Network Marketing: The Truths and Myths of MLM Explained

Launch Your Online Business in Just 7 Days

1. What is Network Marketing?

Have you ever had a friend or family member try to sell you something?

I know I have!

They might’ve even coaxed you into promoting the product yourself.

This is a common business model called network marketing.

For this type of practice to be successful, you need a host of people who are enthusiastic about the product.

They would then try to sell it to others and earn a commission or get others to sell the product and take a cut of that person’s commission.

Sounds a bit complicated?

Okay, let’s delve a little deeper.

1.1. How Does it Work?

Network marketing can be broken down into three levels.

● Single-tier

In this model, you would sign up to sell products or services for a company.

This can be done by registering for their affiliate program.

Thereafter you use your skills and contacts to market the item and make a sale.

Once you do, you get paid the agreed commission.

It’s pretty simple to understand and a great way to generate an income from home.

An example of a single-tier marketing platform is the cosmetics brand, Avon.

● Two-tier

With the two-tier strategy, you still earn through direct sales but you also cash in on revenue generated by someone you recommended.

That’s right, if you get someone to start selling products or services then you make money off their money.

It’s not a lot at first, but it could be depending on how many people you recruit.

Also, be wary of the fine print. Some companies pay you a percentage of your recruit’s sales while others pay a percentage of the new hire’s earnings.

● Multi-level

When there’s more than two-tiers in the network, it’s called Multi-level marketing (MLM).

You could have up to five tiers.

MLM has become synonymous with network marketing and there are a number of companies using this model.

1.2. How Does it Actually Work?

The concept of network marketing is fairly straightforward but there are some other things you need to be aware of.

A few months ago I was approached by a Facebook friend with a supposedly great opportunity to sell facial cleansing devices.

So I proceeded to find out what it entailed, thinking I could make a quick buck on the side.

Well, that didn’t turn out too well.

Firstly, I was asked to pay a joining fee. Then I needed to buy the products from the company (at a discounted rate) and sell them to others to make a profit.

And then, to add insult to injury, a percentage of that profit goes to the person who initially signed me up.

Now I understand this is how network marketing works and that some people go on to make a truckload of money.

But it just seemed like I would be spending a lot before I made any.

Bear in mind, this was my experience and you might find a company with minimal start-up costs.

I just wanted to give you the details that are sometimes missing from those enticing pitches.

1.3. Is Network Marketing Successful?

This is a difficult one to answer. With any business, success or failure depends on sales.

It’s the same with network marketing.

If you have good marketers who know the product well, you’re set to make it big.

However, if the focus is just on getting more recruits and getting them to buy products, then there’s no new money coming in.

According to Statista, global retail sales of MLM approximated $180.5 billion in 2019 and it’s set to increase in the coming years.

2. Examples of MLM companies

To see this business model in action, let's look at the top MLM companies.

Almost all of them have been sued at one point, but that doesn’t mean they aren’t raking in the cash.

2.1. Amway $8.8 billion

Amway logo

Amway, the most successful MLM company deals in health, beauty, and home care products. Founded in 1959 this business now has branches all over the world.

To start selling Amway products you’ll need to contact a sales representative or Independent Business Owner (IBO) and follow the sign-up process.

An annual fee of less than $100 is required.

According to Amway’s website, this fee is fully refundable within 60-180 days of paying.

2.2. Herbalife $4.5 billion

Herbalife logo

You probably remember Herbalife because of their famous brand ambassador Cristiano Ronaldo.

This nutrition and supplement company was founded in 1980 and has since gone global.

Selling their products requires a $60 joining fee, which comes with a 25% discount on products you buy.

Each Herbalife product is assigned a volume value, e.g. the Nutritional Shake Mix gets you 23.95 volume points.

To start recruiting other marketers, or a downline as they’re called, you’ll need to earn 500 volume points a month.

2.3. Mary Kay $3.5 billion

Mary Kay logo

Mary Kay Ash said, “A company is only as good as the people it keeps”.

With this in mind, it’s easy to see why she founded one of the biggest makeup brands the world has ever known.

Network marketers for this company are called beauty consultants since they also offer free makeup tutorials.

Although the company was founded in 1963, they’ve been quick to jump into the online market and sell through e-commerce stores.

To become a consultant you purchase a $100 starter kit and earn a 50% gross profit on products sold.

However, you only receive this amount if you’re making more than $400 worth of sales a month.

There are also some additional fees required to set up your website and print business cards.

3. 5 Common Myths about MLM

Multi-level marketing has received its fair share of bad publicity.

I remember back in 2013 pyramid schemes were popping up everywhere and many MLM companies’ legitimacies were looked into.

Let’s debunk some of the myths surrounding this business model.

3.1. Only Those at the Top Make Money

This one is true and untrue depending on your definition of the top.

In all businesses, the owners or CEOs make more money than other employees.

But this doesn't mean that people who start this venture will always earn less than people who joined before them.

Network marketing is about sales.

If you put in more effort and sell a heap of products then you’ll probably make lots of money.

3.2. They are Pyramid Schemes

Pyramid schemes are illegal and provide no actual product.

Your earning potential is based on the number of recruits you get.

Network marketing focuses on selling products using a large and passionate sales team.

These companies also abide by laws such as offering refund options and publishing average income stats.

It’s true the business model does form the shape of a pyramid (as does most organizations’) but it’s definitely not a pyramid scheme.

3.3. It Doesn’t Work

Again, this strategy can be really successful.

But the business model has nothing to do with it.

It’s all about the effort you put into marketing the product.

Also, note the large revenue generated by some of the top MLM companies that we mentioned earlier.

3.4. You’ll Never Get Rich

Empty wallet

Well, it isn’t a get rich quick scheme.

It’s a job for people to earn a full time or part-time income.

Some people can make it big if they’re good marketers but again it depends completely on the person and the product.

Getting rich can mean different things to different people.

Some equate wealth with being able to pay your bills.

I mean if you’re really trying to make it onto Forbes richest list, you might want to consider creating your own product.

3.5. The Program will Get Saturated

This myth is actually a partial truth in my opinion.

You see, while the program will never be fully saturated since new people are born each second, the market can still become overcrowded.

I know the usual response to this is, everyone has a refrigerator yet people still manufacture more and it’s a viable business.

But fridges are not people, they break down after a few years.

People on the other hand have long lifespans.

So even though people are born all the time, it's going to be difficult to sell a product if three quatres of your neighborhood are also selling it.

4. Pros and Cons of MLM

If you’re thinking about getting started with your own MLM business, here are some things you might want to consider:

Pros

Easy to get started

Flexible hours - work from home

Determine your income

Mentorship and training

Cons

Saturation - there could be many reps in your area

Lots of scams

Determine your income

Mentorship and training

5. Tips for successful Network Marketing

After weighing up the pros and cons, you can decide whether you want to proceed.

If you find a worthy product, here are some methods you can use to generate sales.

● Locate your target market

Not everyone will find your product appealing. Instead of trying to sell to anyone who will listen, go out, and find people who are likely to purchase.

● Lead magnet

Offer potential customers (leads) something to sweeten the deal.

For example, giving out free samples is a great way to get more sales.

● Mentor your recruits

Teach and motivate your downline instead of seeing them as a way to make more money.

If they are excited to sell then you’ll automatically earn more.

● Stand out from the crowd

There are many people selling the same product as you.

Offer a better service or even your own reward program to get loyal customers.

6. How to Spot a Network Marketing Scam

Some people are pretty convincing so you might find it difficult to spot the scams.

Here are some tips to save you from a nasty situation.

Don’t pay more than $100 starting fee
Walk away if the focus is more on you recruiting others rather than making sales
Read reviews from past employees
Research the company and the founders’ track records
Ask to see the average income stats of current employees
Make sure the products are refundable