What is Network Marketing?

John Rogers — Mar 25, 2019

Network marketing is a misunderstood and irrationally feared business model.

It’s like the dread pirate Roberts in the movie The Princess Bride. Just the mention of it conjures a feeling of irrational dismay. The unreasonable phobia attached to it is an unfortunate cultural phenomenon.

What is network marketing?

Network marketing, also called referral marketing, is a business model that involves a network of independent agents who directly sell to the end user. In addition to direct sales, these agents can also cultivate a “down-line” of other agents they recruit, and earn commissions off of their down-line’s sales.

This blog is the first in a series of seven. We will present the positive and negative attributes of the network marketing business model. The intention is to provide solid, factual useful information about this dynamic industry. Here’s a list of blogs in the series:

1. What Is Network Marketing?
2. Top Network Marketing Programs
3. Tips to Succeed with a Network Marketing Company
4. Strategies to Succeed with Network Marketing
5. Network Marketing Courses and Trainings
6. Supplement/Vitamin Network Marketing Companies 
7. Skin Care Network Marketing Companies

Network marketing (often referred to as “referral marketing”) is a subset of affiliate marketing. Consequently every referral marketing company is an affiliate marketing company, but not all affiliate companies are network marketing programs. What’s the difference?

Start by understanding affiliate marketing. Here’s a link to a YouTube video from Affilorama – How Does Affiliate Marketing Work?

Affiliate marketing is performance-based shopping where a company rewards affiliates (you) for each visitor or customer you send the company. The company offers products and services, and when you help them sell that product or service, you earn a commission. Affiliate marketers are independent business owners. Your business is to function as a brand representative for products produced by other companies.

There are three parties to a transaction.

1. Company – They function as designer, creator, manufacturer, supplier, provider.
2. Advocate – This is the advertiser, blogger, publisher, middleman, promoter.
3. Customer – The end user, buyer, client, consumer, shopper, user.

Affiliate marketers function as the Advocate. There are different types of affiliate marketing. Only one category of affiliate marketing uses the referral marketing business model. Let’s break it down into three overall classifications.

1. Detached
2. Linked
3. Participating (hint – this is the one)

1. Detached

It’s Detached because there is no relation between you and the company or you and the customer. You are simply a conduit. This category has huge appeal to neophyte affiliate marketers. It may seem the easiest and fastest way to dive in but, and you know what they say about but. It is a bit of a dead end.

Compare it to the hamster on a wheel method of doing business. Detached affiliate programs are not referral marketing companies. Detached marketing has a few characteristics.

First, you don’t need a website, a social media channel, or podcast. Furthermore, there is no necessity for any internet presence at all. What you rely on is piggy backing on some other platform. Amazon resellers are a prime example of Detached affiliate marketing programs. (I know. Bad pun.) Here you’re sourcing a product and hoping to sell it either when other resellers run out of inventory, or you are adding a unique spin like packaging a number of related products together or you are competing on price alone.

In addition to the Amazon illustration are pop-ups and banners that appear in third party platforms like Facebook or YouTube. The other characteristic of Detached affiliate programs is the lack of any real value you are bringing to the consumer. It’s simply a pay-per-click or eyeballs-on-ads model.

Here’s the link to learn directly from Amazon to learn about the Amazon Affiliate Program.

Advantages

Unlike referral marketing, it’s a fast and relatively painless way to get started. You don’t need to devote years to building your audience. There’s no necessity to create content. You can get started for a reasonably low initial investment.

Disadvantages

You have no relationship with your clients. You’re not building credibility, authority or a following. Unlike a network marketing program, there is no passive, residual income. This is barely even a business model. It’s purely a method of generating revenue. You will be the target of a horde of “trainers” who proclaim fast and easy success in affiliate marketing. Buyer beware.

2. Linked

Unlike Detached, with Linked affiliate marketing programs you have some relationship with your audience and the products you are advocating. This avenue of affiliate marketing requires you to have an established online presence and a defined market niche.

Take for example a food blog. You are regularly providing your audience with useful information and guidance. Perhaps you post new recipes on a regular basis. Including a video in the blog increases viewership and social media sharing. Frequency, quality and authority are important aspects of building a Linked affiliate marketing business. However, a Linked affiliate program is not a network marketing program.

With this model you can generate revenue by allowing companies with products related to your niche to advertise on your page. This happens when they post sidebars, banners and text links in the blogs on your site. Whenever any of your audience clicks through and makes a purchase, you receive a commission. Another popular use of Linked programs is to promote additional products of your own.

In the case of food blogs, it’s common to find bloggers who promote their own cook books. Check out this blog from Plated. Click on any of the links in Our 15 Favorite Food Blogs for examples of Linked programs.

Advantages

The larger the size of your follower group, the higher the likelihood of generating recurring revenue. The longer you have been around, the higher your search engine rankings will become. The more you provide useful content and add value to your customers, the more business you will develop.

In this sense, Linked affiliate marketing is like referral marketing: your income can rise substantially as you add more value and connect with more people. However, unlike referral marketing, with this method of affiliate marketing you are still trading time for money.

Disadvantages

It takes –

• time
• talent
• patience
• a unique niche or perspective
• superior content creation
• multi-channel exposure

The biggest downside to this category is your exposure to losing your loyal customers. This can happen because of the risk that your customer may have a bad experience with the supplier. It is highly unlikely that you have any direct exposure or knowledge based on personal use of the products advertised on your site. This is not the case with a network marketing program.

You are putting your credibility on the line for something you have little knowledge of regarding its performance and effectiveness. You can be deprived of your business through no fault of your own.

3. Participating

Every referral marketing company is a Participating affiliate marketing business. This is the gold standard. We call this Participating affiliate marketing because you have direct, personally participating knowledge of the product or service you are advocating. You are an active consumer of it yourself. You’re a proponent of the product because of your belief and experience with it. This is a product line you want your audience to engage with because you wish them to experience the same benefits that you receive.

After 22 years of full-time engagement in the industry my experience is that Participating affiliate marketing programs have the highest degree of authority, credibility, and confidence.

Since you are leveraging the customer loyalty you have with your followers, the only programs you advocate are those you have unflinching belief in. This is the polar opposite of Detached affiliate programs. As opposed to operating a slick system to make money on clicks, you only generate revenue with Participating programs when you succeed at adding value to someone else. It is the highest ethical standard of affiliate marketing.

To learn about the Participating affiliate marketing programs I have the most success with, click the “Apply For Free!” button and apply to become a member of the Wealth Creation Mastermind.

To see one example of a highly recommended Participating Affiliate Marketing program members of the Wealth Creation Mastermind personally advocate, click on this affiliate link.

Advantages

Hands down, this is the superior way to create a lasting, passive, residual income stream that permits the formation of financial freedom. Participating affiliate programs put the credibility you have established with your audience to work on your behalf. Learn more by visiting our page – Multiple Streams of Passive Income.

Disadvantages

Building trust and a genuine connection with your audience is demanding. It takes constant creation of valuable content and excellent customer service. There is no way to achieve this rapidly or easily. It is a highly competitive industry so if you don’t occupy a unique niche where you can legitimately add value to your followers, you may fail.

The most important tip to succeed

Each category of affiliate marketing, whether Detached, Linked, or Participating, has pros and cons; but without question, leveraging your credibility, influence and trust will generate a more lasting relation and return than anything else.

Referral marketing business model

What distinguishes affiliate companies is whether or not they employ a referral marketing business model. This is identified by how the compensation model is structured. All network marketing plans utilize a system that determines a participant’s payout based on a hierarchy of rank qualifications. In a non-network marketing program an affiliate’s commission is based exclusively on sales volume regardless of meeting any structural requirements.

Questions about network marketing

In this section, we’ll answer some common questions about network marketing.

What’s the difference between a pyramid scheme and network marketing (and: is network marketing legal)?

Let’s review the difference:

Network marketing

Most noteworthy is that the compensation plan of every referral marketing company pays on multiple levels, or tiers of marketers. Forty percent of the retail price of the product or service is the average amount that is paid into the compensation structure. Referral marketing is a legal form of business. A referral marketing company pays commissions based on selling a product or service. Often referral marketing companies have more customers than affiliates marketing the products.

Pyramid schemes

Pyramid schemes, unlike legitimate network marketing programs, have no underlying product or service and they generally pay out about 90% into the compensation plan. New money is used to pay earlier participants in the plan. Ponzi schemes, like Bernie Madoff’s scheme, are pyramid plans and they are outlawed by the Federal Trade Commission.

How does network marketing work?

Referral marketing companies are also referred to as multi-level marketing. This describes how the business model functions. A new affiliate (you) has the right to do two things.

First, to function as a brand representative for the company providing the product or service. As a brand representative all affiliates receive a commission on any purchases they are directly responsible for.

Additionally, all affiliates have the right to recruit and train other brand representatives. Those representatives are referred to as a “down-line.” When those down-line brand reps generate sales, you, their sponsor or recruiter, will also receive a commission on the sale. This is why network marketing is often referred to as “referral marketing”: part of your compensation comes from referring others to join the company as brand representatives. Multi-level marketing companies have numerous compensation structures but all of them pay affiliates for recruiting, training and supporting a group of sales reps. The number of levels, the structure and the pay-out varies from company to company.

Do I need a website to succeed?

When you’re launching your marketing campaigns, it can be tempting to think you need advanced marketing software, a slick website to generate traffic, and a Shopify app. None of those things will hurt, but you can also succeed with referral marketing with only word of mouth, hard work, and an honest desire to help your prospective customers.

Network marketing products

When selecting a referral marketing company to affiliate with, the first consideration is the type of product you will advocate. Because you are leveraging the credibility you have established with your audience it is vital that your choice of network marketing program and product line be considered with great care.

It’s true that referral marketing has a fearful reputation for a reason—a lot of referral marketing companies are bad. Plenty of referral marketing companies seem to spring up overnight, hawking a mediocre or useless product and expecting affiliates to pay a lot of money up-front just to store boxes of product in their basement. Zeek Rewards, Bit Connect, and 2by2.net, for instance, have been sued or even shut down by the federal government with good reason.

But the existence of bad network marketing programs does not preclude the existence of good ones; just like the existence of scammy training courses, online marketing companies, and weight loss diets does not preclude the existence of good products in each of those categories.

So how do you spot the reliable, reputable referral marketing companies that represent a gold standard of integrity?

Here is a list of some of the criteria to be considered.

• unique
• patented
• consumable
• reasonable price point
• high demand
• does not contain ingredients outlawed anywhere
• part of a suite of ongoing product pipeline development
• limited market competition
• early on in its lifecycle and market penetration
• unquestionably beneficial
• time-tested
• backed by hard science or research
• no possibility of being a scam
• high caliber, deeply experienced leadership involvement
• bulletproof financial integrity
• ideally a product you personally have experience with and belief in

10 Referral Marketing Companies with totally different products

Here’s a list of 10 companies with their lead product. These referral program examples illuminate the truth that you can find virtually any kind of product in the network narketing channel.

Note: inclusion in this list is not an endorsement of any of these online referral marketing products or companies. It is an example of the diversity of products and businesses available to choose from. The WCM is not affiliated with any of the following companies.

World Global Network

The Helo wearable wristband devices continuously monitor the user’s most important vital signs and parameters, in real-time. It is based on patent-pending, clinically-tested and medically-certified biometric sensors.

Ariix

Slenderiix is a natural weight management system. It is designed to expedite weight loss while maintaining proper levels of nutrition.

Karatbars

24 Karat 999.9 Pure Gold coins and cards are embedded with the precious metal. They are available in weights from 1 to 100 grams of gold.

Valantus

Slim Roast Italian dark roast coffee controls appetite, regulates sugar absorption, regulates fat absorption, promotes brain health and focus, elevates mood and provides antioxidants.

Total Life Changes

Laso Detox Tea is a unique blend of all-natural ingredients. It has helped people to cleanse their body of toxins and flush excess waste.

QNet

BioSilver Gel antibacterial skin cleanser and sanitizer promotes effective cleansing.

Vasayo

Micro Neoro supports healthy brain function, including memory, clarity, focus, and overall cognition.

Enagic

The Kangen Water machine is capable of producing 5 types of water: Kangen Water, Clean Water, Acidic (beauty) water, Strong Kangen water, and Strong Acidic water.

Worldventures

Dream Trips membership is a global travel and entertainment community.

Opulence Global

Feri Mosh is just one example of the fashion, beauty and health products available from this lifestyle company.

Additional consideration to this topic will be covered in our upcoming blog – Tips to Succeed with a Network Marketing Company. (hint: your successful marketing strategy isn’t spamming friends and family 24/7 on social media).

Another article, Strategies to Succeed with Network Marketing will address referral marketing practices, lead generation strategies, and attraction marketing methods. (A powerful referral process involves knowing your target market and sharing honest reasons they would benefit from your product, spreading the word without being spammy, and a proven customer acquisition process.)

Furthermore, the Top Network Marketing Companies blog will identify the best companies to work with and the ones to avoid. In addition, a review of a number of companies will be provided.

Referral marketing distributors

Referral marketing distributors are a unique character of entrepreneur. Most noteworthy is that this group seeks autonomy, choice, and independence. If you want to grow your business, there are numerous books that can be read to provide excellent insight into this unique version of affiliate marketing. Especially relevant, and one we highly recommend, is Go Pro – 7 Steps to Becoming a Network Marketing Professional by Eric Worre.

As you know, in referral marketing there is no substitute for associating with successful marketers. There’s an old African proverb: if you want to go fast, go alone. If you want to go far, go together.

At the Wealth Creation Mastermind, we can give you the tools you need to go far in network marketing.

But I won’t lie—while our program is powerful, network marketing is still hard work. We can give you industry-leading support but we can’t do the work for you, and you’ll still need to hustle to succeed. But there’s no ceiling. If you could put in 1.5x as much work as most people are willing to, and get 10x the results, would you do it?

If so, we highly recommend you fill out the form to Join the Mastermind. Onward.

John Rogers

John Rogers has been in the network marketing industry for over 20 years. He has earned the prestigious Blue Diamond rank with Univera, the highest rank that the health- and wellness-focused network marketing company offers. His team represents 60% of Univera’s annual sales in North America.  John was recognized as the Univera Associate of the Year in 2015.

John has also been associated with 2 other network marketing companies and achieved a Platinum rank with Nikken, a Japanese health and wellness company.

John is the former CEO of Premium Enterprises. He has a Masters degree in education (M.Ed.) from the University of Northern Colorado (graduated 1973) and is passionate about teaching fellow network marketers to replicate his success.