Promoting Small Business-to-Business Networking
in the Tacoma Area

Network Marketing 101 - Part I
By Steve Ritchie

On the subject of network marketing companies (or MLMs as they were frequently called) the primary difference between a typical retail distribution company and a network marketing company is the channel used to move products from the manufacturer to the end user. Most retail distribution companies allocate a sizable budget towards mass advertising to entice buyers to their stores. Network marketing is different in that instead of spending on advertising, the distribution of products is channeled through a large network of people who not only use the products but also retail them to the public. This "large network of people" are themselves known as distributors (not employees) and are "free agents" who abide by the rules of the company in order to receive products for resale.

Aside from the satisfaction of using the products or services and reselling such to customers for a retail profit (retail less wholesale), what other incentives do these "free agents" have in doing this? Remember that advertising budget I spoke of earlier? Since most network marketing companies do not usually rely on mass advertising to bring products to the marketplace, the funds are therefore used to reward the distributors. Ideally the greater the effort - the greater the reward. Over the years numerous "compensation plans" were developed to pay distributors commissions based on sales made not only by themselves but also on people they "sponsored" into the business (thus extending the network downwards).

A couple of plans that have been used over the years were coined the "Stair-Step Breakaway" and the "Matrix Plan". There have been wild variations of these plans - some with their merits - others having disastrous results often leading to the demise of the company. So the right compensation plan is essential for the network marketing company to succeed. The common sense rule is this: Whatever way the plan is supposed to work ALWAYS reward the people doing the work AND in proportion to their work.

The next important thing to look for in a network marketing company is the product and/or services it provides. There are several questions that need to be asked:

·          Is there a demand for these by the general public?

·          Are the products/services competitively priced so that they can actually be sold at retail cost instead of wholesale?

·           Are they consumable or renewable preferably within a month's time?

·           Are they unique products or services that cannot readily be obtained anywhere else?

If you can answer yes to all of these questions then it's a sure bet that the company has done its homework. A distributor of these products will certainly not have to "beg" customers to buy from them.

The third important ingredient of a successful company will revolve around the infrastructure or the internal operations of the company. This involves many things:

·          Has the company been structured to handle the needs of the distributors adequately?

·          Is there a competent IT staff on board who understand the unique nature of the business?

·          Is the computer system capable of handling the load of increased growth?

·          Are orders being shipped in a timely fashion?

·          Are distributors able to call the company and receive timely answers to their questions?

·          Has a legal department been created to ensure compliance with all state and local laws?

·          Most important of all: Are commission checks being sent out on time ¡V every time?

Finally and most important of all, what kind of system does the network marketing company have in place to create new customers and recruit new distributors. This is what I personally consider the lifeblood of the company. These are the necessary steps that are taken to take someone who is first introduced to the company (as a potential customer) to one who becomes a successful distributor in the business.  Many companies fail in this area because they are unable to maintain a continued growth pattern because the steps that were taken were not duplicable.

In my next article I will delve into what makes for a successful recruiting system and the pitfalls to avoid.
(to be continued)

Steve Ritchie has been in the Network Marketing field for over 20 years and has developed commission software systems for over 30 companies. He developed the Distributor Tracking and Commission System for Market America Inc of Greensboro, NC and not only serves the company as its exclusive Senior Systems Consultant but also promotes the company's Unfranchise Business Opportunity. He can be contacted at steve@tacomabiz.com .

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