What is network marketing? This question has preoccupied countless minds and the answers have been varied to the point of confusion. Network marketing is in fact a relatively vague term that can mean many different things in the world of business, but in this article, we will stick to the basics.
In multi-level marketing or network marketing, as it is more commonly known, the compensation plan for distributors is based on the number of sales made by the distributor(s) in his or her downline. The larger the network, the more sales that can be made by these members. Multi-level marketing companies can be multi-national or multi-local and the structure of the company may be highly centralized or decentralized depending on the policies of the company’s owners.
In network marketing, there are basically two types of businesses: those where distributors are compensated by earning commissions and those where independent representatives are compensated for the sales they generate for their line(s). The first type is usually referred to as a “closed” business model. The second type, which is referred to as an “open” business model is one in which those distributors who become independent representatives can choose to remain in their downline’s business while earning commissions on the sales they have generated for their line(s). The more complicated the structure, the less certain it is that all reps will be able to earn a high level of income without any limitations or restrictions.
How does a person-to-person sales interaction take place in network marketing? A distributor in a MLM business will make a personal contact with a potential customer. At this point, a two-way conversation occurs. The potential customer is not a robot, she/he is actually a complex human being. The goal of this conversation is two fold: to know more about the individual and to establish a business relationship based on a mutual understanding of what the business requires from the potential customer.
In today’s times, many people in the MLM industry are operating within the closed business models. For those who have moved beyond this model and have made the leap into the open market, there are many challenges ahead of them. In this model, distributors are required to seek out their own leads rather than having all their business contacts to come to them. It is important that a distributor fully understands how to develop and maintain close relationships with those leads in order to have consistent, reliable revenue streams. A good system of recruitment also requires that a distributor regularly evaluate the progress of each of their leads in order to determine if the effort is paying off. The most successful network marketers recognize that the true success of their business model comes when they are able to provide steady, reliable income to those who are interested in joining their organization.
There are a number of different ways to earn commission through what is network marketing, but the most popular way is through the utilization of two separate but interconnected systems: the two-tier system and the residual program. With the two-tier system, a distributor earns commission based upon the sales of each individual in his or her down line. This can be accomplished by placing an extra cost on the product or service that is sold and paying a commission based upon the number of individuals that are drawn within the company based on their referral. Using a two-tier system provides a steady income stream for the distributor who has established himself or herself as a leader within their company.