Network Marketing

Network marketing (NM) (also known as Multi-level marketing (MLM)) is a business model which utilizes a combination of direct marketing and franchising. Typically, individuals become associated with a parent company in an independent contractor relationship. Sellers are compensated based on their sales of a product or service, as well as the sales of those they bring into the business.

Network marketing has a recognized image problem because of difficulties in making a clear distinction between legitimate network marketing and illegal "pyramid schemes" (Ponzi schemes). Nonetheless, many NM/MLM businesses operate legitimately in all fifty U.S. states and more than 100 foreign countries. Because of this image problem many new NM/MLM businesses do not use the words "multi-level marketing" or "network marketing" and instead use terms like "affiliate marketing," "home-based business franchising," etc.

In a legitimate Network marketing company, commissions are only earned on the sale of products or services to the end consumer who, in many cases, is also a distributor. No money may be earned on a "sign up fee" or for recruiting alone. Critics contend that some companies produce revenue primarily by attracting new participants, as opposed to selling products. Analysis of the compensation plan is often required to determine whether participants are paid based on actual sales of products to customers versus new recruit bonuses and sales of business support materials.

A major shift in Network marketing occurred during the 1980s when companies began allowing their members to focus solely on marketing rather than handling the tasks of stocking/distributing products as well as taking care of commission payments to their sales organizations. Today, most Network marketing companies act as fulfillment companies by taking orders, shipping products, calculating and paying commissions, etc.

In actual fact, the structure of network marketing is similar to that of any company orginization. What is important is that the products and people in the network marketing industry has credibility and the products are of good quality. Therefore, network marketing is just a business model that many companies follow, the truth is that the main problem lies in the people that are involved in it.