Is Network Marketing The Wave of the Future?

By Kenneth Satin, JD

It is common knowledge that there are over 500,000 millionaires in the United States. Statistics show that over 20 percent have become millionaires in only the last few years and many became such through multilevel marketing.

What is this phenomenon? At first blush multilevel marketing would appear to be in the nature of a pyramid or chain letter scheme. Upon analysis, however, this is not the case. Multilevel marketing has now gained respectability and is being taught in some of the most prestigious institutions in this country. The Wall Street Journal has stated that more than one-half of all goods and services being sold will be sold through multilevel marketing procedures by the end of the 1990's.

Most of us are familiar with Amway Corporation who uses multi-level marketing. As early as 1980, Amway stated that it had made over a billion dollars in sales. Mary Kay Cosmetics, another company with marketing similar to Amyway, in 1982 grossed over six hundred million dollars.

With such phenomenal statistics, multilevel marketing is here to stay. It is anticipated that soon you will be able to buy almost everything through multilevel marketing methods including food, cosmetics, vitamins, and even clothing.

What is Multilevel Marketing?

It must first of all be understood that multilevel marketing is not really an industry per se, in the same manner as is manufacturing, construction or even computers. All it is, really, is a method of marketing (as the name indicates) that can be applied to the sales of almost any product.

Multilevel marketing takes advantage of exactly what it states: multilevels, many levels of people marketing a product. This is to be distinguished from the way or method of how most of us earn our living. For example, a DC might see 100 patients per day and charge for the time spent and procedures followed in seeing each of those patients. He then would bill an insurance company or the patient would pay in cash or by check. This is an example of so-called "linear" income or, simply put, "a day's work for a day's pay."

One can achieve great success in linear income, particularly if he has built a successful practice.

Another method of earning income is the residual method in which, for example, an insurance salesman builds up a clientele over many years and receives residual income each time somebody renews. Earning residuals is quite popular in syndications of TV series. Generally speaking, many people in entertainment earn substantial sums in this manner.

Understanding that multilevel marketing is not linear income and is not a residual income method per se, just what is it?

In the classic MLM scenario, there is a manufacturer of a product to be marketed to consumers and the company either does not want to spend or cannot afford the many millions of dollars it would ordinarily cost to introduce a new product in the traditional method. MLM is a fascinating way to introduce a new product because the start-up costs are considerably less and a great deal of money can be spent for product quality since those dollars don't need to be spent for advertising.

A company interested in MLM would select a core group of individuals in key areas across the United States to study the product and provide those people with a business opportunity. The core builds a network below them and earns a considerable amount from the efforts of all of those below.

The opportunity, then, is to create a "downline" by sponsoring several motivated individuals in that downline who will then sponsor other motivated individuals (ad infinitum).

This continues on for many "levels." The idea is that if a person were to enter into a viable MLM organization, he would receive credit for bringing that individual in as a "distributor" of whatever the product might be.

For example, let us suppose that the original amount of people brought into downline consists of only four. Each person is highly motivated and brings in four more people who bring in four more people, etc. Let us stop after only five levels. Ultimately, the organization in the person's downline stemming from the original four people could be as many as 1,024. Multiply four X four = sixteen people on the second level, and then multiply four X sixteen people = sixty-four people on the third level, etc.

In order to enter into a successful business, one normally needs to be considerably well capitalized. In MLM most of the people making incredible sums have little or no money initially. The key is that MLM companies save the usual 50% of income spent on marketing, and this money not being spent on marketing is available to pass on to the distributors in the form of commissions and bonuses.

The "bottom line" with respect to MLM is that it can be an extremely lucrative opportunity. Instead of salespeople competing to get ahead, the original MLM sponsor helps everybody in his downline build their own organization.

First, Do Your Homework

If a person is interested in MLM, he should accomplish research on the company he is considering. There are perhaps hundreds of MLM companies and not all of them are honest and reliable. Research whether the products and/or services offered by the MLM company are inherently good and valuable. Find out if the company has a good financial background, check out its principals, and make certain they are trustworthy.

Ascertain the name of the company bank and the organizations and associations involved. The top management should be researched out as well as background. How successful have they been before entering into MLM? A person should see where he would fit in the scheme of things; i.e., is he entering at an early level in the MLM program? The earlier he becomes involved, the greater are his chances of becoming wealthy.

Check the marketing plan and compare it to other programs. Research the company's sales aides and literature. Do they have good information which is persuasive? Do they have a good organization to provide assistance and support?

Types of MLM Organizations

Most MLM organizations sell products, but there is a new wave on the horizon in which some MLM organizations do not sell products but sell memberships which provide services of nationally known companies such as offering purchases of numerous products at a substantial discount. It is thought that such companies portend the future and by the end of the 1990's almost all goods and services will be purchased in this manner.

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