In addition to being a CPA with an MBA and a certified fraud examiner my mom is also a professor of business at University of Arkansas-Fort Smith.
This discussion of network marketing (commonly referred to as MLM, multi-level marketing, or distribution marketing) appeared in her course material that she taught her students (from chapter 15) and I wanted to share it with you all.
Network marketing is a very profitable and viable business model that depends upon the outside sale of the corporate office’s product or services via independent distributors.
My comments appear in italics.
Some popular network marketing companies are: Mary Kay, Avon, Pampered Chef, Pre-paid Legal, and many more.
Did you know these are network marketing?
Multilevel marketing often doesn’t get the respect it deserves in marketing literature.
When multilevel marketing companies succeed, their growth is often unbelievable.
At least six multilevel marketing companies have reached the $500 million level in sales.
Multilevel marketing companies work like this: The founders begin by recruiting a few good people to go out and find managers to sell their products(a FREE SERVICE in our case) and to recruit other supervisors. (also known as distributors or small business owners).
These supervisors then recruit additional salespeople.
That is, 20 people recruit 6 people each. That means 120 salespeople. Those people then recruit 6 people each, and you have 720 salespeople.
If in turn those people all recruit 6 people, you then have almost 5,000 salespeople who are all selling things to outside customers.
All supervisors earn commissions on what they sell as well as on what everyone under them sells.
When you get thousands of salespeople selling for you, commissions can be quite large. One company promotes the fact that 1% from 100 salespeople is as good as 100% from one successful salesperson. Companies often add new products or expand to other countries to keep a continuous growth pattern.
Distribution under multilevel marketing is relatively easy. Often the salespeople will carry inventory in their own homes and deliver products as ordered. Many companies also offer direct shipping to customers using UPS or other delivery firms.
Marketers cannot ignore the success of this sales and distribution strategy. Nu Skin (a seller of health and beauty products) alone will soon have $1 billion in sales. Looking for more growth, the company started a new division, Interior Design Nutrition, to make and sell vitamins and weight control products. Amway, perhaps one of the most well known multilevel marketers, has chosen the international route for growth; recently, its sales of home and personal care products increased by over $1 billion in one year.