Network marketing, also known as multi-level marketing, relies on independent distributors to sell products and recruit additional distributors. Becoming a distributor involves paying a fee and receiving training materials. Distributors earn a percentage of sales made by their sales organization and enjoy benefits of self-employment but are responsible for their own taxes and benefits.
A network marketing distributor is an independent representative of a network marketing company. Network marketing, also known as multi-level marketing or MLM, uses a marketing strategy that relies on independent distributors to sell its products or services. In addition to selling products on their own retail sales, a network marketing distributor is encouraged to develop a personal selling organization by recruiting additional distributors and helping these distributors do the same. The MLM distributor then earns a percentage of the sales made by those in his sales organization in addition to the retail profits on the products he sells to customers.
Becoming a network marketing distributor is often just a matter of signing an agreement and paying a distribution fee. A prospect approaches or is approached by a network operator who recruits the person to the company. The cost of becoming a distributor is usually minimal, and the new distributor typically receives a distributor kit, which includes training materials and company literature. Some companies offer paid or free training to new distributors. In some states, however, it is against the law for a prospective distributor to pay any amount of money to join a network marketing company.
Once someone becomes a network marketing distributor, they can start buying the company’s products at a reduced or wholesale price, which can then be sold to customers at a retail markup. The difference between the wholesale and retail price becomes the earnings. Some network marketing companies give out additional bonuses at retail sales. For example, a company may pay a 10% bonus on retail sales over a certain amount in a given month. This bonus would be paid directly to the distributor by the MLM company. Each company has its own policy for paying commissions on the sales of a distributor’s recruits. This policy is usually known in the MLM industry as a marketing or compensation plan and typically involves paying a distributor a percentage of sales for multiple levels of recruits.
Under the law, network marketing distributors are considered self-employed and are not entitled to the same benefits or protections as workers employed by a company. MLM Distributors are responsible for paying their own taxes and Social Security, must provide for their own health insurance, and not get sick leave or vacation time. Distributors who violate company rules are subject to termination by the network marketing company and are not eligible for unemployment benefits. At the same time, a network marketing distributor enjoys many of the benefits of self-employment, including tax deductions and the ability to set their own hours, without having to worry about producing their own marketing literature, sourcing products, or having to rent or buy commercial space in which to do business.
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