Network marketing, multi-level marketing, direct sales, referral marketing, pyramid selling, etc, the names are endless. For the purpose of simplification, we will adhere to this business model simply as network marketing for ease of navigation, and understanding throughout the book. All of these names; simply exemplify a unique marketing strategy for the sale of products or services where the revenue of the network company is derived from a non-salaried workforce selling the company’s products or services. Pretty simple system – just made it complicated to confuse a novice beginner like me.
History – How Did It Start?
By accident to be honest. This is how the story goes and it all starts with an ingenious idea conceptualized in 1930 by a man called Carl Rehnborg. Carl was an American businessman who lived in China between 1917 to 1927. Carl observed the benefits of using supplements in a diet that could be beneficial to a human being’s health. According to Amway publications, Carl’s study became the ‘ample opportunity to observe at close range the effects of an inadequate diet’. With the knowledge he attained in the nutritional literature, he then started to envision a dietary supplement that would assist proper body functioning in any sort of diet. Carl then decided to go back to America to start his own company out of his learnings in China. He founded his company called The California Vitamin Company. In 1939, he renamed the company to Nutrilite. Carl utilized his friends to sell the vitamins but things initially looked disappointing. The vitamins were piling up on the shelves, unused and forgotten. It was heartbreaking for Carl. Until an idea lit up in his mind, to develop a kind of selling by informing people about the product. He shared the vitamins with more of his friends, with the friends of his friends, and so on. You can see where this is going right? Alas – network marketing was born!
The business model grew further when Jay Van Andel and Rich DeVos became the distributors of Carl’s products. The three noticed a phenomenal increase in sales. KABOOM… !! Network marketing was unleashed into the world. They later set up a competing company (because competition is good in a capitalistic economy) called Amway and they also bought a controlling interest in Nutrilite in 1972. In 1994, Amway took over full ownership and is one of the largest network marketing companies in the world today.
How Do They Get Paid?
As the business world innovates and disrupts, network marketing compensation plans evolve to attract new recruits and customers. It is a very simple strategy for expansion to capitalize on the available market share. It is different for every network marketing company just as there are different salaries for different corporations. However the most common is the commission based on the two revenue streams. The first stream of compensation can be paid out from commissions of product sales. The second stream of compensation can be paid out from commissions based on recruiting similar-minded distributors. The amount of compensation varies between network marketing companies. I would have to study every single company in the world to understand this – alternatively, I can study the success stories because success always leaves hints – in the results.