Two of the most established business models today are network marketing and multi-level marketing (MLM). Both these terms are often used interchangeably. However, these are different from each other in more than one aspect.
It is important to fully understand the concept of network marketing in order to distinguish it from MLM. For the start, we can say that MLM is one step beyond network marketing.
What is Network Marketing?
The network marketing business model does away with the middleman. Here the manufacturer can market product directly to its customers/consumers without the need to involve a third-party, thus saving the cost it has to pay to the agent. It also allows huge savings on costs to advertisements, training and building a large sales force.
The manufacturer directly gets in touch with independent distributors (who promote the product or service at their own expense), and passes the savings made earlier, then on the distributors in form of commissions or bonuses.
Here is a breakdown of Network Marketing:
By promoting the offering through networking with relatives, friends, acquaintances and others, the independent distributor earns a healthy income.
For example: if you become the distributor, you can recommend the product you have to promote, to your friends and earn an income from it, simply with recommendation! For every referral or amount of referrals, you get rewarded with a commission.
Thus, network marketing is a trade of earning made from references and recommendations.
Some benefits of network marketing are listed below:
- The manufacturer lowers risks, overheads and saves money
- The distributor promotes services, products and earns a handsome amount
- The consumer purchases the offering from referral, thus developing affiliation to brand directly than via advertisements.
What is Multi-level Marketing (MLM)?
Multi-level marketing can be described as network marketing on steroids. The distributor is not only allowed but encouraged to build his/her sales force of people who will further promote the product. Thus, the promotion happens at two levels- distributors and his referred sales force. This is the key difference between network marketing and MLM.
Apart from profits earned, the distributor gets to develop marketing and leadership qualities by leading its own sales force team. He/she teaches the team members to duplicate the efforts and in turn becomes leaders of their own teams. In MLM terms, added members and their recruits become ‘downline’ to the original distributor.
How Does MLM Earn One More than via Network Marketing?
Under the MLM business model, when the team members recruit their own distributors and so forth, they come under the original distributor’s sales force who earns a percentage of bonuses from their sales efforts as well. The name ‘multi-level marketing’ generates from the idea of downline that is made up from several levels or layers. Thus, the business chart of each member extends exponentially.
While network marketing employs earning from referrals MLM widens the market circle furthers and includes selling products to greater number of people. The income drawn is thus unlimited and ever-rolling. The consumer too saves on money on a useful product. However, in network marketing the income is limited to just earning from referrals.
Thus, if anyone wishes to maximize their earning, they can start with multi-level marketing to earn and simultaneously understand network marketing thoroughly.