What is multi-level marketing and how does it work. What is an MLM network business? How to make money in network companies in Russia

What is network marketing, what are its pros and cons? Which MLM business companies are popular in 2018? How to make your first money in a network business?

Hello friends! With you is Alexander Berezhnov, entrepreneur and one of the authors of the website HeatherBober.ru.

Today the network marketing industry is gaining new wave popularity, the development of the Internet also plays a significant role in this.

However, this concept still causes controversy in society. Some call network marketing almost the only opportunity to open your own business without investment, others are sure that this is all a financial pyramid, a scam and deception.

Some time ago I was involved in network marketing myself and I know firsthand what it is. In this article, I decided to dot all the i's and cover this topic from all sides, including taking into account my experience in this industry.

After studying this article, you will firmly decide for yourself whether it is worth doing MLM business, what the pros and cons are, and you will also find out which companies are better to start with and why.

So let's get started!

1. What is network marketing (MLM) and what is its essence?

I'll start with a definition and then expand on it and give examples.

For example, the production cost of ORBIT chewing gum ranges from 20 to 50 kopecks per package of 10 pads. However, while the chewing gum is on the shelf in the store, its cost increases by several thousand percent! It's all because of the intermediaries - large and small wholesalers who sell chewing gum to each other.

But it doesn’t end there, because, as you know: advertising is the engine of trade and intermediaries spend a lot of money on advertising.

Fact

In large companies, up to 50% of the final cost of a product consists of advertising and promotion costs.

Thus, we buy Orbit packaging for 20-50 rubles. Yes, this price is of course included trade margin the manufacturer himself, but the intermediaries also want to eat. So it turns out that the end consumer suffers, who overpays exorbitantly.

About a hundred years ago, people began to think about the problem of unreasonable markups by resellers and intermediaries.

Network Marketing Idea

Make the process of promoting goods (services) more convenient, cheaper and faster. Remove intermediaries and expensive media advertising from the promotion scheme.

This can be done if people themselves tell each other about the product of the network company, and their motivation will be the percentage they receive from sales of the MLM company’s products.

But you just can’t earn much from interest. Therefore, multi-level marketing allows you to build own business, creating a wide network of consumers of the product.

It is assumed that a person who has developed his network structure will receive a percentage of the entire turnover of his structure. This is how he can create tens of thousands of dollars a month for himself.

To learn how you can create such an income in MLM, be sure to watch the video below. This is a cartoon about Pablo and Bruno - ordinary guys who chose different ways gaining financial freedom, and both wanted to become millionaires. Let's see what they came up with.

Network Marketing was designed to solve the following problems:

1. Reduce the cost of goods for the end consumer. This can be achieved by eliminating expensive standard advertising on radio, TV and the Internet.
2. Speed ​​up the process of delivering goods to the end consumer. This is achieved through well-thought-out logistics (a network of our own warehouses in different cities and countries).
3. Eliminate counterfeit goods. In the process of resale of goods, substitutions and falsification of large quantities are possible. An MLM company works directly with the end consumer, so the likelihood of product counterfeiting tends to zero.
4. Motivate company employees with money and business opportunities. In multi-level marketing there is an opportunity to make good money and build your business from scratch.

2. How network marketing works

To begin with, I’ll tell you about general principles work of this industry.

The manufacturing company has its own factories for the production of goods.

She sells these products without stores; the products are distributed thanks to a built-in recommendation system. In everyday language this system is called “word of mouth”.

A large number of people like this principle and are happy to buy products from the company.

Nowadays, all orders of an MLM company can be placed via the Internet, and paper catalogs, which were popular some time ago, are developing information technology fade into the background.

The client uses the products and can start building a business with a direct sales company. To do this, he needs to find several people who will constantly buy products and attract new partners to the business to develop the network. That is why this type of marketing is called network marketing.

Having its own warehouses and delivery services, the network company delivers products to the warehouse, and then these products are distributed to offices that the company’s partners (distributors) have personally opened for themselves. Sometimes the company delivers the order directly to the client’s home, which is very convenient.

Now I will talk about the features and principles of multi-level marketing for the manufacturer of goods (company), for the end consumer (client) and for the person who decided to open his own business (entrepreneur) using the capabilities of mlm.

From an MLM company's point of view

A distinctive feature of promoting goods online is the reduction in advertising costs for your products. The company cares more about promotional materials for its distribution partners (sometimes called independent entrepreneurs) and building a system of professional training (mentoring).

It is on the high-quality transfer of the MLM idea from person to person that the business of the enterprise ultimately depends.

From a consumer point of view

It is convenient for the client to receive products with a quality guarantee; he likes affordable prices, samples, and catalogs. Direct selling companies often have exclusive products and accessories that cannot be found in regular stores.

From the point of view of the distributor (entrepreneur)

People who want to start their own business without investment can succeed here. After all, the entire system has already been built, the market has been formed, most large companies are already well-known among the population. In addition, the powerful system of training and mentoring in network marketing companies makes the opportunity to build your own business more than real.

3. MLM business industry - history and development trends

Network marketing originated in the West in the USA.

In 1945, American entrepreneurs Lee S. Mytinger and William S. Casselberry opened their own business, becoming national distributors of Nutrilite Products. The basis of their activities was the principle of recommendation (network) marketing.

Further, in the late 1950s, two companies were created in the United States: Shaklee and Amway. In Russia and the CIS countries, people are widely familiar with Amway products and the features of its business. The company itself was created in 1959 by Rich DeVos and Jay Van Endel, and was originally called American Way Corporation.

The industry developed especially rapidly in the 1980s - 1990s. The range of products grew and by the mid-1990s, mlm manufacturers offered their customers literally everything: from cosmetics and detergents to automotive products, household appliances, long-distance communication services and computers.

Today, the network marketing industry has undergone great changes and almost all mlm companies have gone online in one way or another.

In 1996, it was created in Russia Direct Selling Association(rdsa.ru), which contributes to the development of the industry, its self-regulation and maintaining the reputation of the network business at a high level.

According to the Association for 2015-2016 in Russia, multi-level sales are involved in one way or another 6% of the total population(distributors), and these are millions of people, not counting consumers.

The Internet space has allowed the industry to develop at a rapid pace. And this is quite logical.

Example

You can now build your business in a network marketing company not only through face-to-face meetings at home or in a rented office, but also via the Internet, using the capabilities of Skype, electronic mail and social networks. Advanced entrepreneurs create their own websites.

This is exactly how “networkers,” as distributors of multi-level companies’ products are usually called, are now actively processing the online space to expand the composition of the participants in their group (branch).

However, the development of digital technologies has also given rise to another side of this industry - the emergence of fraudulent companies and financial pyramids, which, under the guise of investment funds or simply respectable mlm firms, drag honest people into illegal and immoral schemes.

Below in the course of the article, I will also touch on the issue of fraud and tell you what not to do and how to distinguish a reliable network company from a scam.

4. Why do many people today associate network marketing with a pyramid?

In continuation of the previous paragraph, as promised, I will reveal the “pyramid question”.

The association with pyramids, deception and fraud among people arises rather out of inexperience.

I’ll say right away that there is the concept of “classical marketing” and “network marketing”, although it is very conditional. Let me tell you how they differ for completeness.

1. Classic marketing

These are all the ways and means of promoting goods that we are used to seeing around us - advertising on TV, radio, outdoor advertising, and so on.

Selling goods in stores is also a standard way of promotion. As a result, all this can be attributed to the concept of “classical marketing”.

2. Network marketing

This is simply an unusual way of distributing goods for the majority of people. As you know, it is also called multi-level marketing.

In this concept of promotion there are no, familiar to many, retail stores, there is no standard advertising in public places, and the products themselves, as a rule, have more high quality in comparison with our usual analogues.

The model of distribution of goods, which is unusual for many, instills fear in those who have heard about various kinds of deceptions or have already fallen into financial pyramids.

Dear readers, remember!

Network marketing has nothing to do with a pyramid scheme, fraud or illegal activity.

Associations with the pyramid arise because in both the pyramid and the MLM you need to attract people in order to make money.

Only in the first case do you receive money for the “heads”, that is, your earnings depend depending on the number of people involved who invested money in the pyramid, and in the second, the income depends on the turnover that the clients you attract will make.

That is, if we are talking about normal multi-level marketing, you can sign up at least 1000 people into your structure, but if they don’t buy anything, then your income will be zero.

In a pyramid, everything is the other way around, where everyone involved is required to make a contribution, usually quite significant (from 500 to 5000 dollars) and you are guaranteed to receive a percentage of his money, but your client will not receive the real goods. He pays only for the opportunity to make money by attracting new “victims”.

Below, in the answers to frequently asked questions, I clearly outlined the criteria with which you can distinguish a good mlm company from a financial pyramid.

5. Network marketing on the Internet without investment - myth or reality?

There is no myth here and there cannot be. Building your own network business via the Internet is new trend, which is gaining momentum every day.

How to find a client for your MLM structure via the Internet - 5 proven ways to attract:

1. Social media. One of the most popular methods. You can create a group (community) here on the topic of making money and self-development. The people who join will be your potential clients. You can also “spam”, that is, send messages to everyone, but then you risk getting your account blocked by the administration of the social network.
2. Thematic forums. On forums about earnings and personal growth you can also find future companions in your multi-level structure.
3. Contextual advertising. You can create a website and customize it contextual advertising, thereby attracting targeted visitors. There is already an article on our website. However, this method can be quite expensive for such a purpose.
4. SEO - promotion. By analogy with the previous method. You can make your own Internet resource and write articles on it containing keywords related to success, earnings and network marketing. Gradually, these articles will be promoted through the subscription form located on the site, and you will receive people loyal to your activities.
5. Lead generation. This method consists of creating a flow of contacts (applications) of potential clients whom you will attract using various advertising tools. You can learn more about what advertising is and what types of advertising exist from. You can process applications from potential clients (leads) and attract them to your multi-level marketing company.

You can use these and other ways to attract potential participants from the Internet to your network structure.

6. Pros and cons of network marketing - an overview of the main advantages and disadvantages

Network marketing, like any phenomenon, has a number of advantages and disadvantages.

This is why there are people who vehemently campaign for mlm, and there are those who are afraid of “networking”. To make the picture clearer, I have compiled a corresponding table that reflects almost all aspects of the SM:

Pros and cons of network marketing:

If you have not yet decided whether to engage in SM, then the criteria described in this table will help you once again understand whether it is for you or not.

7. Rating of network companies in Russia - list of TOP-5 market leaders for 2017-2018.

The most interesting thing is that the first two companies Avon and Oriflame occupy 31% and 30% in this ranking, respectively. This means that these companies are by far the leaders among our citizens in the MLM industry.

As you can see, Mary Kay and Faberlic occupy almost the same market share, and Amway is somewhere in the middle.

In any case, I am sure that you have heard, if not about all of these companies, then about most of them.

I consider them reliable and it is these companies that I advise you to work with if you decide to start an online business.

8. FAQ - answers to frequently asked questions

These questions are often asked to me, and here I present them with answers as the most popular.

Question 1: Should a beginner start his own network marketing business?

Yes, it’s worth it, but only if you are willing to wait a long time for results (from 6 months to 3 years) and have a cash reserve that will “feed” you during a cash-strapped period. I also advise you to analyze your strengths and weaknesses, objectively assessing your capabilities.

But if you get tired of communicating with people and have a hard time with rejection, then it’s better not to rush into this pool headlong.

Question 2. How to make your first money in network marketing?

To do this, find 2-3 clients and simply sell them your company’s products, having first registered as a partner.

Then you will feel the “taste” of your first money. Perhaps it will be a very small amount: from 100 to 1000 rubles, but this will already be your money earned in direct sales.

If you want to get a more serious amount, then find 3-5 people who plan to build a business with you. Help them find 3-5 more people for each and in a few weeks your income will grow to several thousand rubles per month and will increase as your “branch” grows.

Question 3. What and how can you attract people to network marketing today?

Today, as always, you can attract people to network marketing with the idea of ​​earning prospects, creating passive income and a free (flexible) work schedule.

The quality of products and the range of direct sales companies is constantly growing, so to say that our products are of high quality is no longer so appropriate.

But if you show the ease of working with the company’s website and the possibilities of doing business via the Internet, this will definitely not leave your potential partners indifferent.

Question 4. How to distinguish network marketing from a financial pyramid?

It is no secret that some fraudulent companies discredit the honor of decent MLM enterprises and disguise themselves as them.

How can you spot scammers? There are some characteristic signs of dishonest companies:

Here they are:

1. Unreasonably high entry fee. As a rule, it is from 100 to 5000 dollars. It is from this money that the remuneration to the “distributor” is paid.
2. The product as such either does not exist at all or has no market value outside this organization.
3. There is no documentary evidence of the receipt of money and other appropriate documents (invoice, agreement, checks, etc.);
4. You are told that you will receive money from number of attracted participants , and not from the turnover of the structure.
5. The main point in the organization’s work is the emphasis on make money quickly , and the product (if it exists) is needed only as a cover in the activities of the pyramid.

If you notice at least one of them in the company where you are invited, it is worth thoroughly studying it for deception and the legality of its activities.

Network marketing or MLM business has existed for a long time, but nothing is taught about it in schools and universities, so this topic is still covered in a veil of myths and stereotypes. I wrote this article for those who have encountered network marketing themselves and are considering it as an option to make money, become an entrepreneur and earn passive income. I will try to reveal the truth so that you are not hostage to myths and stereotypes and will share my vision of how to earn the maximum in this business. If you think that I am wrong about something, write about it in the comments.

MLM business what is it decoding

For those who are not in the know: MLM stands for MultiLevel Marketing, which translates as multi-level marketing. This is a scheme for distributing goods and services in which a company attracts distributors who have the right to attract new distributors for a fee.

1. Scam for suckers, financial pyramid

Network marketing or MLM business - what is it really?

MLM business, or network marketing, began to conquer the Russian market back in the 90s of the last century, and still remains in trend, attracting new entrepreneurs to its ranks. Thanks to this form of sales, we distribute all kinds of additives, cosmetics, detergents, dishes, etc. According to the Direct Selling Association, 43.5% of the market is occupied by personal care products, 29%- products that contribute healthy image life. 11.2%- clothing and accessories, 9.5%- household chemicals, 5% - household goods and others. But, despite the fairly high demand for goods, and the growing turnover of companies engaged in network business, our attitude towards MLM is very ambiguous.

• Why is MLM business attractive?
• Why people don't like MLM: 3 reasons for distrust of business
• How to start a business from scratch in MLM
• How to choose the right company to work for and start earning money
• 3 tips on how to make money with network marketing
• Internet network marketing: a second wind for business?
• MLM business trends 2018
• How to develop a business mindset using MLM

On the one hand, hundreds of thousands of people come to the MLM business who want to earn money and build a career: at the end of 2017, 3.8 million people were engaged in network marketing. On the other hand- They try to avoid network marketing and often do not consider it as an opportunity to make money, preferring a stable job with a stable monthly payment. The thing is that often people have no idea about true face network marketing. Let's try to figure out what MLM business is today, what positions it occupies in Russia, whether it has prospects and what awaits it in the future.

Why is MLM business attractive?

The name MLM comes from the English multilevel marketing, that is, multi-level marketing, sales. Network Marketing - certain type sales of goods and services by independent distributors. Each of them can not only engage in sales, but also attract new partners, and they, in turn,- theirs. Thanks to this approach, a “network” is formed, each participant of which can receive interest both from their own sales and from the sales of people they attract. The larger the distributor network- the higher his income.

Let's say you have a store that sells cosmetics. You can only make a profit when buyers come to you. Opened - earnings will also depend on its customer attendance. Network marketing will provide completely different opportunities. People themselves will order the necessary goods, buy them and distribute them among their friends. It is for this reason that it is so attractive to companies producing certain products. "Dinosaurs" of the market, such as Avon, Mary Kay, Oriflame, Amway do not have worthy competitors for the simple reason that their products are often sold out almost immediately, even at prices that are several times higher than “store prices”. Sales through stores are fraught with competition and unnecessary problems problems that can be solved through network marketing. The manufacturer does not need to spend money on advertising, renting retail space or incurring other expenses. But for networkers, the big plus is that companies not only earn money themselves, but also give everyone the opportunity to earn money.- those who like their products.

In network marketing you can:

- have a flexible work schedule;

- get by with minimal financial investments;

Make a career;

- create passive income;

- transfer the contract by inheritance or sell.

But despite all the advantages, not everyone manages to achieve success in MLM.

Millions on MLM: how American multi-level marketing differs from Russian

American MLM marketing differs from Russian only in the attitude of representatives of two nationalities towards it. Americans most often consider network marketing to be a side hustle or second job. They are ready to devote some time to it, but not their whole life. If things are going well, and there is not enough time to manage a multi-level company, a few leave their jobs and engage only in MLM business. Some people can actually become millionaires through MLM. But this is only the top of the pyramid, at the foot of which there are thousands of less successful entrepreneurs.

In Russia, newcomers often try to invest all their strength and resources into a new business and constantly run around with friends and strangers, offering a product and trying to sell it at any cost. To build their own network, many lack the skill or desire. Beginners mostly see only a system of bonuses and bonuses plus the opportunity to purchase goods cheaply.

Network marketing today, like any other business, requires a reasonable approach and a clear plan of action. And one more thing: if abroad the times of trials of network companies are a thing of the past, and business has become completely legal and profitable, then in Russia the possibility of encountering fraud still exists.

One of the most controversial earning schemes, which leaves neither zealous apologists nor indignant oppositionists indifferent - MLM business. What is it? Some people see this idea as an additional source of income, while others warily see it as yet another speculation. We propose to “dissect” this phenomenon and understand in detail the features of the sensational financial instrument.

A lot of time has passed since MMM was exposed, but distrust in the online business remains. Although MLM is fundamentally different from the notorious financial pyramid of the 90s, not everyone wants to spend time studying the differences.

Network marketing or MLM, which translates from English as multi-level marketing, is one of the methods of promoting products. It involves creating a large network of sellers who are motivated not only to make a profit from the sale of goods, but also to earn a percentage from attracting new participants.

It is based on 2 principles: the absence of intermediaries and extensive advertising campaigns. The presence of these factors can significantly affect the cost of the product, so marketing geniuses try to avoid them. For example, the cost of 1 package of chewing gum is on average 50 kopecks, whereas, going through all links of the trade chain, its price will increase by more than one hundred percent! The final cost of the goods sold big companies, increases to 50% of the original. In addition to the fact that the manufacturer's markup is added, sales agents Those involved in its promotion on the market also pledge their percentage.

The creation of MLM was aimed at solving the following global problems:

1. Reducing the final cost of products by eliminating expensive advertising.
2. Accelerating the delivery process through well-structured logistics.
3. Product quality management through refusal to work with intermediaries. Products are sold directly, which eliminates the possibility of counterfeits.
4. Rewarding employees with cash bonuses and business growth opportunities.

For diligent sellers who know how to promote their goods, this type of income can be an excellent opportunity to start.

History of the development of multi-level marketing

The USA is considered the birthplace of MLM: in 1945, 2 American businessmen founded their company Nutrilite Products, the main principle of which was recommendations. Housewives, during conversations in the kitchen, shared their impressions of various products, just as their husbands advised each other on this or that item needed in everyday life. Gradually, entrepreneurs had the idea to transfer free exchange of opinions to a paid basis, which was embodied within the framework of network marketing. After 5 years of existence of this new type of sales, Amway emerged, well known to residents of the Russian Federation and CIS countries.

One of the brightest stages in the development of the industry occurred in last decade last century, accompanied by increased consumer interest and, accordingly, an increase in the range of products offered, from tires to computers. With the advent of the Internet, the face of MLM has changed significantly: most companies have transferred their business to the World Wide Web, which has given a powerful impetus to the development of this business. Due to the fact that it was possible to communicate with customers online, there was no need to rent office space or organize meetings aimed at familiarizing with products.

Features of MLM

• a shift in emphasis from advertising products to their quality: instead of popularizing them in the media, managers invest money in promotional materials that they supply to distributors;
• training programs: salespeople are trained in the art of sales and given thorough knowledge about the benefits of the products they sell;
• continuity of flow: if sales stop for several days, the company may face bankruptcy;
• large number representatives: the lower level of the network should be filled with people as much as possible, since it is within this layer that the main sales are made.

Typically, consumers like to purchase quality products by ordering them through a monthly catalog that is constantly updated with new products. A flexible system of discounts, samples, birthday gifts, the presence of exclusive products that are not found on store shelves - all this makes the network business quite attractive from the buyer’s point of view.

Distributors are motivated by the percentage they receive from each transaction, but it is impossible to obtain a high level of income from such sales. As part of network marketing, it is envisaged to build your own “pyramid” consisting of agents. According to the rules, its creator receives profit from every transaction made by his “subordinates”. With a well-developed network, you can achieve a substantial increase in your basic income.

Word of mouth or financial pyramid?

The main principle of sales, based on explaining to your friends and relatives the advantages of the product offered, certainly puts it in the category of “word of mouth”. Some people equate MLM with financial pyramid schemes. The similarities can be traced, but the foundation on which network marketing is built is fundamentally different from fraudulent schemes. Firstly, it does not require large investments and subsequent expectation of dividends. Secondly, if you develop a good client base, it is possible to cover the initial costs and then turn a profit.

To understand network marketing, you should compare it with the original source.

1. Classic marketing. Large-scale advertising of products on radio and TV, outdoor advertising, sales of products in stores.
2. Network (multi-level) marketing. Distribution of products through an “agent network”.

If in MMM and the like, earnings were based on the number of people who were managed to join the financial sext, then in network marketing, income depends solely on the number of goods sold.

Types of Compensation Plans

One of the indisputable advantages of this business is the opportunity for self-realization, regardless of having experience in the trading field. If you want to try your hand at one of the MLM projects, you should choose a company with a suitable marketing plan and go looking for clients.

To familiarize yourself with the reward system in an accessible language, we offer a small dictionary for the beginning MLM specialist.

Distributor(sometimes you can also find such definitions as distributor, agent or participant) - a person who sells the company's products under the patronage of his sponsor.

Qualification- a position that an organization assigns to a participant for fulfilling a plan for a certain period. Examples would be a Silver or Diamond Director.

Commission or bonus- material remuneration provided as part of the company’s compensation plan.

Leader- a person who has “recruited” a large number of successfully operating distributors and receives income from the activities of his network.

Manager- leader of a team consisting of 10-25 people. This title represents an intermediate link between the sponsor and the director.

Sponsor— a distributor who recruits and trains other distributors.

4 main options for compensation plans have been developed.

Plan 1 - step-separating

It combines 2 schemes: a step scheme, used to pay a percentage of the sales volume of a personal group, and a separating scheme, based on rewards for those participants who dissociate themselves from their groups.

The income of distributors participating in the ladder scheme depends on their level in the system and on the level of those they sponsor.

When an agent reaches a high level, usually called a director or leader, he leaves his leader's group.

This modification is often criticized due to the fact that the split distributor does not always have enough people in his group to earn a commission. However, the peculiarity of compensation plans is the following nuance: in order to achieve the depth of the grid, it should be built in width. This method allows you to both protect your “brainchild” and receive material income. Over the entire history of MLM, about 90% of companies that reached the $400,000,000 mark in the course of their activities used this scheme.

Plan 2 - matrix plan

A distinctive feature of this type is the limitation of the leader’s actions to a certain configuration.

This is an example of the popular 3x3 matrix, in which each participant has the right to sponsor only 3 people at his 1st level and count on rewards from only 3 levels of distributors. The leader has the opportunity to receive a commission from only 39 people. Participants who are at level 4 will not be available to him.

The disadvantage of this scheme is that a limited number of participants can be placed on the first level. When this layer is filled, new agents will have to be placed at lower levels, which, as a rule, has a negative impact on their interest. Another problem is that, unlike separating schemes, which provide the ability to “cut off” by opening your line, the matrix plan does not allow such freedom of action. In addition, if a leader decides to abandon a non-profitable first-tier distributor, he may lose a significant portion of his income.

Plan 3 - Single Level Plan

Although the name of this scheme suggests that there is only one level, this variety is not. As a rule, companies pay from 5 to 9 levels without the possibility of separation. You can expand unlimitedly, but commissions will only be paid for a certain number of levels.

Table 1. Commissions paid to the distributor for each level with a single-level plan

This scheme attracts novice distributors because they can make a profit from the start. However, when they reach more high levels, their enthusiasm wanes because opportunities for growth are quite limited.

Plan 4 - Binary Plan

It is a type of matrix and works on the “2 x infinity” principle. You are given the right to sponsor 2 people at level 1, who must act according to the same scheme. Accordingly, the participant will have 2 positions at level 1, 4 at level 2, etc.

The peculiarity of this plan is that it is not the agents that should be sponsored, but the positions themselves, which in this structure are called income centers. For example, if the volume provided for the income center is 1,000 rubles, then an agent who enters this cell with 3,000 rubles will automatically occupy 3 cells. Another highlight of this scheme is the possibility of the leader re-entering the organization. Compensation is carried out for the volume evenly distributed between the branches. For example, if in one branch the leader earned 1000 rubles, and the other branch did not bring any profit, the distributor will be left without payment at the exit.

There are also hybrid plans based on a combination of several of the schemes already listed.

Operating principles of MLM

Over the 70-year history of operation, several options for generating income within MLM have emerged. Each of them is focused on constantly searching for clients and disseminating information about the company.

1. Margin. The essence of this method is the resale of goods: products are purchased at a wholesale price and then sold at the market price. The commission ranges from 15 to 30%.
2. Bonus system. Certain actions aimed at benefiting the company can bring passive income. As a rule, especially talented sellers are rewarded.
3. Percentage of personal network earnings. The employee receives a percentage of the profits of the agents he brought to the company, as well as from their distributors, and so on. The more people are subordinate, the a large amount can be received monthly.

You should be prepared for misunderstanding and even aggression from potential buyers, especially when it comes to distributing goods in social networks. On at the moment Consumers are very skeptical about network marketing on the Internet.

A look from the inside

To make a final decision about the “cleanliness” of this type of business, you should take a close look at the process that occurs between the release of a product and its delivery into the hands of the buyer.

1. Before starting the project, the company builds a factory to produce products and rents or purchases warehouse and office space for storing and selling them.
2. After a batch of goods has been released, the search for sellers begins. Well-trained managers demonstrate the benefits of products during interviews and talk about earnings prospects.
3. During registration, in some cases, distributors may be asked to pay an initial fee, but large organizations do not practice such measures, valuing their reputation in the market.
4. Material rewards are received either after each product sale or once a month.

Photo 5. The more people are connected to the network, the greater the profit will go to the account of its organizer.

If a company requires payment of an entry fee, you should carefully study its activities, since opportunistic entrepreneurs may act this way.

Network marketing on the global network

Network marketing on the Internet has been gaining popularity lately. Every day there are more and more online stores offering a variety of products. To promote such sites, you will need skills in promoting the site in search engines and attracting customers without direct contact.

Buyer search methods:

1. Social media. The most popular option: a group is created dedicated to making money on the Internet or advertising a specific product. Then its active propaganda begins. You can also distribute products through mailings to contacts who are not in the “address book”, but in this case there is a risk of blocking the account by network moderators.
2. Thematic forums. Another resource that makes it possible to promote products, and this platform allows their popularization without any restrictions from the site administration.
3. Contextual advertising. It involves creating your own website, which will require certain financial investments, but they will be insignificant. From the client's perspective, she is the most respectable source of information.
4. SEO promotion. A technique that only an Internet marketing guru can do. You will need both knowledge of website promotion and the ability to competently write texts to fill it out, using keywords. It is with the help of phrases that will catch the attention of the audience that you can take a leading position in the ranking.

Every year, the tools for attracting buyers are updated, so it is necessary to monitor marketing innovations.

Photo 7. For all the advantages of network marketing, this mechanism, like any other, is imperfect.

Advantages and disadvantages of MLM

Naturally, from the consumer’s perspective, it is much easier and more common to go to any store and purchase exactly the product that is needed at the moment. This is especially true in conditions of a catastrophic lack of temporary resources. In order to look at this business from the point of view of a distributor, we suggest that you familiarize yourself with the following table.

Table 2. Advantages and disadvantages of MLM

Perhaps familiarizing yourself with the data provided will help you understand the degree to which this type of business is acceptable to you.

Rating of network companies in the Russian Federation

This data will be useful to entrepreneurs who have decided to start a career in the MLM field.

Table 3. Share of large network companies in the Russian market

Based on this information, you can choose one of the suitable companies to start your career in MLM.

Photo 7. The development of network marketing in Russia has been entrusted to the Direct Sales Association. This organization is dedicated to protecting consumer rights and verifying ethical business practices. Its list of members includes such well-known companies as Amway, Tiens, Nu Skin, AlliancePrint, Herbalife, Tentorium, Mary Kay, Jafra and Oriflame.

What to do if you are interested in network marketing?

The determining factor for choosing an organization should not only be its rating. Before scheduling an interview, you should review her background for the following characteristics:

1. Product quality and cost. It is desirable that the goods are affordable and meet the declared quality. The purchase of products should not greatly affect the contents of the buyer’s wallet. These are the products that will be attractive from a consumer point of view.
2. Duration of existence on the market. If the company is relatively young, having only a few years under its belt commercial activities, there is a high probability of fraudulent actions on the part of managers who can close it at any time without explaining the reasons or payments cash. The most reputable companies are those that have been operating for at least 5 years. Using this criterion, you can immediately weed out possible “pyramids” engaged in speculative operations. Even with all the efforts of the founders of such schemes, it is unlikely to be able to keep investors in illusion for such a long period of time. Practice has shown that companies involved in such frauds rob naive citizens as much as possible during this period, and then curtail their business.
3. Payment scheme. You need to find out the percentage of sales volume, the terms of accumulative payments and the amount of bonus points from attracted customers. It is advisable to compare the level of expected income with that of other companies.
4. Training system. If possible, you should avoid organizations that provide training on a paid basis. This also applies to taking courses that will not help improve sales and will only take up valuable time.
5. Fame. The company's recognition has great value: If it is popular in at least 3 countries, it will be more reliable than a local organization.
6. Official status. If there are difficulties in finding the company's head office, or the premises do not have high-quality repairs and personable staff, you should not become a member. If there is no official website of the organization on the Internet, or the site is not periodically updated with new content, there is a high probability of being deceived.

Network marketing as a type of business is conquering new heights. However, not everyone knows him well - some trust him and are happy to cooperate with similar companies, others try to stay away from MLM trading and sincerely consider it a scam and a “pyramid”.

Network marketing and financial pyramids - similarities and differences

The second category of the population is only partly right - the principles of network marketing are actually similar to financial “pyramids”. It lies in the fact that in order to make a profit you need to attract other people. However, this is where the similarities end.

Simply put, in the second case, you can bring as many new participants as you like, but if they don’t buy anything, then the income of the “agitator” will be zero.

With the first option, the opposite is true - the client receives a percentage of the contributions of new members. However, the amount of the down payment is usually quite significant and can range from $100 to infinity. The participant most often does not receive a real product or acquires something that does not have a high value in the real world.



How to choose a company for cooperation

For those who have decided to start a career in network marketing, experts advise choosing the right company to cooperate with.

Here you need to pay attention to the following factors:

Training and information for consultants

For a beginner, this is very important - to have the opportunity to attend various trainings and consultations with more experienced sellers. Many companies offer step-by-step systems training that allows everyone to quickly move up the career ladder. In addition, MLM organizations often offer training and promotional materials.

Company reliability

There are two ways here - choose a start-up company or one that has already proven itself in the market. In the first case, you can find yourself at the very beginning of the business and have more opportunities to attract new clients and get “quick” money. But here the “pitfall” is the new name of the company: firstly, the quality of its products is unknown to anyone, and secondly, it can quickly cease to exist.

The second case – going to work for a reputable company – also has its pros and cons. From positive aspects: the products of this company are already known to the consumer, so they sell better. Moreover, it is unlikely to break up in the next few years. But there are also disadvantages - such companies already have enough distributors, and competition among them is high.



Manufactured products

It must meet the following requirements:

• high quality and environmental friendliness are prerequisite! After all, network marketing is built on the principle of “word of mouth”, and in the case when the buyer is dissatisfied with the quality of the purchased product, he will recommend to his friends not to use it;
• a wide range - in this case, each buyer will be able to choose something special for himself and his family. How many advisors can be successful trading only two or three positions?
• affordable prices - they should be such that 95% of the country’s population can afford to purchase this product;
• not a very long validity period - this is necessary so that the client purchases as often as possible this product. If a product has a shelf life of several decades (for example, tableware), then the distributor will have to constantly be on the lookout for consumers. The ideal goods for trade are cosmetics, household chemicals, perfumes, hygiene products, .



Rating of companies

Continuing the topic, you can casually note that a company for cooperation is chosen based on its financial indicators. And this is logical - the more sales a company has, the better its products are in demand among consumers, the more stable it develops and the faster it grows.

The ranking for 2018 is as follows (in billions of dollars):

1. Amway – $9.50
2. Avon – $6.16
3. Herbalife – $4.47
4. Vorverk – $4.00
5. Infinitus – $2.88
6. Mary Kay – $3.70
7. Perfect – $3.58
8. Natura – $2.41
9. Tupperware – $2.28
10. Nu Skin – $2.25
11. Tiens – $1.55
12. Primerica – $1.41
13. Ambit Energy – $1.40
14. Oriflame – $1.35
15. Belcorp – $1.20
16. Telecom Plus – $1.17
17. New Era – $1.16
18. Jeunesse – $1.09
19. New Avon – $1.01
20. Young Living – $1.00

In Russia there is a Direct Selling Association (DSA), the main goal of which is to develop the network marketing industry. She is also involved in protecting consumer rights and monitoring compliance with ethical standards when doing business.

This association includes only 21 MLM companies out of many companies operating in the country:

Senior members of the APP:

1. Amway
2. Herbalife
3. Mary Kay
4. Oriflame
5. Tupperware
6. Tiens

Active members of the APP:

1. Jafra
2. Coral Club
3. Mirra
4. Morinda
5. Nu Skin
6. Tentorium
7. Faberlic
8. Florange
9. Associated members of the APP:
10. Accord Post
11. AlliancePrint
12. Filuet

Based on this data, you can select for cooperation great company and start, albeit small at first, but your own reliable business.