How Does Network Marketing Work?

Independent salespeople, referred to as distributors (associates, independent business owners, franchise owners, sales consultants, consultants, independent agents, etc.), represent the parent company and are rewarded a commission relative to the volume of product sold through each of their independent businesses (organizations).

Independent distributors develop their organization by either building an active customer base, who buy direct from the parent company and/or by recruiting a downline of independent distributors who also build a customer base, expanding the overall organization. Additionally, distributors can also earn a profit by retailing products which they purchased from the parent company at wholesale price.

Just as your employer leverages your time, through Network Marketing, you can leverage the time of others. What does that mean? Each person is doing a small amount, gathering customers and introducing new people into your business. You are looking at a business model that will take a few years to produce a full-time income, so don’t give up your day job just yet. It will require 5 to 20 hours of work a week to become successful in Network Marketing. This is not a “get rich quick overnight” program… It never has been and it never will be.

IdontsellNetwork marketing is based on word of mouth advertising, which is the best form of advertising. Think about it… when you watch a great movie, you tell people about it. When Sam’s Club or Costco moved to your area, you joined their buying club and started telling everyone how much you saved.

Major advertising agencies and companies count on this. This is one of the things that we do as network marketers. The major difference with Network Marketing, is that we get paid for our word of mouth advertising.

One of the most often asked questions is, “Will I have to sell products and services?” No one likes to have a salesman or woman come to the door and sell them products, right? We all hate to go to the car dealers, where you are swarmed with 5 different sales people all trying to get you to buy from them!

So how are we different? We just recommend products and services that we like and personally use. If we know it’s good, and personally use it, recommending it to our friends and family or anyone else is very easy.

  • couplestudyingMinimal start-up costs
  • Choose the people you work with
  • Travel opportunities
  • Empower others
  • Personal growth
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Seven Basic Reasons Why People Succeed

1. They allow themselves TIME to succeed.
It takes ten years to become a doctor, five years to become a lawyer, and 1000 hours of apprenticeship to become a barber. Yet, too many people try just a few months or a few weeks, and decide that their business just didn’t work out.

2. They have strong DESIRE.
Many people wish they were successful or wealthy, but they don’t really want success bad enough to do all the things that are necessary to achieve it.

3. They have a PLAN.
They don’t let each day take care of itself. A successful person outlines and plans their time; every year, every month, every week, every day, and every hour. They know where they are going.

4. They have BELIEF in themselves and their business.
Belief is so powerful that it can overcome almost any obstacle. Most people don’t believe strongly enough in themselves or their opportunity.

5. They are TEACHABLE and willing to continually learn.
Herbert Hoover said, “The wise man learns from experience. The super wise man learns from the experience of others.” Top people read books, listen to tapes and CDs on achievement, attend seminars, and talk with successful people to obtain ideas that will help them to be better.

6. They show ENTHUSIASM and find ways to stay motivated.
Emerson said, “Nothing great has ever been accomplished without enthusiasm.” Enthusiasm is to success as yeast to bread… It raises the dough!

7. They work HARD AND SMART.
It’s too bad that many people have become lazy, apathetic or negative. They are missing out on some of the greatest riches in life. Achievers work hard and smart. They also have fun doing it because they have desire, belief and enthusiasm.


NOTE: Of all these seven reasons why people succeed, not one of them has to do with age, race, sex, nationality, marital status, background or formal education.


Do you have goals and dreams? Are you achieving them?
A great leader once said, you either have results or excuses.
Are you ready for results?

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The Financial Facts of Life

If you have a job or are on a fixed income, these facts should concern you. Nobody believes that they will have to retire on a poverty level income, but most of us do. Ask yourself, if you continue to work at your present job and don’t get laid off, in five years will your financial situation be any better than it is now? Will you be able to save enough money to live your dreams while you are still young and healthy?

  1. By age 65 only 2% of the population is financially independent, 23% are still working, and 75% retire on a near poverty level income, dependent on relatives, social security or a small pension.
  2. 90% of all Americans are living from pay check to pay check.
  3.  The average 50 year old person has only $2,300 in savings (about a one day stay in a hospital).
  4.  80% of the personal bankruptcies in the U.S. could have been avoided if household income could have been increased by just $280 per month.
  5.  93% of the men at age 65 who have failed financially said it was because of a lack of a definite plan.
  6.  80% of all people making over $50,000 per year own their own business.
  7.  Tax laws are designed to provide benefits to business owners, not employees.
  8.  Over 80% of America’s work force beyond the age of 35 realize that their present job will not lead them to financial independence.
  9.  Over 3.8 million corporate executives, administrators and managers lost their jobs in the 1980’s. 2,650 people are losing their jobs each day in the 1990’s. There is no longer any security in working for someone else.
  10.  People want out of the “Rat Race”. The franchise industry is booming even though most who become franchisees have to risk everything they have including their home equity, savings, etc.
  11.  Network marketing is a $15 billion dollar a year industry. It is a global phenomenon.
  12.  Many Fortune 500 companies now offer products through network marketing because it is considered “the wave of the future”.
  13.  Billionaire John Paul Getty said there are three things that are necessary to accumulate financial wealth:

    a. Own your own business
    b. Offer a product or service needed by others.
    c. Have a system that allows you to duplicate yourself through others. He said, “I would rather earn 1% of 100 people’s efforts than 100% of my own efforts.”

  14.  People want to take control of their financial destinies and are searching for the right vehicle to achieve financial independence.

Don’t let yourself become a sad statistic.
Take control of your financial future today!

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Network Marketing or Pyramid Scheme?

How Do They Differ?
Let me guess, somebody has just approached you and asked you to join their network marketing business and your first thought was – “Is this one of those pyramid scams?”

pyramidsYou made the right decision to do some research and be concerned, because pyramid schemes are illegal and can get you in a lot of trouble. The good news is that network marketing or multi-level marketing is a legitimate legal business model and on this page we’ll help you to identify the differences between network marketing and pyramid schemes, including a checklist of things to look for.

To start with let’s review the similarities and then work to distinguish the two.

Generally, the initial concern for people when introduced to a network marketing opportunity is when they see the compensation plan which resembles a pyramid in shape. Instantly they fear the worst as they draw a resemblance to illegal pyramid schemes. The truth is that this pyramid structure is the same as every other sustainable business model across the world. This is best illustrated in the diagram below.

businessstructure

Is it the shape of the business model that dictates whether a business model is illegal?

No, of course not. If this were true every profitable company, government, church and school would be illegal and shut down. It is not so much the shape of the pyramid that people should be concerned about, more the way in which the pyramid is created that distinguishes whether or not it is legal.

Pyramid Schemes (illegal scams)
A pyramid scheme can be defined as a fraudulent money-making scheme that is based on a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme without a legitimate product or service being delivered. Eventually the number of new recruits fails to sustain the payment structure and the scheme collapses with most people losing the money they paid in.

In a more practical sense, probably the easiest way to identify pyramid schemes is first  there is no legitimate product or service involved (i.e. you do not get a legitimate product in return for your initial investment). The second way to identify pyramid schemes is that you do not get a financial return unless you have successfully introduced a number of new recruits into the pyramid. Basically, pyramid schemes concentrate on the money that you could earn by recruiting new people into the pyramid and generally ignore the marketing and selling of any products or services.

Network Marketing (legitimate, legal business model)
The concept behind network marketing is a distribution model that allows a company to sell their products directly to the consumer. Choosing to use a word of mouth approach (networking) instead of advertising through traditional streams. Instead of paying the media for advertising, network marketing companies are structured to reward distributors through commission in return for selling their products and finding new customers.

The main focus of a network marketing company is product distribution. In fact, in a legitimate network marketing company, distributors are not required to recruit new distributors in order to earn a commission, they can earn money purely by selling the company’s product.

Although distributors can choose to sell the company’s products to earn their commissions, not everybody wants to be a sales person and choose to recruit more distributors into their organization as a means to build their referral base. Not only does this create a group of loyal customers, it also allows you to leverage the efforts of others to create a residual stream of income.

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Therefore the recruiting element of a network marketing business is merely a way of distributing more products and helping to build a leveraged income.

Why do distributors in network marketing normally receive a commission when a new recruit joins their organization?
To join a network marketing company you have to make a purchase. This can be an initial start up kit and usually includes training, some sales and management tools to assist you to build your business, and a certain amount of product. Because there is a certain amount of product included in the start up kit, the sponsoring distributor is now entitled to a commission.

For example, when becoming associated with a network marketing company there are normally a number of different business options available. What’s the main difference between the cheap business options and the more expensive ones? The amount of product you receive in the package. The more you spend up front, the more product you receive as part of your initial package and the greater the commission the sponsoring distributor is now entitled to.

starterkitThe opposite is also true, most network marketing companies now offer a very low start up option where you do not have to purchase any product to get started, just the training and business tools. In this scenario the sponsoring distributor does not receive any commission in return for you joining their organization. They do however now have a new customer who they introduced to the business and therefore any future product that is purchased by this new recruit is eligible for commission.

When trying to understand network marketing, distributors are paid a commission – not for recruiting new members, but for the amount of product that is sold through their organization. Therefore recruiting new members into a network marketing company is purely a way of expanding the distributor’s customer base. Any commission made through recruiting new members is a result of the product sold in the start up package and not for the recruiting itself.

Another big distinction between pyramid schemes and network marketing is the fairness of good math. To prevent network marketing companies from falling over like pyramid schemes (where people at the top make all the money and people at the bottom lose everything), there are restrictions placed in the network marketing company’s compensation plan that limit the number of people who can earn a commission off any given sale. Basically there are only so many ways you can split a dollar, therefore, network marketing commissions only travel so far. This not only makes the business model sustainable but also makes it fair in the sense that it doesn’t matter if you got in first or last, you have the same opportunity as everyone else.

So in summary, despite the fact that network marketing and pyramid schemes share a few similarities (i.e. the pyramid shaped business model shown in figure 1, and that in both you can recruit new members) network marketing is a legitimate business opportunity and one where you can earn a substantial legal income. You don’t have to take our word for it, network marketing is now being endorsed by a number of leading businessmen worldwide.

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A word of advice when looking into a network marketing business opportunity – unfortunately some pyramid schemes have tried to mimic the network marketing business model before being discovered as fraudulent, therefore you have every right to be initially concerned. For your benefit we have put together a list of questions that you can ask yourself prior to signing the dotted line to help you identify a legitimate company from a fake one.

In particular, the following 2 questions:

  1. Is there a legitimate product involved?
    What do you get in return for your start up investment, other then the potential to earn good money? If you’re not getting a product or service or if the training tools appear to be overpriced you could have discovered a scam.
  2. Do you get commissions based on product distribution or on recruitment?
    If they are paying commissions based purely on recruitment, walk away now.

Additionally, you should also consider the following factors that might influence long term success.

scumbagBe aware of hype and ground floor opportunities
Although some people might claim you earn more money if you get in first (and sometimes you do), this isn’t always the case and there are companies that fold within the first couple of years. It’s much safer to join a company with a proven track record.

Does the company have a proven track record?
If the company has been around for a few years then there is a fair chance that governing bodies that police pyramid schemes have already pulled the business model apart and given them the ok.

Will the company buy back any unsold product?
Most network marketing companies have a money back guarantee which means that if you are unhappy with the products you can send them back for a refund. Assuming that the majority of your first purchase was product, if you’re not happy with the business you should be able to send back any leftover product to refund most of your start up costs – pay attention to the amount of time this is limited to. Try network marketing and potentially become very wealthy, or if it’s not working for you send your product back for a refund, it’s a win-win! Naturally a pyramid scheme is not going to refund your money.

Is this a get rich quick scheme?
Although there is a lot of potential to earn very good money in network marketing very few have made it quick, most make their millions through consistent effort. So if it sounds to good to be true, it probably is.

Shop around
If you are looking into the industry for the first time, don’t be scared to look at other business models and products, particularly if you don’t know which company to join. There are many discussed within our website.

What training do they provide?
A good company has a solid training system.

True Network Marketing is based on the Golden Rule of doing unto others as you’d have them do unto you. The real success stories are always of people who have risen to the top by unselfishly helping others to achieve their goals and dreams.

In Conclusion…
couplestudyingThere is no fairer, simpler or more honest way to build your own business than Network Marketing. It’s a brilliant concept that has helped thousands around the world achieve financial independence and happier, healthier lifestyles. It works.

But, like most things in life, it’s still a case of “buyer beware!”

Check out every aspect of the organization and, only when you’re satisfied that it’s entirely ethical in its appeal and methods, should you consider getting involved. We strongly advise that you take the time to make your decision. Don’t be pressured into joining right away and do your homework.

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Network Marketing FAQ

Is Network Marketing legal?
Unless a particular country has laws that prohibit direct selling, Network Marketing is perfectly legal. Some countries, states or provinces have laws or regulations that may limit what you’re permitted to do in your Network Marketing business (such as Not For Retail, cooling-off periods, no products kit sales in the first week or month or similar). The UK and Canada have laws that govern how you conduct your Network Marketing business. So do some other countries.

These laws are usually a well-meaning attempt by authorities to prevent unethical conduct. Unfortunately, they’re can also be an attempt to control motives and attitudes, which can’t be legislated, so they can end up having the wrong effect on the wrong people.

Is Network Marketing ethical?
Like the question above, the answer is yes — depending on your motives and methods (why and how you do it). The principles on which Network Marketing is based are completely ethical. However, unethical people can introduce practices (such as “front end loading”) which are entirely unethical. Others try to cover up the fact that their business is Network Marketing, or the identity of their Network Marketing company, or that you need to sell, using deceptive practices that are, in reality, unethical.

None of this means that Network Marketing itself is unethical. It only means that, just like in industries where a great deal of money can be made (cars, white goods, real estate, etc), you’ll find people who are prepared to exploit and manipulate others for gain. Network Marketing is no different. All this really proves is that there’s obviously a lot of money to be made in Network Marketing, or those parasites wouldn’t bother.

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Is Network Marketing the same as a Pyramid Scheme?
Absolutely not — unless people in Network Marketing have a Pyramid Scheme mentality. For a full explanation of the differences between Network Marketing and illegal Pyramid Schemes, see tomorrow’s post.

Do I need to sell to succeed in Network Marketing?
One way or another, you need to be able to sell in order to succeed, no matter what anyone tells you (see “Is Network Marketing ethical” above). Even if it’s only yourself as a potential sponsor. Or your business opportunity. Or the need to set goals and action plans for success. You even need to sell yourself, from time to time, on the vision you originally had when you got involved in Network Marketing.

But selling doesn’t have to be pushy or manipulative. In fact, the best the sellers are usually teachers and leaders, not hype merchants. Selling is WHAT you have to do to succeed. Pushy and manipulative are WHY and HOW you do it. There are better reasons (why) and methods (how) that produce faster, bigger results.

Do I need to sponsor/recruit to succeed in Network Marketing?
You can make some money and save some money in Network Marketing. But, if you really want to take advantage of the unique leverage offered by Network Marketing, you need to sponsor/recruit.

It’s like riding a bicycle. You can get yourself an old single-speed bike that has no gears. If you want to go faster, you have to pedal faster. If you want to climb a hill, you have to push harder, even though your speed is almost at a standstill. It’s hard work, and it takes a long time to get anywhere.

On the other hand, a 10-speed bike means you can cruise at high speed in high gear, with very little effort then, when you need to climb a hill, you simply drop the gears back to low and put in a little more effort and get there much quicker for a lot less effort.

Sponsoring increases the amount of product flowing through your Network Marketing business, exponentially. And it boosts your rewards exponentially, too. It reduces the amount of time and effort required.

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Best of all though — and you should never, ever lose sight of this reality — it gives you the opportunity to help other people become successful, financially independent, confident, and provides you with a large group of people, who share your own values, with whom to enjoy the journey and share the rewards.

What are the best kinds of products for Network Marketing?
If there’s one kind of product that’s best suited to Network Marketing, it’s products that are genuinely consumable. That is, people use them up, then come back for more, regularly. That means you acquire a customer once, then just keep on selling to them over and over and over again.

Products that cost a lot of money and are bought only once (or only every few years) can be successfully sold by Network Marketing. But keep in mind that you, or your team, have to keep finding new customers to continue to earn.

Warning…
Sometimes you may think you have a consumable product — only to discover that you don’t a have a repeat customer base. The problem here is that many consumable products require a change in consumer behavior before the benefits can be gained. These may include some health or weight loss programs where, because of force of habit, customers cheat or give up before they get the benefits they wanted. Give careful thought to this important factor — people will usually not persist if they have to discipline themselves to change their behavior to gain a benefit.

Low margin products are usually not very successful in Network Marketing, either. Especially food and grocery lines, and especially if they put you in direct competition with large supermarket chains. For every company that succeeds in this area, there are many more that fail. Sure, lots of people join, because everyone buys these types of products. But, when margins are tight, and supply is often unreliable (lots of “out-of-stock” lines), the cost of making more than one delivery to supply a single customer order can make the business unprofitable very quickly.

What’s the best kind of compensation plan?
“One that works!” is the obvious answer to this question. But, seriously, there are many types of compensation plans, and people succeed and fail in ALL of them.

The truth is, you can take any compensation plan and make it work for you if you like the products or services, so don’t get caught in the trap of only working one particular plan. Just be sure to study the plan and understand it so that you’ll know how to maximize your efforts!

Can anyone really succeed in Network Marketing?
Yes, they can, providing they meet the conditions on which that level of success depends. This is what separates the winners from the losers in any area of life, not just Network Marketing.

The difference in Network Marketing is that those conditions are achievable by anyone willing to create a clear vision for themselves, then invest the time, effort and discipline needed to realize that vision.

It requires some basic knowledge, attitudes and skills. It does NOT require any particular gifts or talents, although these can help speed up the rate of success.

The secret of success in Network Marketing is leverage — the extent to which you can duplicate your achievements through sponsoring, training and supporting others to do what you do.

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Understanding Compensation Plans

Make no mistake about it, ultimately, it’s why we start a home business: To Make $$.

Sometimes in networking, when a product exhibits the potential to have such a dramatic impact on lives, sadly the company’s owners don’t believe that they have to fairly compensate their distributors. Foolishly and selfishly, these owners assume that the strength of their product will be enough to attract and keep distributors. As history has shown time and time again – THEY’RE WRONG!

goldcoinsstackedsmlIt’s important to understand the type of compensation plan of the company you’ve chosen. The harder and smarter you work, the more you’ll earn.

While there are many different types of compensation plans in the industry today, let’s take a look at a few of the most popular compensation methods that are used.

Referral/Affiliate Programs: Typically a one or two level compensation plan where you are paid for your individual sales and in some cases, you are also paid for direct sales made by those you have personally sponsored.

Binary Plans: The binary method of compensation can best be explained by asking a very simple question… “Do you know 2 people who would be interested in this product or program, that know 2 people that would also be interested…. etc.?” Well, that’s basically what a binary plan does. You sign up 2, who sign up 2, etc. You get paid an average of your group’s product volume. While some plans are 50/50, many binaries are a 1/3 – 2/3 plan (example: 4 sales on your left leg, 2 sales on your right = $$ to you). Since this type of plan is volume based, there usually are no limitations to the depth of where your volume comes from. But do look closely to see if there is a cap on how much volume you will be paid for. This keeps the company from going “belly up” because they’ve paid out too much in commissions.

Forced Matrix Plans: These are the 2×6’s, the 3×9’s, the 5×7’s, etc. They come in all shapes and sizes. Typically they tend to promote “massive amounts of spillover”… realistically “massive” rarely happens! If it happens for you, GREAT! Just don’t plan on that and you won’t be disappointed. How many people have you ever heard of that got wealthy without doing anything (unless they win the lottery), and in network marketing, you have about as much of a chance of receiving “massive spillover” as you do of winning the lottery. But they are often “one-time-out-of-pocket” programs that are easy on the budget and rarely have a monthly qualifier. You can join a program that has a one-time out-of-pocket qualifier, work it when you want to, and earn extra income without the pressure of trying to cover your monthly purchase amount. They can be a lot of fun! Just don’t count on the “spillover” and you won’t be disappointed!

UniLevel Plans: These plans are normally not limited in width, but they are in depth. In other words, you can personally sponsor as many people as you want to, but as they sponsor others who sponsor others, you will only earn through so many levels deep. They also come in all sizes and pay many different percentages through the levels. Look for companies that offer realistic recruitment qualifiers. They are designed with the average networker in mind.

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You can take any compensation plan and make it work for you if you like the products or services, so don’t get caught in the trap of only working one particular plan. Just be sure to study the plan and understand it so that you’ll know how to maximize your efforts!

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What To Look For In A Network Marketing Company

So, you’re serious about getting involved in this industry. Now, what do you look for in a company? We can sum this up in a few high points:

Physical Address & Contact Info
On the company website, look for a physical address, a phone number, names and pictures of the owners. If a company only has an email address and no phone number, this could be a clue that you probably don’t want to do business with them. You can Google a satellite picture of the size and location of the company office.

Management
Good management is a must in this business. What is their experience? How many times in the past year have you heard of a new business opening? We see them every other day it seems! A lot of these businesses are started with management that has little to no experience. Businesses with no experience in their industry have a high failure rate.

Method of Payment
If a company only accepts bank wires, money orders, or checks and does not accept credit cards (giving you recourse if you don’t receive – or have problems with – the product or service you ordered), this probably is not a company you want to do business with. Honest companies will have a refund policy clearly stated on their website.

Read the Fine Print
Look for things like “Policies and Procedures”, “Terms of Agreement”, “Enrollment Agreement”, etc. These are business contracts, enforceable in a court of law. If you see anything that makes you uncomfortable, wait… don’t join until you are SURE what you are reading. It’s also a good idea to look for a privacy policy to ensure that your name and information won’t be sold to a third party for other purposes.

Using the Internet to Help You
Go to one of the major search engines and enter the following:

The Company’s name and the word “scam”. Then do the same using “complaints” and “lawsuits”. Also do a search with the owners name and the word “scam”, “complaints”, and “lawsuits”. Look for comments for legitimate complaints and not just comments from “Anti-MLM Zealots”.

Check to see who registered the website domain of any new company by going to www.godaddy.com Scroll to the bottom of the page and look for the “WhoIs” link. Look for information that matches what you are seeing on the company website. Also look at the registration date. Most legitimate companies take months (and sometimes years) in the pre-planning stages. As soon as they choose a name for their company, one of the first steps will be to register that domain name so that no one else can.

Go to the Better Business Bureau website. Most BBB searches are free. You want to look for complaints that have NOT been resolved. If there are more than a couple, it could mean there problems. Not every complaint the BBB receives is valid, but it can be a good indicator of how the prospective company handles their day to day business matters. Be sure to use the Advanced Search (not the Quick Search).

Integrity
Does the company have it? Do they stand behind their products, services, and their people? No outrageous claims or exaggerations. Does their customer service department answer quickly? Are their products shipped in a timely manner? Are the commission checks being sent out on time?

workathomeDistributor-Driven
Does the company make it’s decisions with the representative in mind or the company in mind? Companies that are publicly traded are sometimes worse than those that are not publicly traded. Obviously, a publicly traded company has to answer to its share holders first, not it’s representatives.

Products / Services
The most successful people in network marketing love their products. It is much easier to “share” a product that you really do use and enjoy. So you must have good things to say about your products or services. You must be a product of your product. Think about this, if you own X brand of gas station would you drive across the street to by at Y brand? Of course not!

One thing to keep in mind when looking at companies is whom will the product appeal to? This is what is known as your target marketing. Not all products will appeal to everyone which is one of the reasons our warm market may not be a candidate for either our products or our business opportunity.

tosucceed2Training
Is there some type of training provided either by the company or your upline? This can be as simple as conference calls, FAQ’s, or tapes, books, etc. Once you join, there will be a lot to learn – about your products, your pay plan, and how to build your business. It will be much easier if there is a system in place to help you learn all about your new business. Are there sales aids available? If there are, you’ll want to pick a few to start with.

Does it have a Duplicable Business System?
This is vitally important, but is missing in a lot of network marketing companies. Do they leave it up to you? Look for a company and a team that has a system in place that you can use from day one in your network marketing business.

The sky is the limit!

  • It is not uncommon for people to earn 6 figure incomes when they consistently work the business for 2-5 years
  • More immediate millionaires have been made in network marketing than in any other immediate business
  • Incredible tax advantages for having a home based business

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