Throughout the 3+ years that I've known about Young Living, the question has come up again and again why we use a network marketing model. It's a completely legitimate question, and the answer has many different aspects.
Network Market vs Direct Sales vs Multi-level Marketing
While they are often lumped in as the same thing, if you look at the actual words, it denotes the big differences in each of these models:
In this model, you would start by using your network (called "warm market") of friends and family to market your product and services. That can also extend to your friends' networks (which was your "cold network" but can become your "warm network" as you becomes friends with them as well). Networking is an aspect of any business, and especially in entrepreneurship. It's a launching-off point. If it's a good product, you don't have to do much (or any) "selling" because it truly takes care of itself.
This is when you have a party or event, sell a product, and make a commission. You can build a "team" of people that also sell products for commissions, and you can make a percentage of their sales (without the customers spending any more than the retail price). Those "sellers" under you are called your downline. With the Direct Sales model, you have to actively work the business to make money. Even in order for you to make a commission from your downline, you must usually meet certain sales goals.
This is often the same as Network Marketing, but the focus 2-fold: having a team under you that does what you do and networking in a spider-plant pattern to reach new cold-to-warm markets.
Benefits to NM, DS, and MLM
There are several benefits for independent contractors who work under the MLM model.
- You are your own boss. This means that you decide your hours, work environment, and investment. For many, this is a really positive draw, as you can truly have time freedom. As you are starting out, you will work hard to start building a business. It's just like any new business, where it takes a few years of consistent work to see long-standing traction. But once you hit your stride, it becomes a well-oiled (no pun intended) machine that can effectively run itself (while you work to continually help it grow). Yes, you are working for yourself, but your success and your pay is directly coordinated to your efforts. No one puts a value on you, except you. No one else determines your worth.
- You don't always have to keep stock (depending on the business). At least in the Young Living world, we are a membership model, so YL Independent Distributors are encouraged NOT to keep extra stock and sell it off. Instead, it's a much better option to educate and encourage members to purchase their own products through Quick Orders and Essential Rewards. In the very least, you don't have to deal with the distribution chain and upfront costs.
- The option of residual income. This means that you actually can go on vacation and make an income. This happened to me earlier this year, when I went on a family trip where we had zero internet connection. An in those 7 days, I nearly doubled my monthly income from before I left, all because of the concept of residual income. That meant that members in my organization purchased products for their own families, and I earned 4-8% (and in some cases of new members, 25%) off of their purchases.
- An unending income opportunity. That's right, if you keep working the business and it is a good, sound company with great products, you can keep making more income. Do most people reach the top? No, but that's often not because of the structure of the model, but the work and circumstances of the individual. You have to be motivated, connect with people, and understand entrepreneurship to make this work, just as you would with any business. The only difference is that you don't have to keep extra stock, have the overhead of space rental and employees, and you have to keep track of your income for taxes.
- Cutting the (expensive) marketing middleman. All companies have to pay for marketing and advertisement. It's how they get new customers and more sales in this competitive market. What companies that have used networking market models do, however, is that they pay their members to share instead of paying to have their products on shelves. When this happens, you lose out on the stories behind the products, such as our history and Seed to Seal standards.
Is it a Pyramid Scheme?
No. I want to be very very clear. No. Network Marketing and Direct Sales are NOT pyramid schemes.
A pyramid scheme is illegal, and it is this:
- An illegal form of investment
- Participant 1 recruits two participants (A and B).
- The returns from Participants A and B buying into the investment pay Participant 1.
- Participants A and B each recruit 2 new people, and they keep the buy-in.
So why do people call Network Marketing and Direct Sales a pyramid scheme? This is the way that a MLM works:
- Completely legal and legitimate
- Participant 1 joins as an independent contractor (called different titles in different companies)
- Participant 1 can purchase products, sells products (and makes a commission), and/or signs up members/independent contractors (A, B, C, etc) to do the same.
- Participants A, B, C, etc. can do the same (purchase and sell products, sign up contractors).
So MLMs and DS companies look like a pyramid as the organizations grow, but the money that is earned for each head of the organization is made through commissions from purchases, instead of paying Paul by taking the money from Peter.
Look at any corporation around you. They operate under this same business model. There is someone that is at the top (a president or CEO). There are people that work under them and make money (directors). Then managers work under them. And employees/sales staff under them. Does the president/CEO benefit financially when those under him do well? Yes.
The difference between MLMs and Corporations is that in MLMs, the independent contractors all run their own businesses and have autonomy to make decisions that best work for them, all within the scope of what is allowed in their company's Policy and Procedure (which is usually rather open-ended compared to a corporation).
Breaking It Down: The How
So how does the Network Marketing model work? It’s structured like this:
- 50 percent of the sale, the company keeps. The money is used to package products, warehouse the products, pays their customer service teams, and events that they put on.
- The other 50 percent of the sales are broken up and distributed to the community of ‘distributors’ or the people directly involved in the sale of the products out in the field.
A traditional business only gets 30-40% of the sale, 20% goes to the store that sells it, and 50 to 60% is divided up in the warehouse.
So, all that to say, corporate companies are not evil and neither are network marketing companies. It’s simply a different structure. However, in network marketing, more money goes to the distributors out in the field.
Why YL Chose This Model
When Gary and Mary Young first created Young Living, they knew that they would need help getting the word out about their products. It is so non-conventional (or at least it was in the early 90s) that there would be a big educational component for their users. How could they develop product, run the business, and educate? They would utilize their distributors to market, educate, and recruit, thus freeing the Youngs to keep developing the brand, business, and products.
How YL is Different
I've hinted at it in earlier sections, but Young Living is different than other MLMs.
- We don't have to keep any stock of products. In fact, we are encouraged NOT to keep stock of products.
- We are more about memberships than sellers. At our International Convention 2017, we learned that there are 1.75 million active members with Young Living globally. 94% of them (approximately 1,645,000 people) are simply members and not working their membership as a business. That means they simply purchase their products on discount, enjoy and love them, and that's it. Only 6% of members take it further and share about Young Living, earning either a hobby paycheck or something more substantial (105,000 people).
- Our culture is all about support. In the last year, we have seen the hashtag #TeamYL circulate around social media. It's not just a marketing gimmick. Maybe it's because we all got started because of plants, but there is something so wholesome about the members of this company. We love each other, whether we make a paycheck off of them or not.
- People over profit. Yes, you heard me right. This is a billion dollar company that would rather put a highly popular product out of stock because it didn't meet our high quality standards than to sell (and profit) from an inferior product. Plus, Gary Young has said that we will never retire a product if it is used and helps even 1 person.
If you do a Google search, you will see lots of blog posts (like this one) supporting Young Living and lots tearing it down. Honestly, anyone can post anything they want. I can! So I ask you to please do research. The purpose of this post is not to convince you about Young Living over its competitors (though after 3 months of research and visiting the farms multiple times, this is the ONLY company that I will ever purchase essential oils from). It was written so that you can be informed about network marketing and why it is not a scary or dark being coming to suck the money from your couch cushions and wallet.
Some MLM Funnies
A Bad Name
Because of the ease in starting a network marketing/direct sales business, you are going to have people who do things a little... well... off-putting.
- You will have the person who only posts about their business "Buy my product!" "Sale!" "Join my team!" Oh my gosh, STOP already! We get it. You sell XYZ!
- You will have the person who joins 43 different companies in a 2 year period just trying to make a quick buck. There is nothing "quick" about this... a true business takes time to cultivate. Plus, it's very confusing to see them loving so many products (how many of XYZ product lines do you need?).
- You will have the person who adds you to their groups without asking. Then when you remove yourself, you get added again. I can't stand all of these notifications. How did I even get here?
- You have the person who you purchase from and then you never hear from them again. Or if there is a problem, you are on your own to figure it out. Customer no service.
Basically, these are people who don't understand sales or relationship building. We've all experienced poor customer service in some way or another. We have that with MLMs too. I've had it in my organization, and I've seen it with several friends in other companies. And sadly, these are the people that are very flashy and out there with their posts, and it turns many people off to the business model. But I promise you that we are not all like that.
Do I love my company and do I post about it? Yes. I am in love with these products, and it is because of that that I am building a business. Believe me, that was the last thing I wanted to do when I became a member. But out of the 500+ products in the catalog, I have or have tried almost all of them. And I use most of them regularly.
Because I mentioned income and ranks, please see our Income Disclosure Statement: