business owner vs network marketers

Brand Strategy

Apr 22

Breaking Down Why Network Marketing is Not Self-Employment

*Disclosure: I only recommend products I would use myself and all opinions expressed here are our own. This post may contain affiliate links that at no additional cost to you, I may earn a small commission.

Have you been teetering between joining an MLM network marketing business and starting your own business? Interested in learning some of the major differences between the two from someone who’s done both? In today’s post I break down similarities and differences between the two in order to help you better understand both options before making a decision. I break down these four major topics for each to try and help you better understand the unknown so many of have faced:

The differences between the business model of network marketing and being self-employed
How big your voice is within the company.
Where does all the money go and how to make your money back.
Why joining Network Marketing is different than owning your own business.

The Differences Between Starting a Business and Joining an MLM

Before dive into the differences between starting a business and joining a multi-level-marketing business (MLM) - I want to reach out and talk about struggles a lot of us have been facing. You are not alone, and even though there are a lot sad and scary things happening around us, there have also been some beautiful bright sides to being on a stay at home mandate.

If you’re new to working from home and you are a parent, a lot of young kids won’t remember the why’s of what’s happening, they’ll think of the moments. The children that will remember, will be telling the stories of how they got to spend endless weeks with their parents, brothers and or sisters. So while we might be emotional, or financially scared we have the opportunity to create some beautiful memories while we are all home. Even those of us working from home, or thinking of starting that at home business adventure.

I remember when I finally bit the bullet and decided to become self-employed. It was scary to jump into the unknown. For some, not all, but for some that have gone down this path, they either had a safety net of funds, a backup job lined up, or had a game plan on going back to a corporate job if they needed to. This was not an option for me.

When I really look back at my life, I had always known my end goal in life was to work for myself. I’ve always been the type of person that would:

figure it out and budget through low times,
pick up that extra shift,
and hustle harder.

I was thinking back about all the different jobs I’ve had in my life and I can honestly say that I was a very consistent employee to have. I never took a job that I didn’t fully believe in, and I always put my blood sweat and sometimes actual tears into everything I did. It wasn’t until my last job that I was tired of getting emotional for someone else’s business.

Which is when I had started the process of creating my product shop and finding clients for my graphic design business.

Becoming an Entrepreneur

When you become an entreprenuer, something to remember is that it won’t just boom right away. In fact it actually took me almost 8 months before I even launched my first product for my shop and about 6 months before I was consistently getting client work that would cover my bills and refill my savings account. The path I chose during this waiting period was to join a Network Marketing company - something I DO NOT recommend to people, but at the end of the day you have to make your own decisions.

The Breakdown

Let’s breakdown the similarities and difference between starting your own business and joining MLM network marketing and why Network Marketing (also known as an independent distributor) is not considered a small business. I have been a distributor for a few MLM companies in the past and I want to be clear, I just want to breakdown the differences and similarities that I’ve personally experienced between the two and educate you on your options.

I know this is a difficult time for people right now, people are losing their jobs, and struggling to make ends meet. But there are also people that are looking at this time as the perfect opportunity to finally start that business or join in on the dream of getting paid to be on social media.

My goal today is to help you can make a clear and educated decision for yourself on which route you want to pursue if you are stuck between the these options.

What is Network Marketing

For those of you who might still be a little confused what that social media job you’ve been seeing on facebook is. Feedough.com states

Network marketing or multi-level marketing involves a pyramid structured network of people who sell a company’s product. The model runs on a commission basis where the participants are paid for services rendured when:
- They make a sale of the company’s product.
- Their recruits make a sale of the product.
Network marketing works on direct marketing and direct selling philosophy where there are no retail shops but the offerings are marketed to the target market directly by the participants.

Different Business Models

First lets talk about the differences between the business model of network marketing and being self-employed:

A business model in short is how an organization creates, delivers and captures value in all contexts. So for example, when you join a network marketing business you become a Distributor of that specific corporation's product. You then try to make money through:

Affiliate Marketing - as defined by dictionary.com as a marketing arrangement by which an online retailer pays commission to an external website for traffic or sales generated from its referrals. So in the case of MLM, “the online retailer” is the corporation you joined paying you the “external website” for the sale you generate from referring people to their product.
Subscription business model - According to Wikipedia The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product. This is the one of the main goals of being an independent distributor.
E Commerce - simply put is any sales transaction conducted electronically on the internet. When you sign up as an independent distributor, you are subscribing to the company’s website, which then generates a website affiliate page that you can share to potential customers for the corporation to be able to track the sales you generate, so they can pay you accordingly.

Commission

Most MLM businesses offer you 10-15% of commision of the sales that you get through affiliate marketing. This is when someone sees what you are recommending and then buys the product once at an outright price.

Subscription sales is a little more tricky to explain

There are two different types of subscriptions with in this kind of business model. The first is when you get a subscribed customer. Everytime you get a customer in some cases the corporation you are selling for offers a discounted rate if customers sign up for a 3 month subscription, promising that they will buy a set amount of product for 3 months and then after 3 months they no longer have to be subscribed in order to still receive the discount but must unsubscribe themselves. For every subscription customer you get, this guarantees you a customer for at least 3 months.

The second way they reward you through subscription sales is if you get someone to join your team. As I mentioned earlier, everytime an Independent Distributor signs up, you are subscribing to the company’s website. However, for most MLM companies every team member is also a customer. When a team member of yours gets a customer, they make a sale and receive a profit, but you also receive a percentage of the sale they made.

This is where it gets even more involved and tricky.

There are different stages of a team, and as you grow your team, you become one step closer to what they call a bonus. Each stage of a team brings you closer to those bonuses. Once you become eligible for the bonus, there are a few ways you can get paid said bonus. The most common practice is to divide the bonus over the course of a set amount of months, requiring you to stay qualified for that bonus. You are still qualified if you continue to grow to a new stage in your business and can acquire more bonuses that are divided this same way, but you can lose your bonus or bonuses if you are no longer reaching the qualifying factors.

So for example, if you grow your team to stage 4 in the business model, and now you have 20 people on your team and each team member needs to have 2 customers in order for you to qualify for a bonus, if one customer chooses to stop their subscription, you or your team member has to get a new customer to fill that spot in order for you to stay qualified. In most cases you are giving a deadline to get a new customer, it’s not just an immediate disqualification. However, it can be difficult to manage if your customers choose to opt out of subscriptions or if your customers aren’t able to afford the product any more.

The subscriptions sales method tends to be the most lucrative in an MLM business, which is why most people end up selling the idea of becoming a distributor and how it can benefit you vs putting focus on sales of the product itself. It just depends on your sales methods.

There are a lot of MLM companies out there that you can join, everything from hair care, to weight loss, to make up to even animal food, but when you become a distributor for one of these companies, they almost always have the same business model, with slight variations.

When you start up your own small business, you are the CEO of the company. You make all the decisions within the company. You decide what you sell, how you sell it, when you sell it, where you sell and who you sell it to. There are so many businesses that you can start, it would be too difficult for me to go over every kind of business model, so I’m going to focus on my experience in owning my own product shop.

Owning Product Based Business

My product shop is an ecommerce site, defined again - as any sales transaction conducted electronically on the internet. As a product shop, I create the designs and products that I choose to sell. In my case, I make home decor and trinkets like all natural candles, key chains, digital paintings and marketing collateral.

As a small business owner, you are responsible for so many things aside from the sales. Specifically for me, a few of my job titles are

Product designer
Social Media Strategist
Research & Development
Production Line
Product Tester
WebDeveloper
Assistant & Receptionist
Brand Ambassador
Photographer
Videographer
Copy Writer
Marketer
Graphic Designer
Shipping Fulfillment

So overall, if we compare the two business models:

Starting your own business you get to dictate what kind of business model you want to follow depending on what you want to sell. Your responsibilities go far beyond the Sales aspect, but you also have a choice of how much farther you want it go. Becoming an Independent Distributor for another company allows you to start right away, you might not be able to decide what your business model is, but if you don’t have the time to do everything that comes with running a business, based off the responsibilities alone network marketing is a faster route.

Next let's discuss how big your voice is within the company:

When you are an independent distributor for a MLM company, the power of your voice is directed towards your target audience. For example if you are an independent distributor for let’s say art materials, your target audience is someone who likes to explore in the creative arts. The hard part about having such a small voice within such a large company is that you have no say in what products are being added or getting taken away.

You might be finding that coloring books are being sold like crazy, and that might be the leading sale for you, however for the overall company that could be the least profitable product and the founders of the corporation can choose to stop production. If this happens your sales could drop, you and your team could lose loyal customers, which could lead to your team members choosing to opt out. Of course that’s all a worst case scenario but something to be aware of. My goal here is to try to explain how your voice works within a MLM structure.

Another thing to be aware of is that the founders could choose to add an item that goes against your morals. To keep with the example of being an Independent Distributor for art supplies, they might choose to add a product that gets tested on animals. If that goes against your morals or your loyal customers morals you could be put into another dilemma.

Again, these are some extremes, but something you should be aware if you choose to join the route of network marketing.

Another example would be the return policy and customer service. As an independent distributor for someone elses company you don’t have say in if things can be returned or refunded. There are rules and regulations in play, and you can only do so much. This can hinder your customer service, especially when it comes to fulfilling orders and keeping your customers loyal.

When you start your own business, your voice is the only voice. You are single handedly responsible for what you sell or no longer sell. You can adjust your target audience if you want to. The bright side of this is that you won’t be surprised by any decisions, because you are the founder and CEO. However, there can be a downside to it as well. When I started Savage Boutique, I struggled with knowing what product to add that would keep in line with my brand and what my target audience wanted. However, as time went on, I also learned that selling products that I 100% backed and enjoyed creating still sold. My target audience would only expand with every product I added.

Just remember, if you choose to go this route, you are still responsible for creating and fulfilling orders. Expanding what you sell could get overwhelming if you are a solo entrepreneur. If your sales go up you might be finding yourself overwhelmed and unable to fulfill orders on time, however, the bright side is that you are always aware of what is happening within your business. This allows you to provide consistent customer service. You might have rules and regulations in play but as the small business owner you are allowed to bend the rules when you need.

The reason your voice is an important factor in this is because when you are selling something, you need to be aware and educated on whatever you are selling. The more educated you are, the better a sales representative you can be. Your voice is important because it defines you as a person and in business it defines how much power you have within the company. To recap, the power you have as an independent distributor is how you decided to market the company's products to your target audience. It’s minimal and capped. The voice you have as a small business owner is endless.

Overhead and where the money goes:

I’ve already started talking a bit about how you make money as a distributor when I went over the business model. But lets talk a little bit about the overhead of joining an MLM company vs starting your own business. I want to keep it as simple as I can, so I’m going to use the same whole numbers for each to try and make it as clear as possible.

In short overhead in business is defined as the general, fixed cost of running a business. Since both opportunities are work from home, I want to break down a few questions and show you comparisons.

Lets start with how much does it cost to start a business and how quickly can you make that money back? I’m only going to break down direct sales in this as a comparison since that is the major commonality. Let’s say it costs $100 to become an independent distributor and $100 to start a business. As I said earlier, as an independent distributor you get about a 10% commision off of each sale. As a small business owner you get to decide how you want to price your product. The most common is to follow the thirds rule. First you find out how much it costs to create a product, and then you multiple the cost by 3. SO! Let's pretend for a second that an independent distributor and small business owner are both selling a 30 dollar product. Based on what we just talked about, a distributor will only make $3 off of that $30 product, whereas a small business owner will make $20 off of it.

If both people are trying to make their $100 they invested into the start up, a distributor would have to make at least 34 sales in order to make their money back before they start making a commision. A small business owner would have to make at least 4 sales.

Another thing to remember is that when you join Network Marketing in most cases you are required to buy products every month as well. Some require you to purchase at least $30 a month to keep your status. Which means you have to make another 10 more sales every month before you start to profit. However, if all 34 of your original sales are subscription customers, that means the 10 sales you needed are covered that month and the remaining 24 sales is now your profit, which comes to about $72. This is why a lot of distributors put focus on building their team and try to increase their opportunity to gain commision and bonuses.

As a small business owner, after 4 sales, you have been fully reimbursed that $100 and everything after is profit. Which means for every sale after you are profiting the full $30 per sale, where as a distributor you are still only profiting $3 for every sale.

Of course this varies depending on what you are selling and how things are actually priced in each scenario. I just wanted to give you a clear break down on the direct sales of each.

Finally, why becoming an independent distributor is not the same as starting your own business:

A marketing technique for joining a network marketing business structure is that you are investing into your own company. This concept is one the most enticing concepts, especially for those who want to start their own business. Though it might feel like you are running your own business because you have the freedom to work from home, and you decide what hours you work, based on all of the differences I just talked about, this is a marketing tactic to joining someone's team. There will always be someone above you making a profit off of your sales, and making a profit off the product that you buy to keep your status, because remember as an Independent Distributor, you are required to be a customer of the product. Network Marketing is more like being a brand ambassador for a company. Remember, there are benefits of not running your own business, you’re mostly incharge of presenting the product to your target audience. Which means you don’t have to worry about the creation, shipping, and all the other job titles I mentioned above that small businesses have to worry about.

There are a lot of similarities between being an Independent Distributor and starting your own business. For instance in most cases you can work wherever you are. Social media is the main way you will want to market in order to grow your sales. Your income producing activities will be similar. You are responsible for creating your own hours and your hours can be as flexible as you need them to be.

The Recap

To recap the differences I mentioned earlier, the business structures are set up completely different. MLM sets theirs up so everyone in the company is able to make a small percentage off of the income of the sales that the distributors receive. Whereas owning your own business, allows you to make a full profit off of the sales received. Finally, the difference in the power or say you have within the company as a distributor vs an entrepreneur.

Honestly, it really just depends on where your heart is. If you been passionate about creating your own business, I think that you should full heartedly go for it. Create that business plan, grow your following, share what makes you special with the world. If you have no interest in being responsible for all the job responsibilities that come with starting a business, and you find an MLM business that follows your ethics, than go for it. At the end of the day you have to do what financially makes sense for you, what you realistically have the time for, and you should always be passionate about what you do.

Just remember, I’ve only talked about some of the more broader aspects of both routes, so please do your research when you know what you specifically want to do and if you have any specific questions feel free to reach out to me any time.

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