The Advantages and Disadvantages of Network/Multilevel Marketing

Network marketing, also called multilevel marketing, has been a very popular business model for many years. It’s a business model where companies create a program to use their own customer networks to generate new customers and sales. Customers that take part in these programs earn commissions for signing on new referrals as well as the customers generated by their referrals.

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The green agent gets a commission from the sales of all the downline members. (Image created by Market Business News)

The network marketing business model often receives a lot of negative criticism due to the pressure sales tactics that are used. There is also a list of companies that have given network marketing a bad name due to unethical practices. However, network marketing continues to be a successful business model. In 2018 alone, the industry has generated sales to the tune of $192.9 billion dollars.

In order to succeed with a network marketing opportunity, there are many things you need to do right. This includes working with a reputable company, marketing products or services that people actually would want to buy, going with a company with a good compensation plan, and choosing companies that actually put a lot of work into supporting their network. But to start, you need to learn if the business model is right for you.

When selecting a network marketing company, it is essential to consider one that embraces the latest technology to ensure seamless operations. MLM software plays a critical role in automating tasks, tracking sales, managing commissions, and providing comprehensive analytics. By opting for a company with advanced MLM software, distributors can streamline their workflows, enhance efficiency, and make informed decisions based on real-time data. This technological advantage empowers distributors to focus on building their networks and driving sales, ultimately leading to a more successful and thriving MLM business.

To help you make a decision on whether this business model is right for you, it’s important to know about the advantages and disadvantages of network marketing. Let’s start with the positive points of network marketing.

The Advantages of Network Marketing

  1. It’s an Affordable Business to Start

One of the best selling points of network marketing is that the cost of getting started with a company is very low. The initial costs can range anywhere from $100 to $1,000. With some companies, there is a residual membership model where you pay every month to take part in the compensation plan. The idea is to sign on new referrals to the program to build a residual income.

In comparison, the average cost of starting a brick and mortar business is around $48,000. This is just for the initial startup fees. You’ll still have to pay for the lease for the rest of the year, invest money into your marketing, and even pay for employees. The small startup costs of network marketing is what often draws people in.

  1. You Earn Commissions for Other People’s Work

As the business model suggests, the biggest benefit of network marketing is that you earn commissions when people you’ve referred sign up new people. You’ll also earn commissions when the new people bring in even more people. This is what many in the network marketing industry call a downline. By building a strong downline, you’re able to build a perpetual income-generating machine.

This means that you’re going to be earning commissions from the network marketing program beyond the initial sale. But it’s important to be realistic about earning commissions from your downline. You want to put a strong emphasis on signing up people that are as serious about the opportunity as you. If you put too much focus on signing up anybody, you’ll find that most of the people you’ve signed up won’t be as dedicated to going out there and selling.

  1. Great Companies Will Provide Training and Marketing Material

Very few people have experience with sales and marketing. This can be a big obstacle in any business, including networking marketing. But the best network marketing companies put in a strong effort into providing comprehensive training to their partners. They’ll teach everything from structuring sales presentations, generating leads, following up with prospects, to promoting yourself on many different marketing channels.

Most modern network marketing companies will also provide you with marketing material. These catalogs, reports, charts, and other sales-oriented content help with the selling process. If you were to do this yourself, you’d have to pay for a graphic designer, copywriter, and more. Keep in mind that you’ll want to add your own twist, personality, and perspective to your sales presentations. And if you can add on to the marketing material you’re provided with, you can distinguish yourself from other partners.

  1. You Can Work at Your Own Pace

Most people in network marketing have a regular job and joined to make additional income. This is only possible because you can work at your own pace. It’s unlike a regular job where you have to work a specific set of hours. And unlike a regular business, you don’t need to worry about the cost of overhead which would include things like rent, insurance, employees, and equipment.

This is perfect if you have a regular job and a family. Your fluctuating schedule will get in the way of your starting and managing a traditional business. With network marketing, you can invest your time into the business when you have the extra few hours in the day or a weekend where you have no responsibilities. Just remember that you’ll want to be strategic about how you use your time and what actions to take if you want to make progress.

  1. You Can Work with Established Companies

Most network marketers overlook the big benefit of being able to work with established companies. There’s a reason why some companies have been in business for a long time. They have developed great products, strong brands, marketing systems, customer support, and more. Being able to partner with a good company will enhance your chances of success.

Before you start a network marketing venture, spend a lot of time researching the company’s history. There are many scams, unethical businesses, and businesses that offer very little room for growth. Working with the right company is a big part of succeeding in this industry.

Disadvantages of Network Marketing

  1. You Need to Work with the Right People

As mentioned earlier, signing up just anyone to the network marketing opportunity won’t help much if your goal is to generate a large recurring income through your downline. You will need to learn how to network and identify which candidates will take the opportunity as seriously as you. You’ll want to make sure you invest more time into this person to succeed.

Helping the most active members of your downline is also essential to succeeding. Most people think that their downline will succeed on their own. The truth is that successful network marketers invest a lot of time into educating their downline, helping their best performing referrals, and working as a team.

  1. Compensation Might Be Very Low

Many people assume that they’ll be able to earn a decent income by signing up a few people and getting those people to sign up new people. However, this is often far from reality. It was found that 47 percent of people never even looked through the compensation plan before signing up for the network marketing program. You want to do your due diligence and see if you can make a good income in the program.

Another issue is the fact that while some companies offer great products or services, their compensation plan is very low. To make sure you avoid these issues, look for companies that offer high-quality products or services that people want to buy. Then look for companies that pay you fair or high commissions for direct sales as well as strong compensation plans for the rest of the downline.

  1. It’s Difficult to Succeed

At the end of the day, network marketing is a business. Very few people will succeed with network marketing. AARP found that 73 percent of people either lost money or broke even with network marketing. But don’t let the statistics scare you or make you think negatively about network marketing. The odds aren’t high for normal businesses as about half of small businesses fail.

The difference is that with traditional businesses, you stand to lose a significant amount of money if you fail. With network marketing, the costs to start and grow the business are significantly lower. Instead of fearing failure, take the steps to learn from network marketers that are successful with their ventures. See what they’re doing differently from others and model what they’re doing right.

  1. You Need to Take Marketing Seriously

Marketing is a big part of your success. Most network marketers fail because they neglect marketing. They think that they can build a successful business just from their immediate network. There are many things you can do to generate leads and bring in new referrals.

The list includes digital marketing, seminars, local networking events, and purchasing leads just to name a few things. You should also experiment with different types of strategies and channels. There may even be a strategy for app marketing and advertising to generate leads. The bottom line is that you need to invest time and money into creating and executing a marketing strategy.

These are the advantages and disadvantages of network marketing. Make sure you go over all the points one more time to get a better idea if this business model is right for you.

Interesting related article: “What is Network Marketing?”