Network marketing, or multi-level marketing, is a business model that has emerged in the United States. It is based on direct sales, that is, the negotiation between the company and the final customer is carried out without the need for intermediaries such as distributors, stores and markets. In network marketing, sellers offer products directly to consumers. They place orders in factories, deliver to the customer and receive a commission for each closed deal.
The idea is that the producer creates a network of distributors, who provide support, training and advice to these partners so that they can promote the brand and sell their products door to door. And for each sale, these partners receive a predetermined amount.
This strategy is not new. Its beginnings date back to 1903, when Watkins, a company in the herbs and spices sector, began giving bonuses to its distributors for each new distributor they managed to recruit. Therefore, several Network Marketing companies have adhered to this system and have improved it much more. Network marketing has been so successful that, today, direct sales are worth more than $183 billion a year , according to information from Direct Selling News .
Is network marketing a pyramid scheme?
One of the biggest fears for anyone who wants to invest in network marketing is falling into a pyramid scheme. This fear is quite understandable, since some companies have used this strategy to mask illegal businesses, such as the financial pyramid.
However, it is very easy to differentiate an MLM based business from a pyramid scheme.
The main (and sometimes the only) source of profit for a financial pyramid scheme is the addition of new people to the business. In this case, members only get a commission if they attract more distributors to the scheme. And the more participants in the pyramid, the higher the promised profits. This creates unsustainable chains because they depend on attracting new sellers. Then the adoption of the scheme becomes untenable and it collapses, harming everyone involved.
In network marketing, on the other hand, this does not happen. The focus of the business is the sale of products and services that have real value. The reseller is rewarded for what he sells and also for the new resellers he attracts into the direct sales structure.
So, in addition to the profits from what you sell, you receive a small portion of the sales from the distributors you've recruited. In some cases, it is also possible to receive a part of the sales of the sellers recruited by him (at other levels).As you can see, it is more than clear that network marketing is not the same as the financial pyramid, since it is a legal and regulated activity.
What are the advantages of multilevel marketing?
Although some people still frown on it, network marketing is an extremely advantageous strategy for businesses and resellers. Companies that decide to make room for this tactic can expand their reach and sell more without investing in opening branches. And that translates into cost savings, price drops, and a streamlined sales process, since there are no middlemen.
In turn, anyone who decides to become affiliated with a brand and resell their products also has many benefits. The main thing, and perhaps what attracts most people, is the possibility of becoming an entrepreneur and having a more flexible work routine.
In network marketing, sellers are free to set their own working hours, have no boss, and can more easily balance work and personal life. The MMN is also a great alternative for those who want to increase their income, but cannot leave their current job. Additionally, this strategy values meritocracy , as revenue is directly tied to each reseller's efforts.