Many consumers only know network marketing from negative advertising. Critics warn against this sales model and often even equate it with the dubious pyramid scheme, which is of course inapplicable. However, if you want to earn money with network marketing, you should take a close look at the provider. Because these companies differ greatly in terms of compensation plans and employee requirements.
What is Network Marketing?
According to aviationopedia.com, network marketing is also called multi-level marketing (MLM) or structure sales. In contrast to classic direct sales, in which the entrepreneur sells his goods through employed field staff, in network marketing some of these customers also become network marketers. They also generate sales and commissions. MLM is often operated as a part-time job, but also as a main activity. Many network marketers are non-professionals. As a rule, only a few of them manage to ascend to one of the upper levels of the pyramid-shaped distribution system.
Network marketing is a modern form of recommendation marketing : the satisfied customer recommends the product and sells it to other consumers. Some of these then also become sales employees. In this way, the entire sales organization grows very quickly and the company can sell its product without any major marketing effort. Network marketing was also discovered in the USA: companies let their employees work on an independent basis. Multi-level marketing firms have many levels of sales. In terms of structure, they resemble a pyramid with many employees at the base and only a few at the top. However, referral marketing should not be confused with affiliate marketing
Companies that organize their sales as network marketing have nothing to do with the infamous pyramid scheme. With the latter, all those involved only have to win new prospects for the company in order to earn money. The pyramid scheme is not about selling products. The problem is that most of these illegal speedball systems pretend to be MLM companies and thus contribute to the damage to the image of network marketing. The legal basis of multi-level marketing is Section 3 Paragraph 3 UWG No. 14 of the Appendix: Business operations may not serve solely or primarily to attract new employees. The legal MLM company does not lure its customers with high premiums for attracting new salespeople. The focus of his activity is product sales.
How does network marketing work?
The word network in network marketing means that the salesperson is networking in his personal environment, i.e. generating customers and new employees. This is done through recommendation marketing. The hierarchies in MLM companies are flat: Employees at the next higher sales level have no authority over those at the lower level. However, you are obliged to incorporate them.
The task of the network marketer is to sell the products purchased by the company at the purchase price for an additional charge. Depending on the product category, the trade margin is 20 to 50 percent of the purchase price. Some network marketing companies offer services instead of products. Another area of responsibility of the sales partners is the acquisition of further network marketers. From the sales of each new employee, they receive the previously agreed commission. The network marketer enjoys the advantages of being self-employed .
In return, however, he also bears the full entrepreneurial risk : If he is not so active, this soon becomes noticeable with lower sales figures and poorer remuneration. This takes place according to a certain plan: The salesperson receives part of the total sales commission. The employee who once recruited him receives a performance-related commission based on the sales of this seller .
In some MLM companies, the recruiter must be at least one commission level above this seller. If the seller wants to move up to the next higher sales level, he has to generate a weekly, monthly or semi-annual minimum turnover, depending on the company. Experience has shown that he only earns money when he has several customers and employees in his downline (lower levels). If these are very active, he can soon earn money on other levels. In order to achieve an average income with network marketing, one should plan at least the working hours of a full-time job.
Advantages and disadvantages of network marketing
People who want to work in MLM are required to make an initial investment: they buy a certain number of products at wholesale price. How high this initial financial expense is depends on the goods to be sold and the terms and conditions of the MLM company. The network marketer works freely and does not have to adhere to any working hours. He can usually integrate private appointments well into everyday business life. The salespeople can conduct sales calls at home, on the go and with potential customers. Salespeople with experience in marketing draw up a business plan and take a strategic approach to acquisition. In this way, you ensure that you acquire more customers and new salespeople with less effort.
Another advantage of multilevel marketing is that newcomers do not need professional training in sales and marketing. However, if you have this, you will start under better conditions. All new employees receive in-house training that relates to information about the product, the company, the standardized sales guidelines and the use of the required forms. Personality training helps to strengthen motivation . These training courses are usually carried out by salespeople at the upper levels. However, to sell certain products such as dietary supplements, software and insurance, you need training that the company does not pay for.
A major disadvantage of structural sales is that the marketer has to calculate a lot of work and time until he realizes his first sales. This is also the reason why many new salespeople give up network marketing quickly: For them it is too exhausting to have to win new customers and employees in almost every day-to-day situation. Even later, they always have to ensure that they sell enough goods and recruit new salespeople. This is only possible with a high level of personal commitment, perseverance and the appropriate motivation. The strong pressure to succeed can be emotionally stressful for people. Sometimes the company itself also exerts extreme pressure on its employees. It becomes particularly problematic if, for example, you work for a company that makes a product that is too expensive or one with little added value. Then this is difficult to remove. That the sales rep does not receive a fixed salary , also has a deterrent effect on some interested parties.
Network marketing also has to struggle with image problems because it is often wrongly associated with pyramid schemes. Since the boundaries to this dubious form of distribution are fluid, you should first find out more about the company. Refrain from advertisements that promise income of 5,000 euros per month. You would only earn this sum on one of the upper levels. Also watch out for hidden costs(Advanced training, learning materials) and that the initial investment is affordable for you. Business risks also include the fact that you involve your family and acquaintances first in your new sales activity. If something doesn’t go as planned, it can create tension in your personal relationships. Later on, there is a risk that employees will leave your downline and you will miss out on commissions. Therefore, you have to invest part of your working time in motivating the next lowest sales representative.
Which companies use network marketing?
The best-known companies that run their sales organization based on the network marketing model in this country include:
- Ergo Direkt, Deutsche Vermögensberatung (financial services)
- AVON, The Body Shop (body care, cosmetics)
- Vileda HOME (household items)
The service provider promotes its independent salespeople according to a fixed career plan. There are six levels in its operational hierarchy . If you want to be promoted as a representative (level 1) to a senior representative (level 2), you have to generate a minimum turnover of 500 units. One unit corresponds to a turnover of 500 euros. To get 88 units, for example, you sell insurance with a term of 30 years and a monthly premium of 100 euros. If you have passed this first career hurdle, you will still receive bonuses. The largest part of the compensation for the Ergo Pro is distributed above level 1. The reason: There are costs for looking after the employees, for familiarization, advanced training and for maintaining the offices.
Assessment of merit
Basically, you can only get rich if you climb the upper levels. And only very few salespeople manage that. How high their actual income is can only be estimated. Because most MLM companies do not publish their business figures. A large part of the employees on the lowest level can at best generate an additional income with the MLM. What income is possible depends on the conditions of the respective compensation plan and your personal requirements: If you know a lot of people, are you communicative, highly motivated, persistent and willing to work a lot, you can use the right product and a well-thought-out scheduling and Sales strategy earn good money with network marketing.
Network marketing offers companies many advantages. Your salespeople assume the business risk and need to be active at all times. The company itself incurs only low advertising costs because the majority of marketing is done by the sales force. With the right career plan and the necessary individual requirements, however, network marketers have a good chance of advancing their careers. Anyone who starts MLM as a part-time job can test whether it is suitable for them as a main job.