your spouse lose employment, want to retire, need to pay off debts, or anything else you could use the extra monthly income for! Especially in this increasingly inflated world where many families are finding themselves needing a second or third (or fourth) income stream.

Do I Have to Recruit Friends or Family Members?

No, absolutely not. 

While many mentorship teams do teach you to reach out to your “warm market” of people who already know, like, and trust you…

Many people (like me) experience a lot of pushback and don't receive much support from family or friends. You can develop a profitable business without causing or engaging in unnecessary drama in your personal life. 

You can develop your network marketing operation without talking to anyone you already know.

With modern Internet marketing strategies, you can develop a thriving business and achieve financial stability by developing good sales skills and modern attraction marketing techniques (which is what I do and teach to my team leaders).  

In fact, my first blog website was solely based on producing content promoting my MLM business (and Amazon affiliate links for related products), helping me achieve 6-figures in a few short years (without even really knowing what I was doing).

Can I Be My Own Boss?

Yes! In network marketing, you are your own boss. You are a business owner. 

While it is true, you're a 1099 “independent contractor” in the eyes of the company, you are essentially running your own small marketing firm, just contracted (or teamed up) with a company that produces real products from which you can earn real monthly or weekly commissions (or in some cases, instant commissions). 

This is an important distinguishment because each MLM program has its own set of regulations to agree to when you sign up. Some are more restrictive than others, but all will hold you to their contract and will cancel it if you are caught violating their terms. 

Many companies have a noncompete clause restricting their distributors from participating in conflicting opportunities or endorsing conflicting products (or endorsing complimentary products by a company that also has an opportunity, even if you don't promote the opportunity). By engaging in promoting other opportunities or conflicting products, you put that income stream at risk of the company canceling the contract. This dispute doesn't remove “your business,” it simply removes that stream of income from your business. Many network marketers have recently found out about the importance of knowing the company's policies and procedures the hard way as they are suddenly without that income stream after following the trend of building multiple streams of income that is becoming more popular, inspiring many people to join multiple income opportunities. 

Growing Multiple Streams of Income

While growing multiple streams of income is a great idea, you need to tread lightly if you're going to add in additional network marketing opportunities. Growing a business is not always easy. It takes a lot of time and effort.

If you want more than one MLM opportunity, you must do it smartly. First, check with your company's policies and discover whether it's allowed. Many companies allow you to participate in other opportunities that don't conflict with their products. Many don't allow you to participate in any other affiliation program that has a business opportunity. Most don't allow you to affiliate with any company within the same niche, even if it is for a product the original company doesn't offer.

Once you know what is in the contract you're bound by, you can explore other opportunities.

For me, this was blogging. There are many ways to monetize a blog: adding affiliate links, hosting advertisements, creating your own courses or ebooks, providing your own coaching or membership programs, etc. I've used all of those methods, and others, to help increase my own income. You can even incorporate your opportunity or product information into those courses or ebooks, or offer your coaching/membership services for free as an incentive to joining your team. You can do the same without a blog… just using your social media account.

I do highly recommend focusing on one opportunity at a time. Build it up, then expand. Having multiple streams of income that aren't fully passive (like various forms of investing where your money works for you or you have the cash flow to completely outsource the work) will cause you to be stretched too thin, and stressed over nothing seeming to work.

A successful network marketing business takes active marketing practices. Yes, you can do that in as little as a few hours a week, but it still takes time, especially if you're supporting new team members.

How To Find a Quality Network Marketing Company

The world of network marketing is quite expansive. There are thousands (if not more) of MLM companies to choose from, ranging in just about every category of business. 

I highly recommend choosing one that offers tangible, real products. 

This is important because service-based network marketing companies more easily skirt the line of illegal pyramid schemes.

My advice, after being in the industry for over 10 years: Look for a company that offers a high-quality consumable product line with an auto-ship program. 

This will help you maximize your efforts. 

Another important aspect to consider is the company's track record and reputation. Look for companies with a proven history of success, strong leadership, and a positive culture that aligns with your values. Seriously… most companies (whether MLM or not) fail within their first 5 years – a sobering statistic learned when earning my undergrad degree in business. You may have noticed a plethora of “ground floor opportunities” posts all over social media promoting brand new businesses. While these may be a bit exciting, its humbling to realize there is a high statistical presence that the company being promoted may not be around long-term. 

Another thing to consider is the products or services the company offers – they should be high-quality, unique, and in demand by consumers. This is where most of my own frustration comes in, especially in the wellness space. You'll hear “healthy,” “green,” “nontoxic,” etc keywords being used… legally, these words mean nothing. Seriously, they have no legal definition in the eyes of the FTC and FDA, and many of them are not in fact as healthy as claimed. This is a major reason why I left the wellness and skincare industry I was previously in… ingredients became gross, and the culture ended up gaslighting anyone to have a negative experience. Thankfully, there are many companies not in the wellness or skincare space.

Another key factor to examine is the compensation plan. A reputable network marketing company will have a fair and transparent [easy to find] compensation plan that rewards distributors fairly for their efforts, AND easy access to their FTC-required Income Disclosure, showing you how much is made on average at each “rank.” 

Avoid companies that rely heavily on recruitment bonuses or promise unrealistic income levels without hard work and dedication – both of which are discouraged by the FTC. 

Remember, success in network marketing requires effort and persistence, so choose a company that offers realistic earning potential while providing proper training and support to help you succeed. Not all results are going to be the same because you have a different network than your mentorship team, different skills, and a different message. 

What To Look For in a Quality Network Marketing Team

Finding a quality team is arguably just as important as finding the right company.

When evaluating a network marketing team, it is critical to look for a group of driven, motivated, supportive, and collaborative leaders. A quality network marketing team should prioritize teamwork over competition, fostering an environment where everyone succeeds together. Look for a team that values ongoing education and training, as continuous learning is key to staying ahead in the dynamic world of marketing and sales.

It's important to assess the leadership within the team – seek out mentors who show they are dedicated to helping others grow and achieve their goals. A strong network marketing team will have clear communication channels and provide constructive feedback to help each member improve and excel. 

Ultimately, being part of a quality network marketing team means being surrounded by like-minded individuals who share your vision and are committed to helping you succeed in your business endeavors.

A quality network marketing team teaches you how to conduct attraction marketing and focuses on helping you design a marketing plan centered around your strengths, knowledge, skills, abilities, and lifestyle needs. They're focused on your goals, and are excited about your success moreso than their own.  

Too many focus hard on pushing friends and family, and many (especially from the older days, but still relevant today) will even tell you to ditch friends and family relationships if they're not supportive and buy from you, causing a toxic work environment, and alienating you in the name of “duplication.” 

A quality mentorship team has a proven track record for coaching their new members and will do everything possible to support and onboard their new members in achieving their first win within a week. 

A quality network marketing team will NOT use sleazy sales techniques from the 90s. They won't use any pressure or guilt trips to recruit you. They won't use unethical recruiting methods, such as recruiting people from other teams or companies. And they won't completely ghost you after you sign up.

Unfortunately, sometimes you're provided with a vision of the ideal team, just to be ghosted upon sign up, or seriously let down in other manners. If this happens, don't be afraid to drop the commitment and move on to something else. Many MLMers have jumped ship for better opportunities for this exact reason. 

Types of Network Marketing Compensation Plans

There are a variety of network marketing compensation structures:

• Binary Compensation Plan​ gives you 2 “legs” to build, embracing the concept of everyone winning together. If you're in a binary compensation plan, you build 2 legs, stacking new recruits under old recruits, as they do the same. Just as your mentorship team stacks their new recruits under you and your team. I didn't realize the full potential of a binary compensation plan until I joined LifeWave, and within months ended up with over $57k in monthly sales in my left leg without doing a thing. WILD!!
• Unilevel Compensation Plan is set up to provide you with commissions for a certain number of levels within your organization.
• Single-tier Network Marketing Plan, also known as “Direct Sales,” focuses on customer sales and not building a team. Many companies are adjusting their structures to include this as an option to building a team. Some of these single-tier marketing plans also provide a bonus for overall team accomplishments, some don't. Multi-tier (or level) plans tend to be more popular because there is more income potential. 

Each type of network marketing program can provide an excellent supplemental income, so don't choose a company just because of the compensation structure. Make sure you align with the products and team, which is arguably more important. 

Are You in Network Marketing?

Yes. I first started in network marketing back in 2004, but left that first company because of a toxic leadership team after only being in it for a year. I tried again a few years later with the same company on a different team just to quit within a year for the same reason. I enrolled in a wellness company back in 2014, built a 6-figure business, and absolutely loved it until the products changed and made me sick, then, during the Covid mess, I noticed the company culture changing and couldn't continue supporting the trajectory they were on. I took a year off, dabbled with a few different companies to test out their products, then found my home that I'm building now. 

But this post isn't about me and my opportunity. If you'd like to work with me or someone I've vetted to provide a quality team, please head over to my work with me page.

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This post was originally published on Gracefully Abundant