There are endless opportunities in cyberspace claiming to be the “best way to make money online”. Many claim to be the easiest MLM (multilevel marketing) company to make money with. Others claim to show you how to make money fast in network marketing. But, can you make money network marketing? What is the difference between network marketing and a pyramid scheme?
Network marketing is another name for multilevel marketing. You probably see friends on Facebook talking about their latest network marketing home business and how great it is. Home businesses like ItWorks, Scentsy, World Ventures, Organo Gold all use Multilevel marketing business models.
But what are the differences between MLMs and pyramid schemes? Are you able to spot a ridiculous get rich quick scheme from a legitimate multilevel marketing opportunity?
This article (with video) will take a look at network marketing and show why most who jump in fail. I’ll show the most popular network marketing companies out there, the most common compensation plan structures they use, and then go over real numbers from network marketing income statistics that may surprise you. Can you make money network marketing? Let’s see, shall we?
Can You Make Money Network Marketing?
Watch the video below to fully understand the difference between network marketing and a pyramid scheme. What are some examples of popular MLMs? How do network marketing compensation plans typically work? What is a realistic expectation for someone beginning a network marketing business? And most importantly, is network marketing a good way to make money online? Can you make money network marketing? All these questions and more are answered below.
The Difference Between Network Marketing and Pyramid Schemes
I’m going to cover why I don’t recommend network marketing as a sustainable way to make money online in a bit. There are much better, more straightforward ways to make money without needing to recruit a team.
But let’s make no mistake about it. Network marketing opportunities are not the same as pyramid schemes. Network marketing is legal. Pyramid schemes are not.
“So is that thing you’re doing one of those pyramid schemes?” This is the question everyone hears when they first jump into network marketing. The fact is, it’s an honest question, and most people actually don’t know the real difference.
The difference between network marketing and pyramid schemes is that in a pyramid scheme, money is exchanged without any service being rendered or product being sold. IT IS COMPLETELY ILLEGAL.
Have you ever heard the story of the man who gathers 10 people together and charges them $100 each so that he can show them how to make a quick $1000? The 10 people each give him $100 and wait with anticipation. Now with $1000 in his pocket, he tells them all to go find 10 suckers who will pay them $100 each.
DON’T FALL FOR PYRAMID SCHEMES!
Network marketing, on the other hand, involves the purchase of a central product or service. As a representative you will not only buy this product yourself, but also gather customers as well. Additionally, you’ll be recruiting other representatives who want to join your team and sell the product as well.
There is an initial buy in price and there are recurring monthly dues. These usually come in the form of an autoship of more product. The recruiting of other representatives is usually done through home meetings where you show friends and family the same compensation plan you were shown.
One of the main reasons for its popularity is the idea of getting paid on the efforts of others. You’ll earn commissions by recruiting representatives into your team and also from the amount of product you and your team sell.
Sounds great right? Well, let’s dive in a bit further and take an objective look at the numbers.
What are the Most Profitable MLM Companies?
There are many successful network marketing companies who have been in business for a number of years. However, this doesn’t necessarily mean their distributors are all making money with the business. It simply means that there is a steady growth of people who are buying into the business opportunity.
A true measure of what distributors within a network marketing company are making is the annual income disclosure statement provided by the company. We’ll take a look at a couple of examples further down that my shock you.
There are many diverse network marketing opportunities that span a wide range of niches. There are literally THOUSANDS out there online. Some have been around for decades, while others are new up and comers.
Some popular network marketing businesses you may have seen on your social media feeds are:
- Organo Gold
- World Ventures
- Stream Energy
- It Works
- Scentsy and many, many more.
The vast majority of all network marking companies follow versions of the same compensation plan. These involve downlines and growing “legs”. Let’s take a look at the most popular network marketing compensation plans.
How do MLM compensation plans work?
There are several compensation plans widely used within the network marketing industry. It’s always important to research and understand the compensation plan before beginning a network marketing venture. While each specific opportunity can add it’s own nuances to a compensation plan, the majority use the core elements of the unilvel, binary, and matrix compensation plans.
How Does the Unilevel Compensation Plan Work?
With this compensation plan you can personally sponsor as many representatives into your team as you like. The representatives you recruit are then free to do the same.
It is the simplest of the 3 main MLM compensation plans. You will get the most compensation for the members you personally sponsor. You then get decreasing percentages of your team’s commissions as they get further away from you.
In this basic compensation plan there are no ranks and everyone is an equal distributor. No one can surpass someone who’s above them. There are hybrids of this compensation plan like the Breakaway compensation plan. The Breakaway plan allows for a member of your downline to be able to “break away” when he or she meets certain requirements.
How Does the Matrix Compensation Plan Work?
With the Matrix compensation plan you have a set number of spots open in your team. It is your job to fill them.
For example, in a 3×5 Matrix compensation plan, each distributor can sponsor 3 people into the team. They will get compensated up to 5 levels deep.
When it comes time to sponsor that 4th new distributor, instead of being able to place him directly to yourself, you have to find an open spot in another level below. This is called “spillover”.
This “spillover” feature is one of the selling points of the Matrix compensation plan. If you find yourself directly under someone who is exploding the business, you may be the recipient of distributors being placed in your team.
How Does the Binary Compensation Plan Work?
The Binary compensation plan or Dual Team compensation plan allows you to build two teams, or legs. One on the left, and one on the right.
It is unique in that it only allows you to personally sponsor 2 people into your team. This allows for a good amount of spillover, thereby helping your downline.
The Binary compensation plan has one major downside. You only get paid for the lesser of the two teams.
To fully max out this compensation plan you’d need your team to grow out symetrically which is very rare. In other words, if your team on your left leg has absolutely exploded, with 100+ members and growing, while your team on your right leg has only 3 distributors in total, you get only paid on those 3 distributors on the right and not on the exploding 100+ on the left.
The Reality Check: Network Marketing Income Statistics
The real way to answer “Can you make money network marketing?” is by looking at annual network marketing income statistics. This is an objective way to determine how the majority of people fare with a business opportunity.
Income disclosure statements are public record, and should be easy to look up and easy to understand. It will show the revenue breakdown for distributors of a company.
Unfortunately, the vast majority of network marketing income statistics show that most distributors do not make their money back with network marketing MLMs. A staggering amount make no money at all.
Let’s take a look at two different income disclosure statements for network marketing opportunities I’ve written reviews on. The first is for Organo Gold.
As you can see, the vast majority of distributors with Organo Gold (86.34%) made an annual revenue of $0-$599.
When you take into account the expenses and membership fees involved for this particular coffee based MLM, the earnings is far less than the expenses.
This means zero profit.
Additionally, as with most MLMs it is only the top 1% who make the lofty six figure incomes you see in the business presentations.
Now, I am by no means picking on Organo Gold. This is simply one example of a popular MLM. I’m using their own annual income disclosure that they provide and is public record.
Another very popular network marketing company that I myself was a customer of is World Ventures. Their income disclosure statement actually fares even worse.
In the example shown above, barely a tenth of 1% of distributors earned what I would call full time income ($55k+). A whopping 79.95% of all distributors didn’t earn a single commission: $0.
Does this mean World Ventures or Organo Gold, or any of the popular MLMs you see out there are scams? No.
You can make some extra income with these opportunities, and if you don’t mind recruiting, then more power to you. Many representatives absolutely love the social aspect to network marketing business and the “pep rally” feel to the business presentations.
These annual income disclosures simply show an objective look at the reality of most MLMs. They may be a decent way to make a little extra money, but they’re usually not sustainable.
When you need a team to recruit and thrive, but the vast majority don’t profit as shown above, this takes away from the big benefit you were looking forward to of earning on the efforts of others rather than just yourself.
Network marketing MLM opportunities appeal to many people looking to work from home. The difference between network marketing and a pyramid scheme is all about the product or service rendered. Legit network marketing opportunities use a number of compensation plans like the unilevel, matrix, and binary compensation plans. Be prepared to recruit, recruit, recruit.
Further, they usually claim to have multiple ways for their distributors to earn revenue. They sell the idea of getting paid on the efforts of others instead of only getting paid on your own. Unfortunately the network marketing income statistics don’t lie.
Only a very, very, VERY small percentage of representatives will make full time income. The vast majority who get involved with network marketing opportunities do not make their money back.
If you’re looking to create a new revenue stream online, there are better, more straightforward ways to build an online business. I highly recommend taking a look at the online training platform and mentoring community I found that opened my eyes to how online business works. There’s no recruiting, no experience needed, and the training and mentorship are second to none. I’ve had nothing but positives from it, and you can try it for yourself free.
Has this article answered your questions about network marketing? Do you know and understand the difference between network marketing and a pyramid scheme? Have you been involved with MLMs in the past? What’s been your experience with them? Share your experience in the comments below. I’d love to hear your story. If you have any questions, as always, don’t hesitate to ask.