By Jeffrey A. Babener © 1994
|Network marketing is a business opportunity that
goes by many names - multilevel marketing (MLM), direct selling, person-to-person
marketing or one-on-one marketing. They all describe a business opportunity that involves
millions of Americans and billions of dollars in sales.
Is it an opportunity for you? It may be-if you are willing to keep your eyes wide open, roll up your sleeves for some hard work, and risk some of your time and money to become an entrepreneur.
WHAT IS NETWORK MARKETING?
Network marketing is just one of the many business channels for distributing goods and services. It is part of the direct selling industry, which is rich with familiar names such as Avon, Mary Kay, Fuller Brush and Tupperware. These companies market goods and services through networks of thousands of independent distributors.
Historically, direct selling companies sold goods to distributors for resale or paid them a commission when they sold products to consumers. Classic among such companies are encyclopedia and other door-to-door sales companies. The past three decades, however, have seen the evolution of a new type of direct selling company - the network marketing or MLM company.
In the old direct selling companies, distributors made money only through their direct sales. In the new network marketing companies, distributors make money not only by selling goods and services but also by recruiting other salespeople and receiving commissions or bonuses on the sales of those distributors - their "downline" sales organization.
Suppose Distributor A recruits Distributor B, Distributor B recruits Distributor C, and Distributor C recruits Distributor D. In a multilevel marketing company, Distributor A receives a commission on sales made by Distributors B, C and D. (Distributor A receives commissions at multiple levels in the organization; therefore, the company is referred to as a multilevel marketing company.) Today, most direct selling companies are structured this way.
|THE TYPICAL DISTRIBUTOR
Although the network marketing industry isn't populated by huge companies like General Motors or IBM, it is nevertheless a significant industry in the United States and the world. In America alone, there are more than 5 million distributors and salespeople. These distributors are a diverse group since MLM opportunities exist for people of all races, ages and sexes.
Statistics from the Direct Selling Association show that blacks account for about 12.5 percent of direct marketers, Latinos nearly 5 percent, Asians 1 percent and native Americans about 0.5 percent.
This industry also provides opportunities for two other important groups: Approximately 4.5 percent of direct sellers are senior citizens (over age 65) and about 8 percent have physical disabilities.
Women make up the majority of the direct selling industry, at a ratio of 82 percent female to 18 percent male distributors. These numbers probably reflect the demographics of long-dominant companies like Avon and Mary Kay; recent growth in the industry has been among newer companies whose distributor ratios are more evenly divided between men and women.
Why do direct sellers get into the business? The top five reasons people join network marketing companies are:
Source: Direct Selling Association
|WHAT THEY SELL
Any consumer product or service is fair game for network marketing companies. In the past, the industry was dominated by cosmetics, nutritional, personal-care and home-cleaning products. Not anymore. In recent years, it has become evident that anything and everything can be sold by network marketers, including services. Today, discount buying services are popular, teachers and parents are experiencing great success marketing educational toys, and home and personal security products are booming as well.
If a product benefits from demonstration, explanation or personal testimonial, then it is an excellent candidate for network marketing. Network marketers share their excitement about products with their families, social organizations and co-workers. Sales are often made from one friend to another, and credibility is very important.
WHY IS IT HOT?
Many factors combine to make network marketing appealing to today's would-be entrepreneurs. For one thing, there is virtually no investment: Most companies require only the purchase of a modestly priced sales kit ($25 to $ 100) to start. Because it can easily be run part-time, a network marketing business gives full-time employees the chance to be entrepreneurs. And as an ideal homebased business, network marketing attracts many who want to make extra income and still spend time with their families.
The downside is the unpleasant image network marketing has long had in the eyes of the press, regulatory agencies and the public. Some of these image problems are unfair, but some were rightfully earned by the abuses of industry scam artists. Because the cost of entry into network marketing is so low, this business can bring out the worst in people.
The biggest problem has been hucksters who talk people into making large investments or buying garage-loads of inventory and then disappear into the night. Pie-in-the-sky earnings claims have been a continuing problem, too. Another is people being tricked into attending meetings, only to be pitched a business opportunity.
Beware the peddlers of get-rich-quick programs or something-for-nothing schemes. Network marketing is no different from any other endeavor: Rewards come with persistence and hard work. If you are urged to buy lots of inventory right away or promised you'll earn fantastic amounts of money after only weeks in business, get out.
WHAT TO LOOK FOR
Assuming you have found a product or service you believe in, how do you know which network marketing company is the right one for you from a business and legal standpoint? Some guidelines:
DOING YOUR PART
After you find a good product and company, take a hard look at yourself. Here's what you need to do to succeed:
You undoubtedly have a lot of demands on your time and money. Should you give network marketing a try? If you can spare a little time, a little money, and a lot of enthusiasm, it's definitely worth the effort.
|Jeffrey A. Babener
Babener & Associates
121 SW Morrison, Suite 1020
Portland, OR 97204
|Jeffrey A. Babener, the principal attorney in the
Portland, Oregon law firm of Babener & Associates, represents many of the leading
direct selling companies in the United States and abroad.
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