5 Things to Know Before Starting Network Marketing Business Venture

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Shrushti

Senior editor

Parul Saxena

Chief editor

Last updated: June 10, 2021

If you look at the statistics, the network marketing business has grown over time. When it first started in 1990, there were 25% of the Direct Selling Association (DSA) members using the network marketing business model. By 2009, it grew to 94.2% of DSA members using network marketing.

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Currently, the network marketing industry is valued at around 167 billion USD, which is estimated to reach around INR 645 billion by 2025. 

The network marketing business model is operating in more than 1000+ and is considered one of the best industries to gain profit. We understand that there have been myths about how the networking marketing business doesn’t work. However, we like to disagree here. 

In 2018, the direct sales industry, of which network marketing is a part of, earned $35.4 billion in sales. 

6.2 million people in the U.S. are involved in direct sales. (Source)

Clearly, the success of networking business has nothing to with the network marketing model itself but, instead, determined by how effectively you market your products or services. 

Now that we have broken the myth for you, let’s get started with the network marketing business. 

Understanding Networking Marketing Business 

Network marketing business is also referred to as referral marketing or multi-level marketing business. It implies a model where a distributed network is created to build the business while offering a lot of flexibility as well. 

These top companies, such as Avon, Amway, Mary Kay Cosmetics, Tupperware, and more, have a robust network marketing model.

If you don’t want to face stiff competition, work on network marketing business ideas that are easily sellable. Of course, you will also need to have a sound reward system in place for all your network marketers under your scheme.

Most often, entrepreneurs are encouraged to start their own network marketing business because it is quite easy to set up. And if you are planning to sell the product or services of an existing company, then the start-up capital becomes more affordable. 

But how does it work exactly?

Let’s understand its pyramid structure to get a clear picture of the multi-level marketing business. 

Structure of Network Marketing Business

Companies that are into multi-level marketing business creates tiers of salespeople, whereby these salespeople recruit their own networks of sellers.

There are three different tiers to the network marketing business model — single-tier, two-tier, and multi-level.

In a single-tier model, you do not have to recruit other distributors. All your pay comes from making direct sales. Avon is an example of a single-tier network business model.

The two-tier model involves hiring salespeople. You get paid for your direct sales as well as for transactions made by affiliates or distributors you recruit under you.

Multi-level tier contains two or more tiers that allow you to make money five or more levels deep. Amway is a good example here.

One important tip is that you need to have a reliable marketing team at the core of your company. The stronger you have a base of marketers, the better is your chance of getting success. 

Also, Read: MLM Statistics You Need to Know in 2020

5 Factors to Know When Starting Your Own Network Marketing Business

Every business ideas need a concrete plan to successfully launch it. Before starting a business, one has to carry out a tremendous amount of market research on different factors.

This section will throw light on market research and feasibility studies that you need to carry out if you are considering a multi-level marketing business. 

1. Unique Business Name Ideas

First things first, you need to be very creative while choosing a name for your network marketing business company.

The name should resonate with your company’s mission and visions. Most importantly, it should be unique and attractive enough that immediately grabs your audience’s attention.

The business name goes a long way in creating a perception about one’s product/service/business in their customer’s mind. 

2. Demographics

One of the most significant factors to consider while defining the demographics for your network marketing company is that you should include everybody with or without purchasing power within your target area.

The demographic composition should have both the freelance marketer and those who need the services or products of a network marketing company. 

3. Competition Level

Another significant thing to consider in networking marketing business plans is the level of competition.

To survive in the business world, networking with key people is very important. You need to have contacts that can influence and also help recruit the right marketers’ team that can create an impact.

The level of competition mainly depends on two things — your place of business and the types of products or services you are going to sell.

If you can create and sell unique products or services, you are less likely to face any competition. But, dealing with products that already have an established company will require a hell lot of effort and strategies.

Besides, one advantage of networking business is that you can have your company established in India and still have some of the largest networks of marketers in China.

Some of the challenges that you might face:

  • Presence of well-established marketing companies
  • Presence of retailers or businesses who are dealing with the same products or services
  • The arrival of a new network marketing company who is going to sell the same products as yours and in the same location
  • Unfavorable government policies and economic downfall that will affect the purchasing power of the consumer

Tip: Try to create your own market and target a location that is easy to penetrate 

4. Economic Element

As a matter of fact, the cost of running a network marketing company is relatively low. It requires less stress and minimal capital to start up, especially if you are working as a freelance network marketer.

As a freelance network marketer, you can start a business from home and can still climb up your ladders.

The cost of working is generally restricted to the cost of internet subscriptions, phone bills, transportation, and some marketing collateral copies.

That’s why you will find many stay-at-home moms actively involved in networking marketing business.

If you can build a robust network of results-oriented marketers or referrers, you can earn good profits. Besides, it becomes easier to calculate the profit you are likely to make if you successfully sell your products. 

5. Legal Entity

When you decide to form a network marketing company, you need to choose the legal entity. This may not seem important in the beginning, but it helps determine how far your business will expand.

Generally, there are two options to choose from — a general partnership or limited liability company, also known as an LLC. You need to first identify your target audience and location.

Some multi-level companies design products for local/regional markets, whereas some targets the national or international markets.

To give you a clear-cut answer, a general partnership is best suited for a small scale network marketing company.

But if you have the intention to grow your business down the line and expand your market, then the preferred choice should be a limited liability company.

LLC protects you from personal liability. Plus, it gives you more flexibility to operate compared to a general partnership. And the best thing is that you don’t need to have shareholders meeting, a board of directors, and other formalities.

Other factors to consider before you choose a legal entity for your company — tax, investors’ expectation, ease of transferability, and more. 

Final Thoughts

Since you are thinking of starting a network marketing business, it’s essential to know what the future holds for the multi-level marketing industry. 

Should you really consider investing in a network marketing business? 

Despite all the myths surrounding the network marketing business, the industry is on the rise. There are many reasons why networking marketing is considered the best marketing model. 

First of all, it permits people to experience big earnings by experiencing low risks. Next is the time flexibility.

In every network marketing company, you get to be your own boss, and you can decide on your own how much time you want to invest in the business. Other than that, it is a great opportunity to earn some passive income. 

To conclude, it is the perfect time to invest in a network marketing business plan. The growth potential is vast. If trodden carefully with a full-fledged plan, you can take your business to great heights. 

Remember, network marketing is all about the connections you make. 

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Shrushti K. Chaware Works as a Digital Marketing Executive, at SoftwareSuggest. She is a Sports lover and always curious to explore new stuff. When she is not working hard at work, she can be found writing, reading or just wandering.

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