Network marketing: what it is, how it works, and how to make money with it

Network marketing is a sales system used by various companies, professionals, online shops and individuals to make money or expand their business. It involves direct selling of products or services by a network of independent salespeople. These people earn a commission on sales, and can also build their own network of distributors and earn a further percentage on sales through them.

In certain cases this business model is associated with illegal and fraudulent operations and pyramid schemes, but, assuming all rules and laws are complied with, network marketing is completely legal in the UK. There are several safe networks that are trusted by many people, and which allow them to earn a percentage on every item they sell.

In this article we will define what network marketing is, how it works, its advantages and disadvantages and some suggestions for those embarking on this career path.

What is network marketing?

Network marketing, also known as multi-level marketing (MLM), is a business model based on a network of independent distributors who sell products or services from a certain brand to their network of acquaintances or contacts, both close (e.g. friends and family) and distant.

It is therefore a decentralised system: instead of hiring its own sales staff, the parent company relies on a network of people to promote and ultimately sell its products, encouraged by the potential to earn a commission on their sales.

This system sometimes involves the seller buying products wholesale from the brand, creating what is essentially a distribution system that allows anyone to turn from consumer to seller following an initial period of training. There are companies using this system in many product sectors, including manufacturers of beauty products, make-up, clothing and household items.

There are two different ways sellers can make money:

• Selling direct to clients and earning a commission;

• Recruiting other sellers to build a network, from which they then earn a percentage commission of their sales.

This is where the major differences between network marketing and an illegal pyramid scheme become apparent. Here’s a brief rundown:

• The main aim of network marketing is to sell products and services: sellers’ revenue is calculated based on the number of sales they make, as set out in a contract. Members should not have to pay to become affiliated with a network of sellers: in some cases the seller has to buy a starter kit, but that should be as far as it goes.

• Pyramid schemes, meanwhile, are not based on sales, but instead involve recruiting people to expand the network of sellers, with fraudulent aims. People are always asked for an initial cash investment. Ultimately, it is only those at the top of the network who make any money, which is why the practice is completely illegal.

UK laws prevent businesses from launching sales systems that promise earnings for people purely on the basis of recruiting other sellers.

Once you’ve understood these important differences, before delving into this sector it is vital that you do your research to ensure that the company selling the products has a solid structure in place that will enable you to make a decent profit from the commissions paid out.

How network marketing works

This business model begins with a business that has products or services to sell, which are typically not distributed through physical shops, but instead shown to potential sellers through catalogues or other electronic systems. The business then looks for its first sellers, who then have the opportunity to create a network comprising various levels of other sellers who are interested in selling the same products or services.

The buyers tend to be colleagues, friends or family members, making selling through network marketing an organic process, although definitely suited to proactive people with an aptitude for sales and good powers of persuasion. The commissions tend to be established in the parent company’s official marketing plan.

The selling can be done in various ways, using a range of techniques and in different contexts:

• Through word of mouth via a small circle of acquaintances;
• Through in-person home sales meetings;
• On the internet, using a blog that focuses on the products to be sold;
• (Increasingly frequently) through social networks or digital platforms.

The internet has made network marketing much more widespread, vastly increasing its popularity, particularly on social networks like Facebook and Instagram. From ads sites to more complex e-commerce systems, this business model is now found everywhere.

In some cases, businesses also offer bonuses and incentives to sellers who reach certain targets. These could be for selling a certain quantity of products in a month, or recruiting a good number of affiliates to their network.

To make a decent living, the seller must genuinely appreciate the products they are selling, as this passion will rub off on their customers and network.

The advantages and disadvantages of network marketing

This system offers advantages and disadvantages in equal measure. While on the one hand it gives sellers a great deal of freedom, on the other hand the best opportunities for growth are only available to those with a lot of time to dedicate to training.

The benefits include:

• Great flexibility: unlike many traditional jobs, sellers are not employees, and can work from home or from anywhere with an internet connection.

• Support and training: the most respectable companies using this sales system often train their sellers, and offer various resources and tools to help increase sales.

• Development: direct sales can undoubtedly help people develop their communication, leadership and persuasion skills, which will serve them well in other roles they take on in the future.

Some of the drawbacks are:

• Difficulty selling: selling products or services through network marketing is not always straightforward. Many consumers are wary of the system, and sellers do not always know the product they are selling well enough.

• Organisational challenges: managing sales with this sort of system often requires excellent organisational skills. Sellers must often manage their network, keep track of commissions and much more besides.

• Limited support: in some cases, parent companies do not provide their sellers with adequate support. The training might be insufficient, or there may not be enough marketing and technical tools available to drive sales.

How to make money with network marketing

When embarking on this type of venture, there are some rules and practical considerations to bear in mind to maximise your chances of making a decent living.

Here are some tips for earning money with network marketing:

• Choose the right products: the first step to take is to ensure the parent company is a respectable business, by searching for it on Trustpilot, Google or other specialist websites. As an aspiring seller, you should test out the products, or at least some of them, in person, so you have a better understanding of what you will be offering to your potential clients.

• Adopt the right marketing strategy: before you start promoting your products, you need to work out who your ideal customers are. It’s worth doing a small amount of market research to find out consumers’ specific needs. Then you need to choose the right promotional channels, including social media, online or offline advertising and email marketing.

• Build a sales network: once you have secured the right products, you need to draw up a list of people you could sell to. You could start with those closest to you, and then expand to a wider audience using the web or social media. This system will also help you find others keen on selling similar products. As well as creating relationships of trust, it is vital you offer your potential sales network attractive commission plans, if possible already confirmed in writing with the parent company.

Companies that use network marketing

Several businesses that use network marketing for their sales have become household names. Here are a couple of examples of successful brands:

• Avon: an American company, founded in 1886, that sells cosmetics, perfume and jewellery. It started off life as a direct sales and mail-order business, before joining the world of e-commerce. You can still become an Avon rep, with most work carried out online, where you share the brand’s products and sell them through dropshipping.

• Herbalife: another American business, this time operating in the diet foods and supplements sector. It was founded in 1980, and now has a flash online shop selling its own products directly. However, you can still become an independent Herbalife rep.

In conclusion, a network marketing business can generate decent revenue, but you definitely have to invest a lot of time in it and have excellent sales skills, which tend to come with experience. The most important thing is always to trust the right companies, choose products that match your personality, create a strong sales network and think long term, so you can access better earnings as time progresses.