Network Marketing is a business model that depends on person-to-person sales by independent representatives, often working from home. A network marketing business may require you to build a network of business partners or salespeople to assist with lead generation and closing sales.
There are many reputable network marketing operations, but some have been denounced as pyramid Schemes. The latter may focus less on sales to consumers than on recruitment of salespeople who may be required to pay upfront for expensive starter kits.
How Network Marketing Works
Network marketing is known by a variety of names, including multilevel marketing (MLM), cellular marketing, affiliate marketing, consumer-direct marketing, referral marketing, or home-based business franchising.
Companies that follow the network marketing model often create tiers of salespeople—that is, salespeople are encouraged to recruit their own networks of salespeople. The creators of a new tier (or "upline") earn commission on their own sales and on sales made by the people in the tier they created (the "downline"). In time, a new tier can sprout yet another tier, which contributes more commission to the person in the top tier as well as the middle tier.
Thus, the earnings of salespeople depend on recruitment as well as product sales. Those who got in early and are in a top tier make the most.
Is network marketing a pyramid scheme / Fraud?
While network and multi-level marketing programs have been accused of being pyramid schemes, there are some important differences. While those who are able to recruit more members into the program are often able to enjoy greater residual commissions, network marketing is a legitimate and legal business structure that offers real products and services sold to customers.
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