Network marketing (or multi-level marketing), is a business model where a company can distribute a product direct through a distributor network to consumers.
Network marketing has been touted as an amazing opportunity for the masses, and their supporters can sometimes border on fanatical. Network marketing has also been criticized for some of the unsavory marketing techniques and methods that are taught to distributors.
In this articles, I will provide an unbiased review of the pros and cons of developing or participating in a network marketing business, and see if network marketing is a great business opportunity…or a great scam.
Network Marketing – The Good
In order to participate a network marketing business, you first have to pay. This is a standard franchise model, but the difference is that to get started in a regular franchise is drastically more expensive than any network marketing business.
Compensation is usually distributed in one of the following plans:
Matrix – limit the width of each level in a distributor’s group, forcing strong distributors to pile (“spillover”) their recruits over people who did not sponsor them.
Binary – limit the width of each level to two legs. Commissions are based on “cycles,” where a distributor is paid a fixed amount whenever both legs achieve a certain number of sales units each. Commissions are paid incrementally when the sales volume in each leg matches.
Elevator – features a board or a list on which each distributor pays in one or more product units to participate. When a certain number of units have been paid in, the structure splits and the earlier participant receives consideration.
Unilevel or Stairstep Breakaway – plans are the oldest and most popular. They feature two types of distributors — managers and non-managers — and three types of pay:
* Baseshop overrides are overrides (commissions) paid to managers by their subordinate non-managers, collectively called a baseshop. This is the same as any other sales organization.
* Generational overrides are overrides of managers from the baseshop of managers who were previously their subordinate. Most plans compensate at least three generations of such managers.
* Executive bonuses are commissions for managers who exceed a sales quota. For example, 1% of the total company sales revenue may go to a bonus pool that is shared monthly pro rata to managers who exceed $20,000 in that month.