Has a friend or family member ever pitched you a product—maybe a line of makeup, a bakeware set, or a box of cookies—to see if you might want to purchase it? If so, you’ve likely encountered a business model known as network marketing. As the name suggests, network marketing (also called multilevel marketing or MLM) involves leveraging the social networks of independent sales reps to drive brand awareness and revenue. Additionally, representatives are often tasked with recruiting new salespeople.
Network marketing can have a negative connotation because the business model has been used to disguise pyramid schemes; however, it can be done right. Tupperware, for example, has leveraged network marketing into a global brand, earning more than a billion dollars in annual revenue in the past year alone. The business model can be particularly effective for products that benefit from demonstration or instruction.
Learn everything you should know about network marketing in this guide, including how it works and how brands have used it successfully.
What is network marketing?
Network marketing, also referred to as multilevel marketing (MLM), is a business model companies use to generate revenue by hiring independent salespeople to sell their products or services directly to people within their social networks. Under this business model, independent distributors earn commissions on their sales and also recruit other sales reps to further build a company’s network. Those above a representative in the recruitment hierarchy are called the upline, while those below them in the distributor network are called the downline.
When a sales rep creates a new downline tier of recruits, they benefit by earning commissions on the sales of their recruits. When multilevel marketing companies create multiple tiers, this adds more commission to those in the top and middle tiers, with distributors in the highest tier earning the most. MLM salespeople may be required to purchase a starter package or kit. A membership fee or ongoing purchasing commitment may also be required.
The compensation structure in multilevel marketing can vary greatly from company to company. Typically, reps receive commissions on their personal sales and their downlines’ sales. Often, brands will give performance and/or rank advancement bonuses. A commission of 40% to 45% is often cited, but if you’re a downline sales rep, that commission will be shared with your upline.
Is network marketing a pyramid scheme?
Network marketing has been compared to pyramid schemes or “get rich quick” schemes, which are fraudulent and encourage recruiting new members over selling actual products or services. These businesses are called pyramid schemes because the organizers at the top typically receive all the profits. Lower-tier sales reps lose money when the market becomes oversaturated and the venture fails. According to the Association of Certified Fraud Examiners, some indicators that a network marketing company may be running a pyramid scheme include:
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Requiring a hefty upfront investment from independent sales representatives
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Setting unfeasible recruitment goals
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Placing the emphasis solely on recruitment rather than sales
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Unwilling to provide a disclosure statement, which some network marketers use to provide income information to prospective participants
The Federal Trade Commission (FTC) keeps an eye on network marketing organizations to ensure they’re not operating as pyramid schemes.
Network marketing vs. affiliate marketing vs. referral marketing
Network marketing and affiliate marketing share similarities but are distinct business models for promoting and selling products. In the affiliate marketing model, individuals with independent content creation businesses and established digital audiences promote a company’s products on their channels (which could be social media or blogs, for example). The affiliate earns commissions from sales generated through unique referral links that send people directly to a brand’s website to shop.
For example, a dog trainer with a popular instructional blog may review and link to collars and leashes, clickers, or dog treats from their favorite online pet store. They earn a commission on every collar, clicker, or bag of treats sold through their affiliate link. In some cases, they may earn smaller fees just by generating traffic for the online pet store or getting their readers to complete another action, such as signing up for the pet store’s newsletter. One key difference between network marketing and affiliate marketing is that affiliates have an existing business of their own. The second key difference is that affiliates do not directly sell a product or help recruit a sales force.
Meanwhile, referral marketing is a strategy in which you encourage existing customers to refer new customers (such as friends and family) to your business. You can set up referral programs that offer incentives like discounts, loyalty points, and bonus items in exchange for successful recommendations.
Real-world examples of network marketing organizations
To better understand how network marketing works and what it entails, learn about two MLM companies that use network marketing tactics as part of their business model to generate sales:
Tupperware
Tupperware adopted network marketing, or MLM, as its primary sales strategy soon after it was founded in the 1940s. The brand is famed for hosting at-home Tupperware parties, where independent reps promote and sell the company’s products directly to friends and family.
The brand still uses the model today, but it’s part of a broader sales strategy that also includes direct-to-consumer ecommerce and affiliate marketing. Those interested in selling Tupperware are prompted to join a team of sales representatives and can earn up to 35% commission on personal sales, according to the brand’s website. Additionally, they can receive awards and bonuses for outstanding sales performance and recruiting new representatives. There is an upfront investment of $119 to buy the brand’s Deluxe Business Kit.
Nu Skin
Beauty and wellness brand Nu Skin has heavily relied on network marketing in its sales approach since its founding in 1984. Known as brand affiliates, Nu Skin’s distributors operate by purchasing the brand’s products at a special reduced rate and selling them directly to consumers at retail price so they earn a profit on each sale, along with a commission (which Nu Skin calls a bonus) of 4% to 20% of the net sales price.
Nu Skin doesn’t require sales reps to buy a specific starter kit, and it doesn’t offer compensation for recruiting new members. Commissions are available on downline reps’ sales for those who do bring in new distributors.
Each distributor starts at the brand affiliate level and has the opportunity to advance to the brand representative and brand partner levels based on their group sales performance. Those levels unlock additional bonus opportunities, such as a building bonus (for building sales within your group) and a leading bonus (for helping develop your brand affiliates into brand representatives and, ultimately, brand partners).
Like Tupperware, Nu Skin has increasingly built out its ecommerce and affiliate marketing channels.
Network marketing FAQ
What does a network marketer do?
Someone who works for a network marketing company, or MLM, is responsible for selling products or services to people in their social network and, in most cases, recruiting new members to be a part of their sales force. It typically focuses on direct person-to-person selling and/or hosting sales events.
How do you make money with network marketing?
People working in network marketing make money through a combination of direct sales and recruiting distributors, both of which can usually earn them commissions (though not all brands compensate distributors for recruitment). Additionally, some brands offer bonuses and rewards for reaching specific sales goals.
How do I start network marketing?
You can begin your career as a network marketer by finding a network marketing company you align with and signing up to be a representative or joining a team of reps. Each brand is different, with its own approach to network marketing and compensation plans. Using the Federal Trade Commission and other resources, do your research to ensure the brand uses a legitimate network marketing model and isn’t a pyramid scheme.
