Thursday, May 7, 2009

Network Marketing & MLM - What is the Difference or Is There One?

So often I hear the terms network marketing and multi-level marketing (mlm) interchangeably. In fact, I have interchanged them myself. But, as I became educated, I learned they are not necessarily the same.

What got me thinking about this and why does it even matter? I was at a networking meeting where the guest presenter was promoting her business. Throughout the course of the afternoon she made it a point to say her company was not network marketing or mlm - it was simply a club where individuals could buy their products wholesale. Since many people are turned off when they hear the terms 'network marketing' or 'mlm', the distributors in this company promote their business as a savings club. The problem is you have to join the company as a distributor to even purchase the product. Also, this company pays on multiple levels. Well, by definition, a business model that pays on more than one level is multi-level marketing. Further, since network marketing is defined as a distribution channel which allows people to share in the profits, this company is clearly a multi-level, network marketing company.

In both multi-level marketing and network marketing, individuals are given the opportunity to sell products/services to the end consumer and share in the profits. Instead of paying the celebrities for product endorsement, companies pay that money to the distributors who recommend and promote the products to their networks.

With the proper skills, multi-level marketing can create royalty or residual income. On the other hand, creating residual income may not even be a possibility with a network marketing company that is not mlm.

Here's the difference.

A direct sales company is a network marketing company. In direct sales, someone sells a product and gets paid a one-time commission. Generally, to receive another commission, they have to find a new customer and make another sale (unless it is a consummable). This method is often used for big ticket items or non-consummable items. Home parties is a good example of this type of compensation. Also, if the distributor only gets paid on his personal sales, it is strictly network marketing. However, if a company pays a commission on multiple levels of distributors, then it becomes multi-level marketing as well.

A company can start out as mlm but change to network marketing when they get in a money crunch as recently happened to a well-known company.

As mentioned, both network marketing and multi-level marketing are business models where goods/services are distributed to the end consumer. However, in network marketing, the company pays the commission on one level only. As the name implies, in multi-level marketing (mlm), commissions are paid out on various levels, usually predetermined by the company. Network marketing is a lot like a job, you start from scratch each month because you produce linear income. You get paid on your individual effort only and the moment you stop working, the income stops. In multi-level marketing, you get paid for not only your personal sales, but on the sales of others. In this business model, if you do the work right, you can get paid forever. Your royalty (or residual) income can actually increase from month to month (because you are being compensated for the work of your entire organization). In mlm you can eventually work your way out of a job and into enjoying '7-Day Weekends' because when you stop working, the income will continue to increase.

In a nutshell: Every multi-level marketing company is a network marketing company. However, some network marketing companies are not multi-level marketing. The difference is determined by how many levels are paid.

Be empowered to prosper!

Irma L. White
A Mentor with a Servant's Heart

Questions why you haven't succeeded in mlm? The answer is in this book.

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