What is network marketing?
Network marketing is a way of selling products through independent representatives, often called distributors or consultants. They sell directly to customers, and in many companies they can also recruit others to sell, earning income from their own sales and sometimes from the sales of the people they recruit. It is closely related to direct selling.
Companies and regulators describe these models differently, and results vary widely from person to person. This glossary is educational and is not financial or legal advice.
Core network marketing terms
- Distributor (or representative, consultant): an independent seller who represents the company. They are usually not employees.
- Sponsor: the person who recruits you into the company.
- Upline: the people above you in the chain of sponsorship.
- Downline: the people you recruit, and those they recruit in turn.
- Team or organization: your downline as a group.
- Compensation plan: the rules for how the company pays its distributors, including commissions and bonuses.
- Commission: a payment based on sales, usually a percentage.
- Personal volume: the value of sales you make yourself. Companies use their own names and point systems for this.
- Group volume: the combined sales of you and your downline.
- Rank: a level you reach by meeting set targets, which may change what you earn.
- Starter kit: a package of products or materials new distributors often buy when they join.
- Retail customer: someone who buys to use the product, not to sell it.
- Inventory loading: buying more stock than you can realistically sell. The general idea of overstock is covered in inventory management terms. Many consider this a warning sign.
Related business model terms
- Direct sales: selling products face to face or outside a traditional shop. Network marketing is one form of it.
- Multi-level marketing (MLM): a network marketing structure with several levels of compensation. The terms are often used interchangeably.
- Affiliate marketing: earning a commission for sales you refer, usually online and usually without a recruiting structure. See internet marketing terms for more.
- Referral marketing: rewarding customers for recommending the business.
- Backend sales: products sold to existing customers after the first sale.
Network marketing vs pyramid schemes
A key question for beginners is how a legitimate business differs from an illegal pyramid scheme. Regulators in many countries focus on where the money comes from. Warning signs commonly mentioned include income that depends mainly on recruiting rather than on real product sales, pressure to buy large amounts of stock, high joining fees and unrealistic earnings promises. The legal tests differ by country, so check the guidance of your local consumer protection regulator, and consider independent advice before paying to join anything.
Pros and cons
Possible advantages
- Low start-up cost compared with many businesses, although costs vary.
- Flexible hours.
- Training and a ready-made product line.
Possible drawbacks
- Many participants earn little or lose money after expenses. Ask any company for its income disclosure statement and read it carefully.
- Relying on friends and family as customers can strain relationships.
- Recruiting-heavy pay structures can be risky.
- You are usually self-employed, so you handle your own costs and taxes.
Questions beginners ask
What are the top MLM companies? Rankings change and depend on how they are measured, so this glossary does not name them. If you are researching a company, look at its income disclosure, refund policy and any regulator complaints.
What is the 3-3-3 rule for marketing? It is not a standard industry term, and different people use it for different things. Ask the source what they mean by it.
What should I say to attract customers? Lead with what the product does for the customer, be honest about results, and avoid exaggerated claims. Listening to the customer’s needs usually works better than a scripted pitch.
Related glossaries
For online channels such as email and search, see internet marketing terms. Many network marketers also use social media creators and sponsorships, covered in influencer marketing terms.