Network Marketing 101
There are SIX parts to this eReport:
- What is Network Marketing?
- Brief History…
- Changing your life with “LEVERAGE”
- Different Types of Compensation Plans
- 3 Keys to finding a good Network Marketing company
- Tips for Success!
Let’s dig right in…
What is Network Marketing?
Network Marketing (sometimes referred as MLM or Multi-Level Marketing), is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of the other salespeople that they recruit or refer to the opportunity. This recruited sales force is referred to as the member’s “downline”, and can provide multiple levels of compensation.
Independent, non-salaried salespeople of multi-level marketing programs, referred to as distributors (or associates, independent business owners, dealers, franchise owners, independent agents, etc.), represent the company that produces the products or provides the services they sell. They are awarded a commission based upon the volume of product sold through their own sales efforts as well as that of their downline organization.
Independent distributors develop their organizations by either building an active customer base, who buy direct from the company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the company at wholesale price.
That’s the Technical definition…But, it really depends on WHO you ask.
If you ask someone who joined a network marketing company, dug in, learned the ropes, and stuck with it long enough to build a great business, then you’ll hear them say:
“Network marketing is the greatest opportunity in the history of mankind for the average person without a lot of money to become financially free.”
If you ask someone who joined a few network marketing companies, bounced around to the newest and shiny-est program, never really committed to one thing, or took the necessary action to be successful, then you’ll hear that person say:
“Network marketing doesn’t work. The only people who make big money are the people at the top”
So, here’s the REAL DEAL…
When you join a network marketing company you are ‘signing up’ to represent that company’s product and services and business opportunity.
You “sign up” by making a small investment (can vary between $49 to HUNDREDS of dollars), You are not being hired by the company as an employee but, rather, you are volunteering to represent the company as an independent contractor, business owner, affiliate, representative or associate (the labels go on and on).
You are awarded a commission based upon the volume of product sold through your own sales efforts as well as that of your downline organization. Now, this can be VERY lucrative, and can be the BEST path to true wealth because of the amount of “LEVERAGE” you can create with Network Marketing.
I’ll talk about “LEVERAGE” a little later on, and you’ll easily see how important LEVERAGE is to you, and WHY you should begin your network marketing business immediately.
But, let’s start at the beginning…
1934 – Carl Rehnborg started the California Vitamin Corporation selling what today are known as vitamin supplements. In 1939 the company changed its name to Nutrilite Products Company, Inc.
1945 – Nutrilite contracted with Mytinger & Casselberry to become the exclusive American distributor of Nutrilite products. Mytinger & Casselberry created the first documented MLM compensation plan. It worked like this: A Nutrilite distributor bought his supplies at a 35% discount. (Ex: A distributor bought a box of vitamins for $13 and then sold them for $20 = $7.00 profit.)
To encourage the distributor to sell more, Nutrilite paid an extra monthly bonus of 25% on the total sales. 20 customers x $13.00 (wholesale value) = $260 x 25% =$65.00 profit.
Once the distributor proved that he could get 25 customers he was allowed to become a DIRECT distributor – which meant that he could find others who wanted to sell the Nutrilite products and then they would buy their products from him. In essence, once he proved that he could get customers he was “promoted” and allowed to find other distributors and to train them to get customers. As an incentive to train his distributors well, once he and his distributors amassed 150 customers, he received an additional 2% of the total sales volume.
This is almost identical to a quota-based system. Those who sold the most boxes of vitamins got a higher reward than those who sold little. The MLM compensation plan was simply an extension of the Fuller Brush Company rewarding production. With MLM (Network Marketing) , the company could motivate a sales person to not only sell more products, but to train others to sell more products as well.
1949 – Rich DeVos and Jay Van Andel (high school buddies and business partners) returned from military service and became distributors for Nutrilite vitamin supplements in 1950. After a brief dilemma with Nutrilite in 1959, the two abandoned ship and formed the Amway Corporation.
Amway bought a controlling interest in the Nutrilite company in 1972, and took over complete ownership in 1994.
1975 – The FTC (Federal Trade Commission) filed suit against Amway corporation for operating a pyramid scheme.
1979 – An administrative law judge ruled that Amway’s multi-level-marketing program was a legitimate business opportunity, as opposed to a pyramid scheme.
Changing your life with “LEVERAGE”
Once you understand the power of “LEVERAGE” you will start to see how your life could be changed forever, in a short period of time. It’s THAT powerful. The explanation below will describe how “LEVERAGE” is the ONLY business model that can provide Financial Freedom AND Time Freedom for the average person.
There are 4 basic ways to EARN money:
- J.O.B. – With a JOB, you exchange your TIME for someone’s money. This is a BAD business model for you in two ways: NO Time Freedom, and NO Financial Freedom!
- Sales or Professional Services – Car salesmen, Doctors, Dentists, Plumbers, Hair Stylists, any type of sales or professional service will fall into this category…However, even though some may make decent money, they still have NO TIME FREEDOM. Meaning, they MUST put in the hours to EARN their money. If they don’t provide their service, or make the sale, they do NOT earn anything. NO Time Freedom!
- Small Business – This is a better model, because you have the chance of hiring others, that YOU then pay Money for their time (which hopefully leads to you making a profit). However, statistics show that most small business owners work MORE hours, for less pay, than if they just went a got a J.O.B. in the first place. This is mainly because their employees will ONLY do the exact amount necessary to continue to earn a paycheck…Or, even worse, the small business owner ends of TRAINING their future competition, because some employees will go start their own small business, and the vicious cycle continues. This happens ALL the time on the main street level, and it’s because a “good” employee has NO skin in the game for Success or Higher Achievement with working for a small business.
- Network Marketing – This is by far the BEST model for the average person who has little money to start with. Basically, you become an independent business owner with a network marketing company. You then find other people who would like to have their own business, too. You then will earn a percentage of each person your “refer” to the network marketing company, and even earn another percentage or commission for ALL referrals that your personal referrals have brought to the network marketing company, too.
Let me give you some examples to help clarify the above…
Once a Car Salesman sells a car…He has to sell another car to make any more money. His income STOPS until another car is sold.
Once a Doctor sees a patient…He has to see another patient to make any more money. His income STOPS until another patient is seen.
Once a small business owner makes a sale, he could possibly earn more money from an employee…BUT, the small business owner runs the risk of that TRAINED employee opening up his own small business, and now being competition…AND…let’s not forget about the Overhead that a small business owner has: Rental of a building, Lights, Heat, Water, Employees, Insurances, etc, etc.
Now, let’s look at the Network Marketing “LEVERAGE” model…
- You become an independent business owner for a network marketing company.
- You now earn commissions from the sale of products or services (just like the other business modesl).
- You refer others to the network marketing company, and they become your downline…However, unlike employees, you want these folks to do well, as YOU earn a commission or percentage for everything they sell.
- Once you find enough “Leaders” who take their network marketing business serious, you will be “earning” money from their sales, no matter if you “put in the time” or not. This is TRUE Financial freedom, and TRUE Time freedom, as well.
FIVE Major Types of MLM Compensations Plans:
There are many different varieties of compensation plans out there. They often have exotic names. But they tend to be variations on the four major types of compensations plans:
The Unilevel Compensation Plan:
In this plan, let’s say you recruit 25 people personally. You are said to have sponsored these people and they are in your first level. If these 25 people together sponsor a total of 7 people, your team size grows to 32 people with 7 of them on your 2nd level. If these 7 people together sponsor a total of 13 people, your team size grows to 45 people with 13 of them on your Level 3. This theoretically can go infinitely wide and deep.
Typically, you’ll see Unilevel Comp Plans paying commissions with a % per level…ie:
Level 1 = 15% commission on the sales of your 25 referrals.
Level 2 = 10% commission on the 7 referrals from the 25.
Level 3 = 5% commission on the 13 referrals from the 7.
The positive aspects of a Unilevel Plan is that it is easy to explain, and it is easy for people to grasp.
However, many unilevel plans will require you to refer a certain amount of people before you will be paid on certain levels deep…ie:
Must have 3 personal referrals before being paid 15% commission on Level 1.
Must have 5 personal referrals before being paid on Levels 1 and 2.
Must have 7 personal referrals before being paid on Levels 1, 2, and 3.
Etc, etc…There are TONS of various Unilevel plans, but are easy to identify, as they will almost always allow Unlimited Width on every level.
The Breakaway Plan:
This is the oldest and most common type of network marketing compensation plan. After meeting certain performance criteria, a distributor advances in rank and “breaks away” from his or her original sponsorship line. The original sponsor receives a percentage override on the sales of the entire breakaway organization. In a way, a stairstep breakaway plan is a unilevel plan with the flexibility to motivate distributors to perform and advance.
Its chief advantage, is that it has a good track record, is easy to modify, is accepted by regulatory agencies, and is driven by volume and performance.
The primary disadvantage of this plan is that it is sometimes so complicated that it’s difficult to explain to new recruits. Another disadvantage is that if the company does not monitor its distributors, they tend to get involved in inventory loading. And sometimes, there is an unreasonably high ongoing monthly personal purchase volume requirement.
Nevertheless, the stairstep breakaway plan remains the most used plan out there.
The Matrix Plan:
This plan looks like a grid in which a distributor is limited to a certain number of recruits at each level. For example, in a 3-by-5 matrix, each level down to five can have only three downline distributors.
This type of plan is sometimes considered to be more gimmicky than others. Why? Because due to the width limitations, new recruits may find themselves placed underneath upline distributors who did not directly recruit them. In a three-wide matrix, for instance, the fourth distributor you personally sponsor would be placed under one of the first three distributors you personally sponsored (your first-level distributors).
This automatic filling of spots in the matrix can be attractive to novice distributors if they sign on with strong leaders who help fill their grids. Also, it works well in companies where most of the products are used by the distributors, rather than sold to outside consumers.
Matrix plans have been subjected to attacks by regulatory agencies because they sometimes look like “a game.” By and large, they have not had a successful record in the industry, and they foster nonproducers. Nevertheless, several major companies operate matrix plans. Only time will tell whether these plans are here to stay.
The Binary Plan:
The binary plan is the newest on the scene. In a binary plan, a distributor is allowed to occupy one or more “business centers,” each limited to two downline legs. Compensation is paid on group volume of the downline legs rather than a percentage of sales of multiple levels of distributors. In other words, payment is volume driven rather than level driven. Sales volume must be balanced in the two legs to be eligible for commissions, which are paid at designated points when target levels of group sales are achieved. The distributor may occupy multiple positions and may re-enter or loop below other two leg matrices in which he or she has been active. There is no depth limit on payment but each matrix has a finite amount that can be paid out, thus necessitating involvement in multiple two leg matrices. Payment in binaries is often on a weekly basis.
Proponents of binaries cite several advantages. Since it is a series of two leg matrices, it is simple to explain. Group cooperation is promoted because payout is on group volume and requires balancing of volume in each leg to be eligible for payout. Some call it more democratic because of the limitation on payout in each matrix, and the allowance of looping or re-entry.
On the other hand, the binary is the most controversial of plans. The binary had its unfortunate origins in the early 1990s in fraudulent gold coin programs, and its use later for other questionable products did not help. Those subsequent products were generally high-ticket one-time purchases such as consumer service or travel memberships, travel certificates or overpriced prepaid phone cards. By the end of the 1990s, and after many legal challenges, the binary was not in great favor, and only companies like USANA, that had applied the concept to consumables, seemed to be around.
Critics charged that the implementation of binary plans brought on legal and business problems. Companies and distributors tended to promote the plan rather than the product, creating accusations of a “money game.” Often plans had a one-time sale requirement which created a something-for-nothing atmosphere and appearance of payment for headhunting recruitment. The multiple business center approach was often presented as a “purchase of a business center,” an “investment,” or a “front-load” of product. The ability to stack personal business centers also created the possibility of front-loading. The required balancing of sales volume between legs meant that hard work might yield no payoff and income would be forfeited, because personal production did not count if balanced sales volume did not occur. Finally, the multiple re-entry or looping created a “game-like” atmosphere in which an individual could end up in the downline of someone he or she had sponsored. For the distributor looking long term at a distributorship that might be sold, this “looping” also made it virtually impossible to place a value on a distributorship because no continuous downline genealogy could exist.
The Australian Two Up Plan:
This plan was supposedly started in Australia, hence the name. This plan requires that the first two people you sponsor be passed (or given up) to your sponsor. Every person you recruit after your first two will of course go into your downline, and then it works the same for you, where each of your kept referrals will now pass their first two people up to you.
There are lots of companies using a two up (or a version of it), these days. For this type of compensations plan to work well, everyone in your group will need to be good at recruiting. It can lead to “fixing” in the people given up, which can cause some dead wood for those receiving the “up’d” members who will never perform well, as people are known to delay recruiting their best performers until they have met the Two Up requirement.
Again, this compensation is plan has LOTS of variety to it, but is still identifiable by the “Giving UP of referrals”…sometimes it’s your first & third referrals, or 2nd & 4th referrals…However the play on it, it is still basically an Australian Two Up plan, and most people will FAIL with this type of plan unless you can refer many people.
3 Keys to finding a good Network Marketing company
1) The Company:
Most companies FAIL within 12 to 18 months…So, it’s a good idea to pick a network marketing company that has been around for AT LEAST two years. Also, pick a company that is doing LESS THAN $500 Million per year…Anything over 500 Million, you’ll more than likely run into SATURATION…meaning, everyone and their dog has already been approached about said company, and they don’t want to hear about it anymore. Also look for ‘good’ company support (do they answer your support tickets in a timely manner? etc…).
2) The Products:
Most customers want a little variety to pick from, so if your “Liquid Vitamin Drink” is the ONLY product you have, GOOD LUCK! It’s EASY for people to say “NO” when only one option…BUT, give them a catalog of options, it’s MUCH easier for people to find at least one thing they like. Another thing to consider about products is: Digital vs Shippable products. This feature is generally just a matter of “taste”…BUT, companies with digital products usually are able to share more of their profits with their Associates because they don’t have the EXPENSE of producing, packaging, handling, and shipping. This can mean the compensation plans may be MUCH MORE lucrative with companies that have digital products.
3) The Compensation Plan:
It’s important that you are able to LEARN & be able to explain the compensation plan to others. It’s also important that you and your referrals are able to make money quickly and easily…So, stay away from qualifying comp plans that are difficult to achieve…ie: No commission until you refer a certain amount of people, etc…
- At Least two years old.
- Under $500 million a year, to reduce saturation issues, and allow PLENTY of growth opportunities for YOU and your referrals.
- Easy Compensation Plan, that can be easily explained & grasped by your future referrals.
Tips for Success
- Get Focused, and Stay Focused: To be successful at networking takes WORK. So, get to work, and stay at work. Keep in mind that the most Successful networkers say they were with the same company for 3 to 5 years before the Change Of Life checks starting coming in. Always keep that in mind: 3 To 5 Years of Focused Work is what is necessary for Life Changing Results.
- You can NOT grow your network marketing business unless you are SHARING the opportunity. Share your Opportunity…that’s the ONLY way that it will Grow. And, DO NOT pre-judge who you think will be interested and who won’t. You NEVER know where your super-star referrals are going to come from, so SHARE your opportunity with EVERYONE!!!
- LEARN your business. Know the ins & outs of your program. Know what to say with all the usual objections. If you don’t know something that is asked, then Be SURE to ask your upline/sponsor about it. Remember, the better you know your program, the more confidence you will have when sharing it with others, and that will turn into MORE conversions.
- It’s ALL about the numbers. Be sure to track the amount of “No’s” you hear. You want to aim for 5,000 “No’s”….Yes, that’s FIVE THOUDSAND! By the time you hear that many No’s, you will be very successful, especially if you follow the 3 tips above. By the time you reach 100 “No’s” you will know the exact answer to every objections, you will be filled with confidence in your program, you will be sharing the program enough times to be seeing results. You are ON Your Way!!!
Thanks for reading this eReport. I hope this has given you a better idea of the Network Marketing Industry, and how to succeed in it.
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