Building a network sales business

Multi-level marketing, also known as network sales or MLM, is a method of selling which depends on networking between people. The salespeople not only sell their product, but also recruit other salespeople who in turn sell the product and recruit other salespeople. The resulting hierarchy produces levels of distributors all working to promote and sell the product and sharing in the profits of the levels below them. It effectively bypasses the traditional forms of promotion and distribution in favor of a large network of independent distributors.

Companies that employ this strategy provide a number of different compensation plans that can enable members to earn money from several sources. These include:

• Commissions on personal sales. The money made on the goods you actually sell.
• Group bonus. Percentage of the sales generated by the members of your network.
• Leadership bonus. Reward for helping someone you sponsored move up to a higher level in the organization.
• Residual income. Commission received for a customer repurchase.
• Usage bonus. Money paid to distributors as a percentage of their groups' total usage levels.

As in any business venture, choosing which multi-level marketing company to join depends on your personal interests and needs. Research companies whose products and/or services you believe in and which customers will buy on a repeated basis. You want a company with a sound track record.

Do your homework. Check financial statements, years in business, management team, marketing plan, and industry standing. Look at the position of the product industry as a whole. The amount of support in marketing and training provided by the company is another indicator of the strength of the company. You can do research in a variety of ways.

• Sales presentations. Attend sales presentations (opportunity meetings) and meet other network members.
• Distributors. Talk to people in the company and ask about their experiences.
• Customers. Talk to people who buy and use the product.
• Promotional Materials. Examine the promotional material for quality and truthfulness.
• Training materials. Learn about the materials provided by the company to get you started.
• Annual reports. Examine the annual reports over the past years to determine assets and liabilities, revenues, expenses, investments, management, and other information.
• Trade associations. Ask for information about the company's performance record and reputation.
• Government agencies. Check with the State Attorney General's office and Federal Trade Commission or Better Business Bureau to obtain information.
• Media reports. Do some research to see what kind of coverage the company has had.
• Competitors. Talk to the competition to help in evaluating your company.
• Product line. Become familiar with the company's products.

Many people are concerned about getting involved in a pyramid scheme. Note that although they share the same organizational structure, multi-level marketing is not the same as a pyramid. Pyramid schemes, which are illegal, recruit people who pay money to those already in the network. The only way to get money in turn is to bring in more people. The pyramid inevitably collapses when there are no more people to bring in.

Multi-level marketing, on the other hand, offers a legitimate product, costs little to become a distributor, and emphasizes selling to customers. While some pyramid schemes may also offer a product for sale, instead of selling to customers the product is sold from one level to the next until those on the bottom are left with overpriced goods that can't be sold. Avoid unscrupulous pyramid schemes by avoiding any company that:

• Promises extremely high earnings.
• Downplays the importance of hard work in achieving success.
• Is more interested in recruiting new members than in selling to consumers.
• Pays headhunting fees for new recruits.
• Charges a high entry fee to become a distributor.
• Has a product that people may buy once but not on a regular basis.
• Is structured so that only the distributors at the bottom actually sell to consumers.
• Requires new distributors to purchase large amounts of inventory.
• Has an inadequate "buy back" policy for unsold inventory.

Once in a multi-level marketing company, the work in setting up the business is similar to that of other new businesses. You need to get all applicable business licenses and permits, set up your office (often in your home), plan your marketing strategy, and keep all necessary records. Your company should be able to help with promotional material and sales training.

Your success in a multi-level marketing business depends on a number of factors, one of the most important being your willingness to work hard and stay motivated. Learning to promote your business, sell your product, and satisfy your customers is the key to a rewarding business venture.

Other sites of interest:

• MLM Woman
• Multi-Level Marketing
• Network Marketing Yellow Pages
• MLM Law
• MLM Talk Online
• MLM Watch: A Skeptical Guide to Multilevel Marketing
  
  
  

This document was prepared by the San Joaquin Delta College Small Business Development Center. Send comments to: Gillian Murphy

Acknowledgements, disclaimers, etc.