Though it's been around for over fifty years, network or multi-level marketing (MLM) didn't really catch on until the late eighties and is expected to continue to gain momentum. According to attorney Jeffrey Babener, author of Network Marketing Window of Opportunity, " It is estimated that network marketing is a $20 billion industry with one in ten households in the United States now involved. Many states have adopted legislation recognizing the legitimacy of network marketing, and the IRS publishes its own booklets specifically for network marketers."
What is Network Marketing?
There are many large, well-known companies that utilize network marketing. The logistics of an MLM business are quite simple. For example, AMSOIL creates, manufactures and packages synthetic lubrication. All of the business aspects of creating these products and running a manufacturing business are the responsibility of AMSOIL. The only thing AMSOIL does not do is sell the product.
The sales responsibility is given to registered AMSOIL Dealers. Dealers make their money by buying products at wholesale and selling them at retail, distributing catalogs and registering individuals as Preferred Customers so they may purchase at wholesale prices, or registering commercial and retail on-the-shelf accounts. The greatest success comes in recruiting others to become Dealers, creating a "network". Commissions are made from the profits of all the Dealers in a personal network, as well as the sales made from catalogs and to a Dealer's Preferred Customers, commercial and retail on-the-shelf accounts.
Facts About
Network Marketing |
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1. By 2000, it is estimated that there were 40 million home based business.*
2. Three out of every ten working Americans do a significant amount of work from the home. **
3. Ninety percent of the five to ten million network marketers are part-time, but more are making it a full-time career. ***
4. Sixty to seventy percent of all North American households have purchased goods and services from network marketers.***
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* Starting and Operating a Home Based Business by Rowan Wakesfield
** The Wall Street Journal's Guide to Marketing in the 1990s
*** Network Marketing Window of Opportunity by Jeffrey Babener
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According to Babener, the main difference between a salesperson in a conventional company and a MLM company is that, "In a conventional company, you are their employee. In network marketing, you are their partner. You are a volunteer; an independent contractor working in your own business – and you are your own boss." Their goals, however, are very much the same.
Why Is It So Popular?
Babener says its popularity can be attributed to its win/win/win philosophy. The corporation wins because "Network marketing can significantly reduce the 'conventional' costs of doing business – such as advertising, merchandising and selling expenses. Also, the product often penetrates new, untapped markets." The consumer wins because "Network marketing offers unique and often superior specialty products not available through normal channels." They also have the convenience of shopping at home and can receive discounts for loyalty or for recommending the product to others. And, the entrepreneur wins because "Network marketing offers the most accessible, lowest cost business start-up possible. It allows the entrepreneur to set his own hours, have immediate tax breaks and have powerful earning potential."
Good vs. Bad
Because of the vast number of MLM companies in the world today, it's inevitable that some businesses will abuse the MLM system. Furthermore, it is possible to get involved in the wrong company.
A business could be a Fortune 500 company, yet it may not be suited for a particular salesperson. A person who is enthusiastic about a product and truly believes in its effectiveness will, of course, be a better spokesperson for the product. One mistake people make in working for an MLM company is trying to sell a product they care nothing about. If AMSOIL Dealers did not think that the products were indeed exceptional, trying to prove they are to customers would be a bit of a challenge. If the salesperson doesn't believe in the product, why would the customer?
Besides making the correct personal decisions regarding the product, Barener says there is a set of criteria to consider when determining whether the company itself is legitimate. Since network marketing is still relatively new, "The way in which it is defined and regulated varies considerably from state to state. Therefore, it's up to the entrepreneur to learn to tell the good from the bad.
Product and Price – Consider if the product is of high quality and fairly priced. When AMSOIL guarantees that its synthetic lubricants have extended drain intervals and are superior in extreme temperatures, Dealers know this to be true due to the numerous tests done and testimonials from satisfied customers. An illegitimate company will have no such proof.
Investment and Inventory Requirements – When a company asks for a large up front investment with noting in return, it's generally a sign to be wary. Many companies, including AMSOIL, require a minimal start-up fee, but any company that asks for a large fee may be trying to make a profit from the new Dealer instead of from selling the product. Also, if a company requires the salesperson to buy a certain amount of product in order to become a Dealer, it is, again, an attempt for the company to try to make more money off the salesperson than the potential customers. Many legitimate companies do require a minimum level of activity to maintain a Dealer status, but do not require a certain amount of inventory to be kept on hand. AMSOIL doesn't even require a minimum level of activity to maintain Dealer status; only a certain amount of product must be sold a month in order for the Dealer to gain a commission. Note this is not a minimum of product purchases. By establishing a new Dealer, Preferred Customer, or account, that makes a minimal purchase qualifies a Dealer to collect commissions each month.
Buy-Back Policy -- When an AMSOIL Dealer wants to leave the business, AMSOIL will buy back, within 30 days and minus a small restocking fee, any current and marketable AMSOIL products considering they are in resalable condition. Any good MLM company should. "In fact," Babener says, "this policy is required in states which have adopted Multi-level distribution statutes."
Distributor Activity – AMSOIL provides literature and promotional materials to make it easier for the Dealer to train and manage other Dealers in their personal network. While AMSOIL does not require a Dealer to actively develop and manage their network, it does strongly encourage them to do so by providing these necessary tools. A successful company will take these steps to help Dealers nurture their businesses.
Earnings Representations – Finally, any company that guarantees a specific income may not be a legitimate MLM business. AMSOIL does promise the potential to make a substantial income, but does not make any guarantees. Unless the claims made by a company are, according to Babener, "based on a verifiable track record of the average earnings of distributors in a particular geographic area," the company is probably using the income promise as a unsubstantiated enticement.
Companies that utilize network marketing, like AMSOIL INC., are not fly-by-night organizations. Many are solid, reputable companies that are involved in one of the fastest growing business industries today. As Babener says, "Network marketing is a powerful step in the evolution of the free enterprise system . . . a way that anyone, anywhere, from any walk of life can take part in the Entrepreneurial Revolution that is sweeping America and the world!"
