Companies such as Avon, Forever Living, Amway and Ann Summers have been around for many years and have grown into internationally successful, reputable businesses. Whilst at first glance they may not have much else in common, they all share the same business model – Network Marketing, or Multi-Level Marketing.
And yet, media coverage often focuses on the ‘victims’ of MLM’s and seemingly supports a generalised view that Network Marketing is not a genuine business opportunity. Examples include this ‘undercover’ TV show promising to look at the secret of the Multi-level millionaires or this podcast Are we being duped by the multi-level millionaires?.
The success of the aforementioned businesses, to name a few, as well as hundreds of our clients, who are indeed successful business owners making a living through Network Marketing, tell a different story.
What are the revenue streams?
So, let’s look at how you can generate income in Network Marketing. Essentially, there are two revenue streams:
- Money through sales of the products/services you sell. When distributors first start out, this part typically makes up the majority of their revenue.
- Commission on sales made by team members/downlines. Over time, once distributors have expanded their network through recruitment of downlines, this typically overtakes the revenue made from the individual distributor’s sales.
The more downlines a distributor has, the more money they will be making from commissions. Commission structures vary between organisations and can seem complicated at first glance, but generally speaking, enable you to receive a percentage of each sale that your downline makes. So therefore, the bigger your team, the more money you earn. In this blog, we explain how some of the most popular compensation plans work.
As the business changes from mainly retailing to recruiting, so do the responsibilities. The recruitment, training and mentoring side becomes much more important and time consuming, and the selling of the product less so. This is sometimes referred to as residual or passive income – when you continue to make money whilst not doing any active selling or retailing.
One area where Network Marketers need to mentor their downlines is in the area of bookkeeping and tax compliance, and this is where PRB Accountants can assist.
Summary
In our experience, Network Marketing represents a genuine business opportunity, which can lead to financial success as much as any other business. It is not a shortcut to get rich quickly. Instead, you need to understand how the industry works, and put in the hard work to make it a success.
Further reading: you may also be interested to read our Practice Partner Chris Whitley-Jones’ thoughts on Network Marketing as a Business Model in this blog.
PRB Accountants are specialist accountants for the direct selling or Network Marketing industry.
Editor’s note: This post was originally published in 2019 and has been updated for comprehensiveness.