What is network marketing and its types. How network marketing works: basic principles and types of marketing plans

Which is not a business at all 🙂 and I was faced with the fact that there is no normal explanation on the Internet of what a binary marketing plan is. We will close this gap. I’ll try to sort everything out with numbers and diagrams. In general, I noticed that MLM workers have picked up many different clever terms for themselves, and often they take on a completely different meaning than their original meaning. The same duplication, for example, in biology refers to the process of doubling sections of a chromosome. In MLM, this term refers to the principle of expanding the structure, which involves repeating your actions by your distributors. But let's return to our ram binaries :-).

Binary Marketing Plan(binary, bi-marketing, binary) - is a network structure in which you build only two branches, and payments come to you from the entire turnover of the structure, regardless of its depth. Typically you need to make 1-2 personal invitations to each of the two branches to qualify. And then your invitees will build the next level of 4 people.

If you invite a third person, he will be considered your personal invitee, but at the same time he will go down through the level below into an empty cell of one of your distributors. The same thing will happen with those invited from your sponsors, they will become under you. Just some kind of freebie? Of course, not everything is so simple, and later we will examine this point in more detail.

To qualify and receive bonuses, your entire structure must fulfill certain conditions for turnover, for example, make 4 sales, two in each branch. It is important to maintain a balance between branches, because if you have 4 sales in one and none in the other, you will not be paid anything. Often this ratio is set not 1:1, but 1:2, this option is easier to work with. For example, in the left branch you need to make sales for at least 1000 rubles, and in the right branch for 500 rubles, and in this case you will receive your bonus.

Key Benefits of Binary Marketing

• Only two branches. You only need to support two teams, it is easier than working with 5-10, as in linear marketing.
• Easy qualification. Usually you need to make at least 2 invitations. The purchase of goods occurs once; there are no obligatory periodic personal purchases.
• Overflows from sponsors. People invited by your leaders become part of your structure under you. But there is some peculiarity here. Overflow distributors move to a weak branch, so if you are a strong leader, then you may not receive help from sponsors.
• Rapid growth structure. I wanted to write about the rapid growth of trade turnover, but the problem is that at the same time the costs of paying bonuses are growing rapidly.

I have this type of benefits marketing plans are over. Some figures name a few more points, but in fact they are not advantages, but disadvantages.

Disadvantages of Binary Marketing

• Binaries attract freeloaders. Many people come to such companies just to “ride on someone else’s back.” They have fulfilled the minimum qualifications and are waiting for their bonuses, which should be provided to them by other participants in the structure.
• Difficult to maintain branch balance. An active leader came under you, and your structure was distorted. You need to either become more active yourself, or look for a similar leader to compensate for the growth of the first one. It’s good if the cycles are cumulative. And if accounting is carried out only for a certain period, then you will not have time to complete the qualifications. You will not be paid bonuses, although your structure will actively develop. Empty volumes arise from which the company administration makes good money, not you.
• Payouts from endless levels. Many take this as a plus, but in fact it is an element of the pyramid scheme, due to which the binary collapses. We will now examine this point in detail.
• Difficult to understand for beginners. Often, binaries hide ordinary fraudulent schemes that are banal financial pyramids. They often justify their collapse by errors in calculations. Like, binaries are difficult to calculate. They even say that binary plans appeared only in the 90s with the development of computer technology. This is a myth, I will show you the calculation of binary, which is done without a calculator :-).

Is a binary marketing plan a pyramid scheme?

Yes it is. This is due to payouts from endless levels. But if these levels are limited, then bi-marketing will lose all its advantages over traditional network marketing. In a linear marketing plan, the levels are strictly limited; as the depth increases, the payout percentage drops down to zero. For example, in Oriflain’s marketing plan, levels are limited to 9, and as the depth increases, the payout percentage decreases. You cannot receive more than 30% from personal sales and more than 25% from group sales. This is the main difference between binary marketing and linear marketing.

With binary marketing, up to 100% of the company’s profit is spent on bonus payments. Even if the company does not have the costs of producing goods (some sell only intangible business opportunities :-)), at a certain stage of development it will collapse due to accumulated debts. There are no miracles in this case.

Many companies that consider themselves serious are doing some measures to reduce risks and extend the life of the binary:

• Add leadership and team bonuses
• Bonuses for people invited personally
• The percentage of bonuses gradually decreases with increasing depth
• They focus on the product and stimulate additional purchases by old members (and in fact simply reduce their bonuses)

All these measures are not very effective, since they do not affect the reasons for the collapse of the binary (payments from endless levels). There is only one way out - to limit the number of paid levels, but then all the advantages of binary marketing will disappear. Some companies combine binary and linear marketing. But these are all big words. If the number of paid levels is limited, then this is the most common linear network marketing, if not, then binary, whatever you call them.

Let's calculate a typical binary plan

For example, let’s assume that the “coolest product” of our “Coolest company” costs 100 USD. (or $100). Inexpensive, it will not be difficult for beginners to buy it. The minimum entry qualification is to purchase one unit of the company's product and invite two people personally. All this is not difficult to accomplish, that’s what it’s all about. Next, to receive payments, you need to close bonus cycles: 4 new clients, 2 in each branch. It doesn’t matter who makes these invitations - you, your sponsors or the people under you.

For each cycle in your structure at any level you will be paid 20 USD. or it turns out to be 5% of the company’s income (4 sales of 100 USD each).

Further, for simplicity, we will assume that in your structure each level is completely closed; if this does not happen, then there will be some confusion in the calculations, but the main trend will not change. Only empty volumes will appear, system ballast, which will slightly delay the collapse of the binary. But we will assume that your structure has gathered active and friendly participants who evenly fill their cells.

1, 2, 4, 8, 16, 32, 64, 128, 256, 512, 1024 …

This row represents the number of participants at each level from 0 to 10. Each participant buys the company's product once. Then the income of funds at each level is calculated using the formula:

Coming: 100 2^n, Where n— the number of the last filled level, and ^ - exponentiation. For level 5, the company’s income will be equal to 3200 USD.

Consumption is calculated from the following considerations. For example, in our structure level 5 is completely filled, then level 4 participants do not receive their bonuses, since they have not fulfilled the bonus qualification. Payments start from level 3 participants. We got 8 of them for 20 USD. 4 participants from the 2nd level will close 2 cycles of 20 USD each, 2 from the 1st to 4 cycles, and 1 leader at this stage will close 8 cycles. The total cost of payments will be:

(20·8 + 20·2·4 + 20·4·2 + 20·8·1) = 20·(8+8+8+8)= 640 c.u.

Normally, income is much higher than expenses, as long as everything goes well. To calculate the cost of payments, you can generalize the formula and express it through the number of the last level.

Consumption: 20 n 2^(n-1), Where n— number of the last completed level.

Now we need to find n at which the flow rate equals the flow rate. To do this, we need to solve an easy power equation.

20 n 2^(n-1) = 100 2^n,

After obvious and simple transformations, we get that with n = 10 Income = Expense. Thus, upon reaching level 10, the binary collapses. But due to, for example, personal bonuses, this moment may come even earlier.

Of course, it is possible to redistribute income from previous profitable levels, but there is no point in doing this for the organizers, they already have the money, and the further the development of the structure, the greater the debt. At the 11th level, 204,800 USD will be received, and you will need to pay bonuses for 204,800 + 20,480 = 225,280 USD.

Let's estimate who and how much money will manage to get before the collapse. 1024 + 512 = 1536 people from the 10th and 9th will not receive anything, they will only invest 100 USD. For the entire time in the structure, 256 people will receive 20 and their minus will be 80 USD, 128 at 60 USD, 64 at 120 USD, 32 at 260 USD, ... The leader will receive as a result, for the entire period of development of its structure, 20+40+80+160+320+640+1280+2560+5120 = 10,240 USD.

The success of any MLM company is based on a well-thought-out concept and a balanced business plan, just like any other type of business. However, both the MLM business itself and its concept have many differences from traditional business. After all, in an MLM company the main focus is on the person, and not on capital, means of production and other standard support points of our usual business.

We will try to analyze the features of the concept and formation of a business plan, their starting points in this article. Let's start in order.

MLM business concept

The word “concept” is often used to describe the principles of building an MLM business system. Like any other business, MLM entrepreneurship has its unshakable points of support.

They are obvious, but let’s try to highlight them and systematize them correctly. So, MLM business is based on the following components:

• Product, which is in demand and can be implemented within network marketing. For example, the products of the company “Seven Jewels of Life” are exclusive drugs High Quality, the usefulness of which has been proven both by many years of use and by laboratory tests.
• Structure MLM companies, where each person, being a link in the system, can create his own subsystem and receive income not from the direct sale of the product, but from attracting new participants to it. However, the interests of partners lower in the chain are not infringed, because the longer the chain, the smaller the percentage the higher-level participant receives, and the profit is ensured through sales volumes.
• Motivation each participant in the system, where each partner knows in advance and can calculate his income, his work is not controlled, and he himself enjoys very large freedom of action.
• Income, which every participant in MLM companies receives. Moreover, its structure is different. If ordinary distributors receive their percentage only from sales, then higher-level participants receive a small commission from the sales of each participant as a bonus for attracting “their” distributor.

To link all these issues and make the business attractive, another document called a business plan is prepared for its participants.

MLM Marketing Business Plan

Business plan for anyone promising business is a multi-page document consisting of several sections that formulate the essence of the business, its potential the target audience, volume of investments, costs, and attention is also paid to profit calculations.

The business plan of an MLM company is no less complex, based on a lot of mathematical calculations, and difficult to understand, so we will try to briefly and succinctly convey its essence to the average person.

The peculiarity of the MLM business plan is that the organizer of the company and the simple distributor have many similar basic parameters, which, by the way, puts the ordinary participant and the manager at the same level of planning. For example, in a store, the level of planning for the director and the salesperson is initially different, and therefore an ordinary salesperson will never become a director and will not approach him in terms of income. In the MLM business, any participant can achieve very great heights and, even if not become a director, can certainly be equal to him in terms of income. Of course, such peaks are reached more than once.

The concept of doing business for the director and any member of the network is the same - it is receiving income from the sale of certain products, built through an organized system and ensuring the motivation of all its members. We have already covered this issue in detail above, so we will not repeat it.

More details (example of how it works)

Investing in your business

In a regular business plan, costs are calculated, in other words, the cost of producing one unit of product. In the MLM business there are no costs as such, and all expenses incurred are investments in your business. Moreover, each participant invests in their business, be it the organizer of the entire system or its ordinary participant.

Investments in MLM business can be direct and indirect. Direct investment is the purchase of goods. Indirect investment - selection of other capable and successful distributors. At the same time, indirect investments also require costs for advertising, training, and other purposes. Therefore, you should not assume that the organizer of a business or more high levels chains receive only income. All indirect investments are also assigned to them.

Profit distribution

All of the above points and details for a standard business plan for an MLM company are obvious. They may have specifics depending on the type of product and the characteristics of its distribution, but in general they are similar to each other.

However, the issue of profit distribution for an MLM company often becomes a cornerstone. If we leave aside the companies that produce the product, then in any chain there are, one way or another, 3 links: business organizers, middle managers of distributors, as well as direct participants who sell the product at the final stage. The practice of our company shows that our profit is distributed according to the following formula: 20% + 20% + 60% = 100% of the profit of the entire company.

At the same time, the lion's share of the profit remains with ordinary partners, which allows them not only to earn good money, but also to attract new people to the business. Moreover, lengthening the chain does not lead to a decrease in the profit of the last distributor in the chain. Since the profit of higher levels increasingly depends on volume, and not on the percentage of commission on each unit of goods. Let's give a simple example. Let the company's profit from a particular product be 10 rubles.

Of these, the organizers will receive 2 rubles, the middle management will share another 2 rubles, and 6 rubles will go to a specific distributor. It would seem that as the chain lengthens, the average two rubles should be divided into a larger number of participants, while the share of each of them will become smaller. But this is not true, because as the chain increases, the volume of sales increases sharply. And therefore, everyone’s profit will increase, the last 6 rubles will remain untouched for the last distributor in the chain.

In professional language, such a scheme is called “bottom-weighted.” However, not every company maintains such honest “accounting”. And the percentage of profits may be distributed differently.

If it is skewed towards the top, such a chain will sooner or later die. After all, there simply won’t be anyone willing to work for ever-decreasing shares.

The above diagram from the business plan of the “Seven Jewels of Life” company is successfully implemented in practice, therefore our company is sustainable and stable. In the future, as the business develops and volume increases, we will revise this scheme in the direction of increasing the profit of the last seller in the chain, so cooperation with us has many advantages.

MLM ( Multi Level Marketing) or network marketing is a method of selling products from the company that manufactured them directly to the end buyer. To promote and sell goods, as well as disseminate information about them, the manufacturer attracts the consumers themselves (agents, distributors), who are offered in return different kinds rewards. In turn, consumers who become sales agents also attract new members, which ensures the constant growth of the network.

Network marketing from a manufacturer's perspective

A well-built MLM business can quickly capture the market and build a stable network. The creators of this marketing scheme call the reduction in the final cost of the product for the consumer the basis for the success of promotion and the fight against competition. Thus, the production cost may differ from the final price in the store by 2-3 times. This markup is formed as a result of the formation of a complex structure of the traditional distribution channel, which includes dealers, stores and their service personnel, the availability service centers and much more. By cutting them off, the network business reduces the market price without losing its own profit.

In addition, network companies do not have the problem of building and monitoring a management system, as well as selecting qualified personnel and motivating them. Training the necessary sales skills, attracting new employees and encouraging them to achieve high results is transferred to the agents themselves.

Another important advantage is the protection of products from counterfeiting and maintaining the required level of product quality. This is ensured by the manufacturer’s ban on selling online goods in regular stores or from mobile street counters. Thus, even if a counterfeit batch is produced, it is unlikely to be sold without attracting attention.

Initially, network marketing was also based on the goal of ensuring faster delivery of goods to the end consumer, however, taking into account the realities of the modern market, this side of the network business has become less pronounced.

Network marketing from a distributor position

By joining an MLM business, the average consumer receives three possible options cooperation:

1. Attracting new sales agents (network expansion) and receiving bonuses;
2. Purchasing goods for yourself at a personal discount and without an agent’s markup;
3. Selling products with profit from the markup (the difference between the cost of goods at personal discounts and the final price for which the goods will be sold).

The work process itself consists of the following stages:

• Concluding an agreement with the company;
• Purchase of a starter kit of goods and promotional materials;
• Search for buyers and new distributors;
• Conducting presentations and sales at home, in a rented office, or during personal meetings in public places;
• Receiving commissions or bonuses from the company.

The relationship between the main company and distributors in network marketing is built according to a specific marketing plan, which determines according to what rules and calculation schemes remuneration will be paid. In practice, there are four main types of marketing plans:

• Classic or linear- all invited new network members (not buyers, but new distributors) are the main (first) line from which bonuses are awarded. From agents invited by first-line distributors, the original agent is not entitled to bonuses.
• Binary- is based on the fact that only two new agents can be attracted to the network, each of whom also invites only a pair of distributors. As a result, balanced (ideally) branches are formed, called “legs”. Such a marketing plan allows you to speed up the promotion process, but profit can only be obtained if the branches generate income in the ratio specified in the agreement (50x50, 60x40, 70x30).
• Stepped- the agent receives remuneration for all participants in the structure he has formed. After reaching a certain level, the founder of the branch gains access to elite bonuses and premiums.
• Matrix- bonuses are paid only when a certain number of distributors are attracted to the first line and the further construction of a given number of levels.

Also in practice, combined methods can be used, which is determined by the strategy of a particular company.

Agent registration system

An important component of building an effective MLM business is accounting system, which allows you to control the relationship between sponsors and distributors, track sales and purchase processes, and also calculate bonus deductions. Initially, when most companies used a linear marketing plan, the use of standard spreadsheets was enough to accomplish this task.

With the advent of more complex structures, the need arose to create specialized automated systems(Ritos, B2B-MLM, OKsoft, Easy MLM accounting), allowing you to work with a load of up to a million network participants. Large companies with substantial start-up investments often develop their own programs.

The difference between MLM companies and financial pyramids

Network marketing is based on building a pyramid in which each higher level receives income from system participants located at lower levels. This principle is also used by fraudulent organizations called financial pyramids. The fundamental difference between them and network marketing is the emphasis of the policy of MLM companies on the sale of products that have real value, and not on attracting investment from new participants.

To distinguish network marketing from a financial pyramid, you need to pay attention to the following signs:

• The company offers high-quality goods that have value outside the company’s activities and are in demand (household chemicals, dishes, Appliances, clothing, vitamin supplements).
• You are given the opportunity to earn income only from the sale of goods, without recruiting new agents.
• The company enters into an agreement with each agent, drawn up in accordance with the law.
• The cash contribution is payment for starter pack products, and not an investment for participation in the project.

What is network marketing on the Internet

Adapting to modern methods promoting products to the market, network marketing companies very quickly mastered the Internet space, which is primarily used as a way to find new distributors and buyers of products, as well as as a means of remote network management. The following channels are used for this:

• Social media. Here such activities can be implemented as active distribution of offers on the opportunity to earn money in the MLM business, sale of goods, publication of advertisements in thematic and popular groups, interaction and work on motivation with already attracted distributors.
• Landing pages. This type of site allows you to both sell network marketing products and register for presentation meetings for future distributors, seminars and sales training.
• Portals for registered distributors (online stores). Provide the ability to remotely place an order and track the availability of products in the main warehouse.

Thus, the essence of MLM on the Internet remains the same as in offline business, but there is a significant plus - the target audience is significantly expanded and the scheme of interaction with it is simplified.

How much can you earn in network marketing?

The policy of MLM companies is based on accepting into the structure all applicants who have expressed interest, regardless of age, status, education and experience. However, when choosing network marketing to make money, few actually understand what it is, and therefore very a large number of disappointed participants who do not have the proper qualities and do not want to learn, believe that it is impossible to make money in this area.

When signing an agreement with a network marketing company, when asked about earnings, they will undoubtedly answer that the level of income depends only on you. This calculation is quite abstract, because your time and energy are limited resources. Starting a career as a networker is very difficult and your sponsor (higher distributor) is unlikely to tell you that according to statistics, only 5% of newcomers who come to the network achieve a stable income of $200 per month, only 1% reaches the level of $500 and only 0.5% has a chance receive $1000 after several years of hard work.

There is an opinion that you can get an acceptable income only in young MLM companies, since the chance of being at the top is greater. But the truth is that the founders of the company earn the most, as well as the very first distributors, who are mostly engaged not in sales, but in forming a network, building corporate culture, conducting trainings and seminars. The rest of the participants in this business are constantly updated. Thus, every five years in large MLM structures up to 90% of distributors can change.

This means that if you are not a manufacturer who is ready to build your business on the network marketing model and among your friends there is no such entrepreneur who is ready to take you on as an assistant, there is no difference for you when to start working as a networker. If your goal is not millions, but several thousand dollars of stable income, the chances of achieving what you want are quite real.

Network Marketing and Legislation

Since network marketing is a fertile area for the development of fraud, in many countries around the world the activities of such companies are regulated by law. Thus, in the USA, in the MLM business it is prohibited to set sales plans for agents and name specific numbers possible earnings. Also, if you want to go out of business, the distributor has the right to return unsold goods, receiving at least 90% of its original cost.

Unlike the example Western countries, domestic network marketing is not only not controlled by the state, but also does not even have an appropriate definition in the law. This huge disadvantage complicates the work of both distributors and manufacturers who want to sell through an MLM scheme. In the Russian Federation, the following format for legalizing activities is most often used:

• The manufacturer is registered as an ordinary enterprise (LLC, JSC, CJSC). At the same time, since the network can grow unlimitedly, registration of individual entrepreneurs is not allowed.
• Distributors are registered as agents (with payment of taxes by the manufacturer) or as separate individual entrepreneurs (with independent payment of taxes).

Considering the question of what network marketing is and how it works, we can note both positive and negative sides. It is not an ideal product promotion mechanism for the manufacturer, but it demonstrates sufficient high performance and truly protects unique products from counterfeiting. As in any business, it requires significant efforts and entrepreneurial savvy from participants in the system to stand out among competing distributors and partners.

The linear classic marketing plan is the simplest one available today. In fact, it was with its creation that network marketing itself began. Matrix and other marketing plans appeared much later.

What it is?

The main thing that distinguishes a linear classic marketing plan is its architecture. The number of branches of which it consists is never limited in width; each participant can have any number of invitees in the first line. Therefore, this marketing is often called “sunshine”, because the number of rays is infinite.

The depth of such a compensation plan has limitations, usually no more than ten generations. Much more common is the classic linear marketing plan, where there are three to five lines in depth, for which a reward is paid. Thus, “classic” provides excellent opportunities for building a wide network, but with a limitation in depth. Due to this, it is profitable to both sell and invite people to business.

Advantages and Disadvantages of Linear Marketing

The two main advantages of a linear classic marketing plan are extreme simplicity and absolute break-even. There is nothing easier to understand than a construction scheme with an infinite number of branches and a specific percentage for each new level. For companies that are just starting their business, this is the most The best decision– newcomers won’t have to explain anything. Everything is very simple!

Another very important circumstance is that, using the “classics”, the company can never go into the red. If you decide, for example, to give 40% of your net profit- that means exactly that much will go away. And not a penny more. Other types of marketing plans may carry risks of “collapse” in certain situations. That is, situations where payments exceed cash receipts. MLM-PRO specialists are ready to advise on all issues of calculating a marketing plan in such a way as to protect clients as much as possible.

However, even with these undoubted advantages, linear marketing also has a disadvantage. In order to have a permanent high passive income, you will have to spend years building your network. That is cash flow will not come immediately, unlike, for example, binary. On the other hand, once you achieve the desired result, you can start doing something else. Stability is a virtue rather than the other way around.

Who is the classic linear marketing plan suitable for?

Due to its complete “transparency” and break-even, the linear classic marketing plan is used in the vast majority of companies that, at first glance, are in no way connected with MLM. For example, lawyer consulting or dental clinics. In this case, it is appropriate to say that network marketing is an additional sales channel, and the company itself is non-core from an MLM point of view.

Speaking about the MLM companies themselves, the “classic” is used, as a rule, where the product is best sold through direct sales through friends and acquaintances. The most a shining example A similar business can be called the sale of beauty and health products.

However, the “classic” is the best solution for starting any business project when there is no significant experience in network marketing. Ease of understanding and the absence of financial risks allow us to understand the MLM mechanism itself. And then move on if desired.

Entrance to LMP - purchase of products at a retail price of 1800 rubles (1200 rubles - at the distributor price + 50%).

Everyone included in the main marketing plan (MPP), purchasing a set of FSCs for 16,100 rubles, automatically receives a place in the MMP. At the same time, both those who already have a place in the OMP and those who are new to the purchase of a FSC set for 16,100 have the right (opportunity, but not the obligation) to make an initial purchase of products at a retail price of 1,800 rubles. Such a purchase makes it possible to obtain a new, additional place in the WMD if the conditions are met (see below).

Buying a set of CFS for 16,100 rubles. and (or) receiving a set of FSCs and a place in the WMD - called “PARTNER”.

Buying a starter kit for 1800 rubles. called "Trainee". If the “Trainee”, before he fulfills the conditions for obtaining a place in the WMD, his invitee buys a set of FSCs, then the “Trainee” receives an “Unpaid place” in the WMP, from which a new “Partner” is registered.

A consultant cannot receive remuneration under the WMD until his “Unpaid Place” is converted to paid. This can happen when the conditions for the LMP are met or the CFS set is paid for in cash or the accumulated unreceived remuneration under the WMP.

Condition for a one-time receipt of a place in the OMP and a set of FSCs for the “Trainee” inviting to the OMP: As soon as 44 “credit” starting purchases are made by new participants under the place “Trainee” in the LMP, he receives a place in the OMP and a set of FSCs. His sponsor receives a reward of 1,500 rubles. for a personal invitation. From each substructure, no more than 11 starting purchases are counted in the LMP.

To receive a reward in a production month, the participant must make a purchase in the production month at a discounted price (distributor price) in the amount of 500 rubles.

In the month in which a participant did not submit a purchase for 500 rubles, he does not receive a reward - his place becomes “transparent”, that is, it is not taken into account for calculating the reward, and the places of lower-level participants who made a purchase “pop up” - they are pulled up to those participants , who made a purchase for 500 rubles (100% compression - compression). This does not deprive the participant who purchased of his place and in any month in which he makes a purchase of 500 rubles, he receives a reward.

Reward payment table

The infinity bonus is received by all participants at the rate of 10%. If there is a participant below the participant who receives the same percentage as him, then the superior does not receive. If the lower participant has a lower percentage, then the higher one receives the difference between his percentage and the lower one’s percentage.