Network marketing often gets a bad reputation because people assume that it is the same as pyramid schemes. Sometimes you can go blue in the face explaining the difference, so here is my attempt.
So, despite being in network marketing for 20 years, I actually never really understood exactly how a pyramid scheme worked until one of my leaders told me of a scheme her friend had decided to join. It was lovingly disguised with a much more beautiful name – a Lotus Club – but it was a pyramid scheme, and to help you spot one, here is how it worked, and I am making up names here.
In May, Sarah was approached by her friend Lisa.
In the previous month (April), Lisa had paid £1000 to be part of this wonderful new Lotus Club that her friend Emma had joined the month before. Emma had paid her £1000 to Sonia who was now no longer in the Lotus Club as she had reached the top of that particular one. In April, Emma hadn’t had to pay anything to be in the club, it was her job (along with 5 others) to find 6 people to join that month and pay their £1000 to Sonia. That month, Sonia got paid £36,000 as her return on her £1000 investment she had paid in 2 months previously. Sounds great, right?
Well, now in May, Emma was at the top of this 3-tier Lotus Club. Lisa had been one of Emma’s six that had paid the £1000 to Sonia. In May, if all of her 6 people found 6 people to join the club, Emma would make £36,000 just like Sonia did, with Sarah’s payment of £1000 going towards that total.
In June, Emma is celebrating with her £36,000 (if she is lucky and her 6 people found anyone to join), and Lisa is at the top enjoying the money coming in, Sarah is one of 6 people (if Lisa was able to find 6 of her own) now recruiting 6 of her own friends, if she can find people to join. You see, this is a pyramid scheme. Only money is being exchanged or paid in, and only the people at the top are making the money.
Network Marketing is different.
In network marketing, you are purchasing a product (or sometimes a service) from a company via an independent distributor of those products. You get something in return, always. Yes, there are levels or tiers, and sometimes the people at the top earn more money from sales commissions than the people lower down – when you think about it, this makes sense. If you have 3 people buying from you, but they have a team of thousands of people they are earning a commission on, then of course they will be earning more than you. But… the opportunity to earn is there for everyone. True, some companies have compensation plans I just cannot work out, and they have plans that make it really hard, in my opinion, for distributors to reach those top ranks and earn that amazing golden 6- or 7-figure income. That, again in my opinion, means that they have a company that is set up more for profit than supporting its distributors, and obviously there has to be a sensible happy medium there. (You can read my example of some differences between my company and another here.)
However, Network Marketing is not immune.
I am the first to say that, as in all walks of life, there are some real gems and also some real rotten eggs in terms of corporate leaders, companies and products in network marketing. You get these in all industries, you get them in employees, you get them in families… it is just a given that you will get some great network marketing companies and then some that are not so great.
I heard once of a company that was set up in Utah. By the way, Utah is the network marketing capital of the world, and many companies have their headquarters there. I think this is largely due to the stay-at-home mums there where, in the LDS faith, they encourage mums to stay at home to be primary caregivers for their children but obviously economical demands on families are stretched, especially often in these families.
Anyway, back to the company. It was set up by a committee of people who went about it like this.
“We need $1,000,000 that isn’t tied up in property or any other assets.”
“How will we get it?”
“Let’s choose an MLM (multi-level marketing, aka network marketing) model and get stay at home mums to do it for us.”
“What shall we sell?”
“People like wellness products, let’s find one we can do it with.”
“OK, great idea.”
So, a new company was launched, with one goal. To get that $1,000,000. They recruited hard, with mums from poorer areas, they made it really attractive to join, they pushed the products hard. The products weren’t that great, but they told the mums they were, so that is what they told their customers. The company got to it’s million dollar goal, and then closed, with no warning. And the owners walked away with their million, without a care in the world and no further thought to the thousands of mums who now had nothing in return for their hard work.
Yes, network marketing can go wrong. You can get in to a bad company.
But there are also great companies. Like mine. I love my company. It is full of integrity and honesty, transparency and openness, and completely debt-free.
Leaders can make or break a company
You can also get crappy, pushy leaders who are all about the sales, and train their teams to be the same. Spamming people’s social media timelines, adding them without permission to all their sales groups, hounding people until they cave and buy something, even if they don’t need it. But more and more people are getting pissed off about those approaches, and so it is time for something different.