Many people start their entrepreneurial journey with network marketing. Most persons are usually introduced to a network marketing company by a family member or a friend, and due to a very attractive compensation plan, people leave themselves driven by the desire to earn money quickly.
Unfortunately, not many people find the network marketing success. A large part of the people simply quit within the first three months of joining a network marketing company.
I wrote this post to express my point of view about network marketing (MLM) and to share with you my experience with this business model.
What is Network Marketing?
Network Marketing (also known as direct sales or multilevel marketing) is at its core just another form of affiliate marketing. At least, that’s what I see it as.
As a network marketer, your role is to promote the products of a company and teach other people to do the same. You’ll usually earn a commission for every product you sell, but you will also earn a percentage of the products your recruits sell.
The affiliate commission structure of a multi-level marketing company is usually known as the “compensation plan.”
Unlike the traditional affiliate marketing, which pays the affiliate commissions on a single level, the network marketing companies pay the commissions on multiple levels (hence the name of multi level marketing, or on short, MLM).
The graphic illustration of the compensation plan of a network marketing company usually looks like a pyramid with you at the top and other members below you.
Many people promote network marketing as a business opportunity, or as a way of getting rich quick, but this promotion angle leads to other issues.
The truth is that the network marketing industry has not earned a very good reputation over the years.
Because too many representatives focus more on the promotion of the compensation plan instead of the actual promotion of the products of the company they promote, many people view the network marketing as an unsustainable business model or Ponzi scheme.
Basically, a Ponzi scheme is a company that has a payment plan that constantly needs the money of the new members to pay the old ones. That usually happens when the compensation plan promises too much and at a point, it becomes unsustainable.
Over the years, many network marketing companies have been closed down after they were hit by lawsuits and accusation of being Ponzi and pyramid schemes.
As a result, many people that were active members of these companies have lost their money and also probably the faith in this business model.
Can you make money with MLM?
There are many successful marketers that have made millions promoting one or more network marketing companies. One of the best examples is Bob Proctor.
There are also numerous other celebrities that endorse network marketing or have been involved in network marketing companies in the past. Several of these individuals are some of the richest people in the world.
However, despite the number of success stories, the statistics reveal a sad truth.
Jon M. Taylor (MBA, Ph.D., Consumer Awareness Institute), states in his book “The Case (for and) against Multi-level Marketing” that:
The loss rate for MLMs is at least 99%. This means that less than one in 100 MLM participants make a clear profit, and at least 99 out of 100 participants actually lose money! In fact, classic no-product pyramid schemes are ten to one hundred times as likely to result in profits as are product-based pyramid schemes, or MLMs. – Jon M. Taylor, The Case (for and) against Multi-level Marketing
My experience with network marketing
Since I started my online journey, I have experimented with many business models. I’ve tried freelancing, Google Adsense, affiliate marketing, CPA marketing, print on demand, and even a bit of network marketing.
No, I did not become a millionaire from network marketing if that’s what you’re asking. In fact, quite the opposite. I can honestly say that I failed miserably at network marketing.
But that’s was not entirely because of me.
Do you know those presentations that say that you only have to personally sign up four people and every person will do the same until you have thousands of individuals in your downline and you’ll make a lot of money?
Sorry to disappoint you, but that never happens.
When I was involved in a network marketing company, I was pretty good at building teams and recruiting other people. The real problem was, however, that the duplication that almost every MLM compensation plan talks about, never happened.
Even though I was able to recruit other people, the majority of the persons that fell into my downline never took any action.
The sad truth is that many individuals have just signed up with that business expecting to receive what is commonly known as “spillovers” (the members that fall under you which were referred by the people above you in the pyramid). Only a very small percentage of the people that were in my downline have referred at least a person.
If everyone in your downline doesn’t refer their 2, 4, 6 people (or the number used as an example in that fancy compensation plan presentation), it will be way harder to reach those estimated earnings.
Do not get fooled by the presentation plan. While everything sounds perfect in the presentation, you can be sure that not many people in your downline will take action.
I’m sure I could’ve had slightly better results if I would’ve stressed my downline every day to promote, promote, promote, but that’s just not my style.
Since I couldn’t settle with the thought that my income depends on other people, I left the network marketing area and shifted my focus to the traditional affiliate marketing model. At least this way I know that my income depends entirely on my work, and not somebody else’s effort.
Network marketing is not a get rich quick scheme and just as any business model, it requires time, commitment and skills.
While the multi-level marketing is definitely a viable alternative to starting a business, it’s clearly not easy to become successful.
When you are charmed by the presentation of a new compensation plan, before taking out your wallet, remember that the network marketing industry has a very high failure rate.
Before joining a new company, I strongly recommend you to put together a solid promotion plan.
I’ve tried network marketing and decided that’s not the best option for me. Besides the fact that I didn’t like for my income to depend on the effort of the persons in my downline, I’m also more of an introverted person.
If you are an extrovert and you like to speak with new people every day, the network marketing might be the right choice for you.