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network marketing
network marketing

What Exactly Is Network Marketing? MLM Explained With Examples.

What Exactly Is Network Marketing? MLM Explained With Examples.
3.8 (75.81%) 43 votes

Network marketing, also known as multi-level marketing, is a business model which involves a pyramid structured network of people who sell a company’s products. The participants in this network are usually remunerated on a commission basis. That is, people in this network get commission every time they perform the specified task, like –

  • Make a sale of a product.
  • Their recruits make a sale of the product.

In simple words, this model involves a pyramid structure of non-salaried participants who get paid whenever they or a person below them in the pyramid makes a sale.

In this system, consumers are the participants. Their family and friends are their customers, and this cycle goes on.

network marketing



Characteristics Of Network Marketing

Direct Sales

Network marketing organizations sell their product directly don’t make use of any well-defined channel of trade. The responsibility to sell the products is transferred to the non-employed individuals (the participants) who get the commission every time they make a sale.



Independent Business Owners (IBO)

The participants are called IBO as they work as if they are promoting their own business.

Selling Philosophy

This model involves participants to use the selling philosophy of marketing. The main focus is on recruiting and selling as much as you can to earn more commission. No relationships are built. People may even trick you to buy the products or to join them.

System Of Hierarchy

Suppose a person ‘A’ has a person ‘B’ under him. Now A will get the commission whenever he makes a sale and also a part of B’s commission when B makes a sale. Now, to earn more money, B will also try to recruit a person C under him and so on. This makes the system a big hierarchy.



Less Or No Advertising

Dependency on direct sales helps the organization to rely less on advertising as personalized contact have more convincing power than advertisements.

No Fixed Salaries

This is a commission based network where participants (not employees) are paid commissions to perform the specific task.

Accountability

Everyone is accountable only to himself. The more he sells, the more he earns.



Benefits To The Participants

Participants are also the consumers of the network. Hence, they also get discounts and other attractive offers to when they join the network.

Examples of Network Marketing

Amway – been in business for around 57 years now, this company is one of the biggest examples of a successful MLM/network marketing company.

Other companies that use network marketing model include – Tupperware, Nu skin, Juice Plus, etc.

Pyramid Structure vs Network Marketing

Pyramid structure is said to exist when you get paid to get a new recruit and there is no involvement of any product. It’s an ill-practice which makes a person earn money by taking advantage of his friends and family. Companies having a pyramid structure model tend to deceive people while making them believe that they’ll earn in future (which they do by deceiving more people). For e.g. a person will be asked to pay $100 to be a part of the company with a promise that he’ll get 25% of every new recruit’s admission fees who he refers. This is a money-making strategy of the company where the participants are at a loss.

Whereas network marketing involves multiplying efforts by selling of products. This is a win-win situation where the users get what they want and participants earn a commission.



Go On, Tell Us What You Think!

Did we miss something? Or did we not? Come on! Tell us what you think of this article on network marketing in the comments section.

About Aashish
A marketer, a dreamer, a traveller and a philomath. I prefer stargazing to spending nights in clubs.


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  • Avatar yash says:

    Nice article

  • Avatar Ashivani Bisht says:

    Good and basic clearing explanation

  • Avatar yoganandan says:

    nice explanation.. it will be good for job seekers

  • Avatar Kirpan says:

    Helpful content.
    Thank you ?

  • Avatar Diana Thompson says:

    Great content. Thanks for the education.

  • Avatar Apsana says:

    Is it gud to join in any (mlm which is in gud position )

    • Avatar SUDERSHAN SINGH says:

      Yes, it is the best opportunity for even a below person as well richest of rich. The only platform that has helped people live a life of their dreams. Otherwise people forget dreams wen pass out from schools colleges and in fact universities as they look for safety. This is best business..respond if you would like to work. I work with India’s network marketing company.

  • Avatar kyrshan says:

    Thank you so much mlm.

  • Avatar Prakash Mishra says:

    Aashish I love the difference you stated between Pyramid Scheme and Network marketing, and the other benefits you stated. According to me, you can add one of the major benefit which is Time Multiplication in Network Marketing. After business, its the only profession where we can do Time compounding.

    • Avatar N0M3NA says:

      Prakash, the point is even the FTC officially stated the line is too fine to tell MLM from pyramid schemes.

      However, a clever man can see that without real retailing to non-participants (ultimate users) it has nothing to do with Direct Selling or sales; just a business ON befuddled wannabe businessmen.

      And how successful is rebranded MLM, if even in the best companies there’re always over 80% of ‘lazy losers’ and the MLM retailing still hasn’t exceed 0.04% worldwide?

      Except for organizers and a couple of their motivators, there’re no successful MLM businesspersons, because gambling is not a reliable source of income.

      Like Jack said about the closed room, it’s about a geometric progressions in zero-sum game, where a few ‘winners’ at the top sponge on a plenty of consumable ‘losers’.

      For instance: Let’s assume a vendor sells bicycles for $40. Now he offers to buy a ticket just for $10 and bring three friends who would buy tickets too.
      Technically, you could buy a bicycle for $10 as promised and the offer seems fair. Yet when you consider the ratio of those who may buy the tickets but couldn’t find any prospects, you will see that very soon there will be a lot of ‘losers’ who lost $10, not to mention wasted time and efforts. Therefore, making false promises is just not worth it.

      The same goes about ‘MLM’.

  • Avatar Jack O'Lantern says:

    Aashish, first of all–why no official definitions, let alone ‘pyramid structure’ as hierarchy and ‘pyramid scheme’ as an illegal biz (fraud), where lower/later participants are paying-to-play to upper/earlier ones? Also you forgot about a pyramid in the pyramid–business of instruments aka motivation.

    So, after the infamous FTC vs. Amway (1979) the judge unilaterally* decided that as far as (A) 75% of the products was retailed to end clients/non-participants; (B) every participant had at least 10 end clients; and (C) the company was ready to buy back at least some of the good, Amway (and similar-structured) MLMs are not pyramid schemes–and thousand clones appeared!

    Nowadays, these Rules are neither supervised, nor enforced, transforming all MLMs into closed market* schemes:
    In a closed room (no retail income)–for simplicity–ten participants sequentially (after a ‘marketing plan’) pay $100 each, totaling 10X$100=$1000. Now in the same order they try to take MORE than ‘invested’…. Welcome to fair MLM world, where Top 5% participants ALWAYS get over 80% of the total income. It’s like a lottery with ‘winners’ and ‘loosers’ strictly predefined.

    While in the real life there’s no ‘infinity’ of participants or anything, FTC stated many times that even quality goods have nothing to do with the deemed legality IF the motive for buying it is merely participation–in order to get qualified for ‘bonuses’.

    I would recommend also reading papers by Jon M. Taylor or Robert FitzPatrick and others)

    Cheers

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