You must have heard about the Network marketing business. Several opinions have been cited for this business. Some people believe, there is nothing like a network marketing business and it is just a scam.
While others have managed to earn handsome profits from the network marketing business. So, if you want to know about the network marketing business and how it works, this blog is for you.
We have covered different aspects like what is network marketing business, how does it work, advantages associated with network marketing, and everything you should know about network marketing.
People are not clear with what is network marketing. So, beginning with the same.
What is network marketing?
Network marketing can be interchangeably used with the term MLM. MLM stands for Multi-level marketing. The primary motive of network marketing is to sell the products directly to the consumers who need them.
It cuts the role of middlemen and sells the products to the customers at fair prices. The network marketing business model is different from normal businesses. Usually, the business manufactures the products and then looks for wholesalers, retailers to sell their product.
But network marketing business has another strategy. A network of distributors is created, who start as the customers.
If you are planning to start a business with low investment, then network marketing business is for you. This is a great way of making customers by spending minimum on marketing. You don’t even require paid workforce for the same.
You can start this business from your home and earn lucrative profits. The reason why it is called a multi-level marketing business is there are multiple levels of distribution. And the chain goes on.
In the business language, a person forms a downline by word of mouth to further sell the product. In the network marketing business, the aim of the salesman is not to just sell the products but also expect the customer to continue the chain. This is how they develop a network and the business is called network marketing business.
Do you know why MLM business is called direct selling business?
Direct selling cuts the role of middlemen. The products and services are sold directly to the customers. It is beyond the traditional method (manufacturer-distributor-wholesaler-retailer-customer) of selling products. In this method, companies deal directly with the customers.
In a network marketing business, one person sells the product to a customer and then asks him to continue the chain. The customer who purchases products does not continue the chain for free. It runs on commissions.
When the customer manages to sell the product or service, he receives a commission on the sale he made. In the whole scenario, the person dealt directly with the customer and not with a wholesaler or retailer. This is why a network marketing business is also called direct selling.
You can also form a team of happy customers. These happy customers can further sell the products of the company. In this method, the company does not spend on traditional advertising methods like distributing pamphlets or other advertising forms. The customer is paid for convincing others to buy the products.
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How does network marketing business work?
The next question that must be striking in your mind is – How does it work? Here we go with the answer.
In the multi-level marketing business, companies hunt for the people who are ready to sell their products or who are passionate about pursuing network marketing business.
As we already mentioned, the network marketing business does not work on a paid manpower. Instead, the company offers its products to these people at discounted prices and urges them to sell and earn.
The amount that team members generated from the sales goes into the pocket of the member who sold the product. If the customer gets well-versed, he buys more products to increase his income.
The whole strategy is to sell the products or services and prompt the purchaser to build a downline of the people who can continue the chain. The company encourages them to sell the product and make more customers. In return, they receive a small percentage from each sale made by the members of their respective downlines.
The network building goes on. Like it starts from the primary distributors, and every individual is expected to build their downline and the chain keeps growing. It is also known as referral marketing as these recruits are referred to the company through primary distributors.
So, the work is to find enthusiasts who are willing to purchase these products and continue the chain. The earning strategy of the people involved in this chain is- they earn through the sales they make and their downline members make.
Now the question is, how does the company earn. The company earns from the sale of their products. The sale that goes on. The company manages to earn heavy profits without investing in marketing. Marketing is expensive and by adopting this business a company can cut the cost of marketing.
Is network marketing a Pyramid scheme?
The marketing model of the MLM business looks like a pyramid. The company is placed on the top, primary distributors in the second row, and other members in third and it goes on.
Although, the model looks like a pyramid in the legal sense it is not a pyramid scheme. It is called pyramid selling, but it is not a pyramid scheme. The concept of the pyramid scheme is different from the concept of MLM business.
One of the basic differences between a pyramid scheme and multi-level marketing is that a pyramid scheme is not legal while network marketing is legal. A pyramid scheme is established with the motive of allowing the company to scam the distributors and arrogate their money.
Although both of them aim at developing networks, the pyramid scheme uses the network to grab money illegally while network marketing provides a fair chance to recruits to generate income.
Network marketing runs on legit products while a pyramid scheme is a scam. Nowadays, people are running a pyramid scheme in the name of a network marketing business. You should understand the difference between the two.
People who are forwarding the pyramid scheme ask their distributors to pay registration fees, while network marketing business never does that. One of the most important differences is- if a person fails to sell the products and wishes to return these products MLM companies buy them back for a percentage of the amount distributor originally paid.
But under the pyramid scheme, there is no such option. The products they sold to the distributors are final.
You can distinguish between them both. As pyramid scheme starts with an objective of earning money and they prefer recruits over sales. While an MLM business aims at increasing sales and not the number of recruits.
Shall I go for Network Marketing Business?
If you are a laborious enthusiast with exceptionally amazing communication and convincing skills, then network marketing business is a perfect choice for you. Like any other business, network marketing business also needs efforts. You can earn but for that, you have to work hard.
People make MLM business their second job. As network marketing business is not time-consuming. You can manage other activities along with working for a network marketing company. As we said, you can do this business from home as well.
So, if you can convince people and make sales, then the network marketing business is the right choice for you.
Basic Guidelines of Government on Network Marketing Business
To protect the customers who purchase products from the companies involved in the network marketing business, the following guidelines are issued with the approval of the Competent Authority.
1. Important definitions-
- Direct Selling– The term direct selling refers to selling the products directly to the end-user. It cuts the role of middlemen and the products are sold to the customers by using traditional marketing strategies like word of mouth, distributing pamphlets, etc. These companies can set delivery points and pick-up points for the products.
- Direct Selling Entity- It is a type of business entity that is recognized by law for the time being in force including but not limited to a Company that is incorporated under the Indian Companies Act. This is not illegal, as it is duly recognized by the law as a registered Partnership Firm.
- Direct Seller- The person who is authorized by the direct selling entity to get involved in the direct selling business.
- Consumer- A consumer is a person who purchases the products for personal use and not to resell or use it as a raw material for manufacturing a product.
- Goods or Products- It includes all kinds of moveable property other than actionable claims and money. The same meaning as defined in the Sale of Goods Act and section 3(26) of the General Clauses Act, 1897.
- Sales Incentive- Sale incentive refers to the share of profit payable to the direct seller for making the sale of products as per the contract. Before the business starts, an amount is decided and is duly mentioned in the contract.
- Conditions for Permissible Direct Selling- Should have a bank account with at least one nationalized bank.
- Should have Memorandum of Association, that should reveal the objectives and nature of the business.
- Should be a direct selling entity, having GST No., TDS and other licenses, income tax.
- Should pay the sales incentive on time at the decided rate without fail.
- Should reveal the names and identification number of their direct sellers on the official website of the company.
- Should have a consumer grievance cell that should cater to the problems of the consumers within 7 days from the date of making a complaint.
- Should have a user-friendly website that allows consumers to express their opinions and file their complaints conveniently.
- Direct selling entity should appoint their members or direct sellers upon the receipt and scrutiny of application in a prescribed format.
- The direct selling entity should design an agreement that keeps the record of appointments exercised between the direct seller and the direct seller entity.
- The application should get considered only when the applicant is eligible to enter into the contract under the Indian Contract Act.
- The direct seller should get a Unique Identification Number before getting a license to start direct selling.
- No person should receive incentives on joining the direct selling entity.
- Direct selling entity must not get involved in money circulation scheme or any act restricted by Prize Chits and Money Circulation Scheme (Banning) Act, 1978.
- Payment of incentive is unrelated to their sales volume.
- Goods should be supplied with the knowledge that such goods are inferior or exceeded their validity period as per the manufacturer.
4. General Conditions-
- Make sure the MRP of the goods is mentioned on the package.
- Sales incentives should be given to the direct seller on or before the due date. Avoid delaying.
- Make sure that the account of each direct seller is prepared properly and is available through World Wide Web.
- Goods that are sold by a direct selling entity should carry a guarantee card by the manufacturer.
- The consumer should be provided with an opportunity to return the product if it turns out to be defective or doesn’t serve his purpose within 30 days of purchase, provided that the seal of the product is not harmed.
5. Information Readiness-
A direct selling entity should have relevant documents. The list of documents is as follows-
- Certificate issued by Registrar of Companies, MOA, and MOM
- Photocopy of GST, DIN (Director Identification Number), TAN, PAN.
- Certificate of GST Registrations
- Copies of all GST Return filed with authorities
- TDS statements of distributors and respective challans paid.
- Copies of IT Returns of the company filed with the relevant authority.
- The company should maintain KYC/KYDS as a mandatory process.
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6. Grievance Redressal Process-
Direct selling entity must have a consumer grievance redressal mechanism. It should take the complaints of the consumer in an organized manner and provide solutions within a decent period. The company should value the customers and his words.
7. Breach of Guidelines-
If a company that claims to direct selling entity but does not consider following the above-mentioned guidelines shall not be considered a direct selling entity in the eyes of law and should remain prepared to bear the legal repercussions.
Is it a fraud?
Do you also think, that network marketing is a scam? It is a genuine proposition to perceive in that way as several companies are pursuing pyramid schemes in the name of network marketing. Firstly, network marketing is not a pyramid scheme.
A pyramid scheme is a white-collar crime. It is a money game, that prefers recruits over sales. While a network marketing business aims to earn through sales. Usually, a pyramid scheme does not deal with real products or if it has products that are just to mislead customers.
Network marketing aims to provide people with a fair chance of generating income by selling their products. But, the benefits from network marketing are directly proportional to the efforts of an individual. It runs on a rule- The more you work, the more you earn.
In a pyramid scheme, if one person earns then another person has to lose money. But this is not the case with the network marketing business. Everyone earns based on their efforts. Many companies present a network marketing business as a get-rich-quick scheme, which is not true. It takes time to deliver results.
A small discussion on what is network marketing. Network marketing is a serious business that does not have a complicated structure. You don’t have to follow expensive marketing strategies or make sizeable efforts like other businesses. You just have to sell the products and lure other people to join the network marketing company.
The basic concept of a network marketing company can be concluded from this statement by J. Paul Getty, “I would rather make 1 percent on the efforts of 100 people than 100 percent on my efforts”. This is how it works.
A network marketing business runs in an organized manner. They work for decided hours in a week and then recruit other people to work and sell their products. Every individual keeps on creating a downline and the process goes on.
Network marketing is not a scam for sure. It has been accepted as a legal business form in the eyes of law. So, if you are planning to engage in a network marketing program, go for it. The only thing required is consistency. You have to work consistently to witness the fruit.
10 Tips to make your network marketing business successful
People scare to enter the network marketing business due to misunderstandings. A network marketing business has low success rates, but that doesn’t mean it is always destined to fail. Here we go with tips to make your network marketing business a big success.
- Find a company with the products of your choice- People get lured to the potential income they can earn from network marketing business. They forget to consider the type of products that the company is selling.
So, whenever you plan to step into the network marketing industry, make sure you like the product. You must have enough knowledge of its benefits so that you can convince other people to purchase the product and continue the chain.
You cannot give your 100% if the product is not of interest to you. Instead of focusing on what you can earn, focus on what you can give. Consider your comfort for sure. Otherwise, you will lose interest soon.
- Follow ethics- Like any other business, a network marketing business also demands ethical functioning. Make sure you are not making use of unfair practices to sell the product or convince the client. Be genuine and instead of using deception to lure the customers, explain the real scenario and persuade them to get into it only if they are liking it.
- Don’t force or pester your family members or friends- One of the key points to keep in mind, before beginning the network marketing business is to persuade and not force. Don’t annoy your family members and friends by constantly asking them to purchase your products.
They may consider it fishy. Talk to them once, ok twice and if they don’t like the product, then leave. Don’t pester them about your business. You can be successful in the network marketing business, only if you treat it like any other business. Consider what your customer wants and then sell.
- Find your target market- You cannot go to anyone and start bragging about your products. You need to identify your target market. You need to find those people who can genuinely take interest in your products.
This prevents wastage of efforts and energy. Usually, network marketers commit this mistake. They start discussing their idea with everyone, which should be avoided.
- Share your product- You need to share your product. Just like any other business, you need to share the details of your product. Either you can do it by word of mouth or by using other inexpensive marketing tricks.
You can use digital marketing techniques to promote your product. You can start a website or go on social media to let people know about your product. Promoting a network marketing business through digital marketing could be a great idea.
We, at Traffic Tail, can help you in designing the website after considering your requirements.
- Set a goal for parties- While starting a network marketing business, decide who should know about your product. It should be done in a goal-oriented manner. You should know which group can help you in achieving your goals and then move accordingly.
Remember it is a person-to-person business. Personal touch matters. Try to maintain the essence of personal touch.
- Sell the solution- Many times businesses serve as a solution to various problems. This is a great way of promoting and increasing sales. Like other businesses, you have to follow this strategy. Try to present your product as a solution to the problem of customers. You can increase sales and generate income.
- Choose the right way of marketing- Your marketing should be next level. You should choose the right way of promoting your business. Don’t forget to consider these three points- target market, what it needs, what you can offer, and how it can be found.
In the network marketing business, word of mouth works perfectly. But it should be combined with other marketing strategies for the best results.
- Outshine your competitors- No business is free of competition, so, is MLM business. You need to research and find your competition. Analyze his strategies and make your plan accordingly. If you want to outshine your competitors, you need to offer something unique or uniquely. You can start giving rewards from your side or you can introduce other offers.
- Understand your product- Don’t jump on any marketing strategy only because your competitor is using it. Understand your product and choose your strategy accordingly. Their strategy may or may not work in the case of your product.
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Investment for a Network Marketing Business
One of the most amazing benefits of a network marketing business is that you can start with a low investment. It is the least capital-intensive business. You don’t have to purchase special equipment, technology, land, or anything to start a business.
You can work from home and which cuts the rental cost as well. You don’t have to spend on manpower to run this business. You don’t have to pay for licenses or anything to run this business. The money you manage to earn from the network marketing business is profit.
All you need to do is, purchase the products and then persuade people to buy them. And even if you fail to sell these products, you can use them at home. You can begin by spending only 10-15 hours in a week.
You may require money to purchase these products from the company. It may cost you around INR 5000-10000 depending on the company you are dealing with. You can even start with less amount. All you need to do is, invest your time and efforts to generate income from a network marketing business.
So, if you want to start a business with the least investment, then this is for you. You must try your hands on network marketing business. And the gains are directly proportional to your efforts.
Advantages and Disadvantages of a network marketing business
Points you must consider before entering into the network marketing industry.
Pros of network marketing business
- You can sell products you are passionate about. As we already said, choose the product that appeals to your interest. This is how you can manage to generate income and follow your passion.
- It is a business with the least investment. So, if you have been planning for a long to start a business, a network marketing business can help you with that. You can start a business with a small investment.
- The best part of the network marketing industry is that you can work from home. You can start this business while sitting in your room. You don’t have to rent a store to run this business.
- You can get an opportunity to earn through direct sales commissions, downline commissions, and bonuses when the goals are achieved. It is a great source of earning extra income.
- You don’t have to purchase special equipment or hire manpower to start this business.
- The system is so simple. The one who sold you products or the sponsor will earn a portion of the commission from your sales. The customer will get the product he wants. Therefore, everyone gains.
Cons of network marketing business
- It doesn’t work for most people. The reason could be the lack of skills. Although, it is said you can begin a network marketing business with no skills. But the truth is you must possess extraordinary persuasive skills to start this business.
You should know how you can sell your product. Another reason could be, people lack consistency. They want results without much effort, which is not going to work here.
- It is a time-consuming business. You cannot get overnight success. You need to have the patience to witness measurable results.
- People fail to develop networks and end up selling products to friends and family members. They are not confident enough to talk to the new customer and convince them to buy the product.
- If you can’t take rejection. Then this is not your cup of tea. You have to face a lot of rejections. As many people consider it as fraud. But nothing would be appreciable if you appease them with the truth and convince them to buy your product.
- People are cautious. And to prevent themselves from scams, they resist real marketing businesses as well.
Before entering into the network marketing industry, you must analyze the pros and cons of the business and if you are ready for both then only you should step in.
- Choosing the right company is the key to success. Investigate the company. Confirm its legality and then get associated with it. This can be done through a quick search on the internet.
Also, you should research and find the best company for you. Some questions that should be considered-
- What is the age of the company?
- What is the status of the sales of the company?
- What is the reputation of the company?
- You must check the reputation of the CEOs and other leaders of the company. If they have been involved in any scam or fraud then you should avoid that firm
- Check the product. Since you are going to earn by selling this product. Make sure the product is reliable and is not inappropriate. It should appeal to your interest so that you can pitch to people for the product. Consider the following questions, while testing the authenticity of the product.
- Is this product safe?
- Is this product can be used by me and my family?
- Is the pricing of the product fair?
- One of the obvious points to be kept in mind is reading the contract. Read your contract carefully. Don’t sign anything. Don’t believe what they say. Read the contract, clear your doubts, and sign when you get satisfied.
- Making a business plan can help you here as well. Like any other business, a network marketing business can also function smoothly with a good plan. Prepare your plan. It may or may not concern the company.
It should be prepared for your personal use. You can consider writing marketing strategies, your target market, your long-term and short-term goals, working hours, etc. You can update your plan anytime you want.
- If you are new in the network marketing business, make sure you attend all the meetings and training sessions to get acquainted with the way of dealing with and persuading the customers.
- You can build your leads by using word of mouth, or other inexpensive marketing methods. You can also go for social media marketing or develop a website to promote your products.
Do you know?
- In 2019, Amway earned a revenue of $8.4 Billion.
- NeXarise- The new network company is setting new standards in the network marketing industry.
- Less than 6% of sales occur on the internet.
- 80% of sales are conducted face-to-face
A network marketing business can be started with a small investment and if done properly, it can generate income. And the key to success is patience and hard work. Before starting a network marketing business, consider the pros and cons and every other relevant matter.
You need to be aware of the pyramid scheme. As there are many companies, who are running a pyramid scheme in the name of network marketing. Also, you should choose the product carefully. The product you are choosing must have space in the area of your interests. Doing this can allow you to persuade your customers easily.
Also, hone up your communication skills before stepping into the network marketing industry. Try to learn some tact to convince people. Learn different tact to initiate the conversation.
Make sure your product serves as a solution to the customer’s problem. Try to identify their problem and if your product can solve it, then introduce them to your product. For an instance, your cousin’s wife is suffering from back pain and you have a balm that can help her, so this is the opportunity. Introduce your product to him and you can further ask him to join the business.
This is how you can reach people out and sell your products. Make downlines, sell products and enjoy the income generated from the network marketing business.
Frequently Asked Questions
Ques.1- Is it legal to start a network marketing business?
Ans. Yes, it is legal to start a network marketing business. You need to follow the guidelines of the government. Many companies are running an illegal business in the name of network marketing. Make sure your work and company comply with legal requirements.
Ques. 2- Is it the same as a pyramid scheme?
Ans. The marketing model of a network marketing business looks like a pyramid and is also known as pyramid selling. But the concept of a pyramid scheme is different from network marketing. A pyramid scheme is illegal while an MLM is business is legal.
Ques. 3- Are the terms MLM Business and network marketing business the same?
Ans. Yes, the terms MLM business and network marketing business can be used interchangeably. Both depict the same meaning.
Ques. 4- What is direct selling?
Ans. Direct selling refers to a practice where products are directly sold to the customers. The role of middlemen gets eliminated and the companies deal with the customers.
Ques. 5- What is a network marketing business?
Ans. A network marketing business is a model that does not rely on expensive marketing strategies. Instead, the model relies on person-to-person sales. The business model looks like a pyramid. The primary distributor at the top, then he builds downline. Every individual builds a downline. The downline includes happy customers who continue the chain willingly intending to get revenue.
Ques. 6- What are some examples of network marketing business?
Ans. Several network marketing business exists that are doing great. Examples include Tupperware, Amway, Mary Kay, Avon products, Herbalife, Vorkwork, etc.
Ques. 7- Which is the top-grossing network marketing company?
Ans. Amway, the most expected name. Amway is the top-grossing network marketing program. It deals in artistry skincare and color cosmetics, dietary supplements, XS energy drinks.
Ques. 8-Can I make money by joining a network marketing program?
Ans. It is possible, only if you can sell your products and recruit people. Many people fail to enjoy success by joining a network marketing program, while others earn a lot by joining MLM business. The two main sources of making money are- selling the products and earning through commissions. The more people you recruit, the more money you make. This is how it goes.
Ques. 9- What is White-collar crime?
Ans. A white-collar crime is a non-violent crime committed for financial gain. A pyramid scheme can be considered as an example