Rethinking the Model
Here is a post I originally wrote 10 years ago, which still feels just as relevant today.
When I first discovered network marketing, it looked very different from what it is today. Back then, it was all about buying a box of products and trying to sell them to people around you. You were essentially a reseller, working between the company and the customer. It seemed like a smart way to earn money – basic supply and demand.
Fast forward to today, and the model has changed. A modern network marketing company ships products directly to customers. As a distributor, you don’t need to invest in inventory or worry about logistics. Your role is to connect with people – potential customers and partners – while the company handles the rest.
The Focus Is Shifting
In both the U.S. and the EU, regulators now expect companies to generate at least 50% of their revenue from external customers – people who buy the product to use it, not people inside the organization. But many companies fall short. Often, only 20% of revenue comes from real customers because too many are recruited as distributors instead.
A strong network marketing business generates 80% of its revenue from loyal customers. Some companies even let distributors earn their own products for free once they’ve built a small customer base. That’s a model worth building on.
Retention Over Recruitment
Network marketing often talks about passive income, but that’s only possible if customers continue to reorder. Unfortunately, many companies see retention rates of just 20%. The best companies flip that – keeping 80% of their customers year after year.
If your goal is long-term success, focus on creating happy, returning customers – not just on bringing in new distributors.
The Gray Zone: What’s Legitimate?
Some business models look great on the surface but cross legal lines. If a company pays commissions to distributors without actual product sales, that’s illegal.
Attorney Kevin Thompson often asks the key question: Would people buy this product without a compensation plan attached? If the answer is no, something’s off.
Compensation Plans and Income Claims
Many companies say they have the “best” compensation plan. But compared to what? With over 1,000 network marketing companies globally, that’s a big claim.
Instead of hype, focus on clarity:
- What size customer base is needed to reach a certain income level?
- What percentage is recurring vs. new sales?
- How many hours per week are typically required?
Be transparent. Regulators view all income claims as misleading if they’re not backed by clear explanations.
As Randy Gage says: “You’ll lose more people by making it sound too easy than by making it sound too hard.”
Customers First – Always
Every ethical company should be built around customer demand. Regulators assess product quality, market value, refund policies, sales culture, and more. If a company is too focused on recruiting, rather than selling to real customers, it’s a red flag.
Distributors without customers don’t stick around. And companies built only on internal consumption will eventually fall apart.
If your customer orders average $40 per month, and you don’t need to make personal purchases to earn bonuses, your business is on solid ground. If, instead, most revenue comes from distributors’ monthly orders, authorities might classify the company as a product pyramid or chain letter scheme.
Real Customers or Just Positions?
Some companies give everyone a “position” in the organization, whether they’re a real customer or not. This blurs the lines. When 100% of revenue comes from internal consumption, regulators take notice.
If your friend signs up thinking they’re just buying products, but they’re automatically placed in a downline, that’s not transparency – it’s manipulation.
The fix is simple:
- Customers should have customer IDs.
- Distributors should have an official position.
- A person can change roles, but only through a clear, voluntary process.
The Culture That Lasts
Ask yourself:
- Is the product valuable?
- Is there real demand?
- Can I stand behind the brand and the business model?
A recruitment-first culture, where people buy just to qualify for bonuses, won’t last. Instead, find a company that rewards sales, not status.
Should you have access to monthly auto-ship? Yes.
Should that auto-ship qualify you for bonuses? No.
Train your team. Focus on external customers. Build something real.
It’s time to look at network marketing with new eyes – and lead with integrity, clarity, and purpose.