What is Network Marketing?

Network marketing can be viewed as a chain with several links. Each link is comprised of an individual who sells a product or service. Avon and Mary Kay Cosmetics are two globally renowned companies that use network marketing to reach new customers and boost sales. A typical network marketing model is a tiered system that offers compensation for members who achieve a certain amount of sales and recruit a certain amount of people to also become sales representatives.  Most network marketing companies require an initial startup fee for a starter kit from participants. There are three types of network marketing business models:

  • Single-Tier Network Marketing
  • Two-Tier Network Marketing
  • Multi-Level Marketing

Single-Tier Network Marketing (Affiliate Marketing)

This is the simplest form of network marketing and is often also called affiliate marketing.  People who sign up for affiliate marketing programs are known as affiliates. They earn a commission based on the number of direct sales (or website visits for online companies) they enable the company to make. Recruiting other sales representatives isn’t required.

Affiliate marketing is a good way for affiliates to earn passive income. Some affiliates are even able to make affiliate marketing their full-time income. These affiliates, however, only achieve success when they are consistent and execute clear plans for reaching new audiences. Those who view affiliate marketing as a get rich quick scheme often fail miserably.

Companies should also carefully consider who they choose to be affiliates. Bad affiliates can mar the business’ reputation. Carefully screen the people who sign up for your affiliate program if you’re considering creating one.

Two-Tier Network Marketing

Participants in these programs earn income from direct sales, as well as the sales people they recruit to become sales representatives make. Some two-tiers programs can also be considered affiliate marketing programs. Primary affiliates are those who sign-up directly for the program. Sub-affiliates are those who are recruited by these primary affiliates.

However, two-tier network marketing only works if both levels of affiliates effectively balance selling the product and recruiting new affiliates.  Some affiliates may be lured into the trap of thinking they can earn passive income simply by getting other people to sign up for the program. The only way everyone earns money is if products are sold.  This must be clear to both primary affiliates and sub-affiliates.

 Multi-Level Marketing

Multi-level marketing works through the creation of a network of distributors. It’s similar to the two-tier model where distributors earn an income both from selling products and a percentage of the income earned from those they recruit. Herbalife, Avon and Amway are the leading multi-level marketing companies.

 

Network marketing is beneficial to both affiliates/distributors and companies. It helps companies reach a new client base and helps affiliates earn passive income. Successful network marketing, however, can only occur if affiliates balance selling products with signing up new recruits. If no products are sold, no money is earned.

 

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