Building Your Business Operations & Success Marketing The Network Marketing Business Model: Is It Right for You? That depends on the type of network marketing. By Lahle Wolfe Lahle Wolfe Facebook Twitter Lahle Wolfe wrote about women in business for The Balance Small Business. She has more than 25 years of experience in small business development and ran her own digital marketing firm. learn about our editorial policies Updated on September 19, 2022 Fact checked by Vikki Velasquez and David Rubin In This Article View All In This Article What Is Network Marketing? Multi-Level Marketing Does Network Marketing Pay Well? Multi-Level Marketing vs. Network Marketing Frequently Asked Questions (FAQs) Photo: The Balance Network marketing is a business model that relies on a network of distributors to grow a business. There are many types of network marketing, but one of the most well-known types is called multi-level marketing. Key Takeaways Network marketing is a business model that relies on a network of independent distributors to sell a product.Multi-level marketing is a type of network marketing where the salespeople also earn money by recruiting more salespeople.To earn money with network marketing, you must commit time, money, and effort—possibly more than you'd expect. What Is Network Marketing? Network marketing relies on individual distributors who market and sell a product to their network of friends, relatives, and people they know or meet. The distributors make money through commissions on the products they sell. Often, they're not employees of the company, but rather independent contractors. Distributors in network marketing businesses typically use three strategies to succeed: lead generation, recruiting, and building and management. Lead generation is the process of locating new customers and clients who may be interested in the product. Recruiting is the process of adding customers and business partners to your network. And building and management are the way you train, motivate, and manage your recruits. Multi-Level Marketing In some businesses, the distributors are also paid a commission for recruiting more distributors to sell the product. The more people they recruit, the more money they can make. The result is multiple tiers, or levels, of salespeople: the top, original tier (called "the upline"), and then one or more tiers below them ("the downline"). Each new recruit might then also recruit additional distributors, which would form that level's downline. This type of network marketing is called multi-level marketing (MLM). Some MLM programs allow you to make money five or more tiers deep. The top-level tiers make the most money, because they receive commissions from all the tiers below them. It is difficult for the newest recruits to make money. Examples of MLM businesses include LuLaRoe, Magnetic Sponsoring, and Amway. Does Network Marketing Pay Well? Network marketing does not pay equally well for everyone. The amount you earn depends on the volume of sales you can generate on your own and, in the case of MLM companies, the success of your downline as well. Note A study published by the Consumer Awareness Institute noted that most of the commissions paid by MLM companies go to a tiny portion of distributors, with 99% of recruits actually losing money on their efforts. There are several reasons why it can be tough to make money with multi-level marketing. First, the company may require you to buy its products, pay for training, or keep a certain amount of inventory on hand. These costs often come before you can make your first sale, so you start out behind. Then, the exciting bonuses or prizes the company offers are often only available to sellers who "pay to play," by making incentivized purchases of a certain dollar amount. This inventory then has to be sold as well if the salesperson is to make a profit. Sometimes these purchases are required if the seller wishes to advance, and reselling is tough because the seller needs to mark the product above retail to recoup their costs. Finally, there are often operating expenses, such as computers, phones, internet access, and "training tools" required by the company. These costs further erode the possibility of profit, requiring the seller to meet such rigorous sales or recruiting goals that it's nearly impossible to get ahead. Not everyone who wants to sell something will be good at it. However, sincerity and genuine enthusiasm about a company or product is a form of marketing in and of itself. If the only incentive to the sales team is money, they may cut corners or mislead others in an attempt to earn more for themselves. For network marketing to be successful, the salespeople must be sincerely enthusiastic about the product as well. Note Take the time to research your state's laws regarding network marketing. Deceptive marketing practices and pyramid schemes can land you in legal trouble if you are not careful. Multi-Level Marketing vs. Network Marketing Multi-level marketing is a form of network marketing with several levels of distributors. A large part of a multi-level marketer's success will come from recruiting. But there are two other, simpler modes of network marketing as well: single-tier network marketing and two-tier network marketing. Single-Tier Network Marketing With single-tier network marketing, you sign up for a company's affiliate program to sell their products or services. You do not need to recruit other distributors, and all your pay comes from direct sales. Avon, the popular beauty company, uses single-tier network marketing. In some online affiliate programs, you get paid for the traffic you drive to the affiliate's website. Pay-per-click (PPC) and pay-per-lead (PPL) affiliate programs are other examples of single-tier networking. Two-Tier Network Marketing Unlike single-tier network marketing, two-tier network marketing does involve some recruiting, but your pay isn't solely dependent on it. You get paid for direct sales (or traffic you drive to a website) and for direct sales or referred traffic made by affiliates or distributors you recruit to work under you. An example of a two-tier program is Ken Envoy's Site Sell. Frequently Asked Questions (FAQs) Can you make money with network marketing? Yes, it's possible to make money with network marketing. However, it's not easy. To be successful typically requires a serious application of effort, time, and money. Casual salespeople will quickly find themselves losing money. Is network marketing risky? Yes, there are risks that go with network marketing. You risk the money it takes for startup costs, inventory purchases, and training materials. You'll also spend time and money filling out paperwork, filling and shipping orders, and recruiting new salespeople. To make your money back, you'll need to sell a lot of product. And to continue to make a profit, you'll need to continue selling more (and sometimes recruiting new salespeople for your downline). Consider whether your network truly has enough buyers to support your business's needs, and research the network marketing company thoroughly before you get involved. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Federal Trade Commission. "The Case (for and) Against Multi-Level Marketing," Chapter 7, Pages 7-1, 7-32. Federal Trade Commission. "The Case (for and) Against Multi-level Marketing," Page Intro-4. Federal Trade Commission. "The Case (for and) Against Multi-Level Marketing," Chapter 7, Pages 7-5, 7-7. Federal Trade Commission. "Multi-Level Marketing Businesses and Pyramid Schemes." Avon. "Make Beauty Your Business." SiteSell. "Solo Build It! (SBI!) - Proof of Success."