The Evolution of Network Marketing [5 Stages]

The network marketing industry has evolved since it’s inception. More exciting is the fact that the evolution of network marketing is still underway.

Anyone involved in the network marketing industry should have a basic grasp of how it all began as well as some of the changes that have occurred and will continue to occur.

In this post, we’ll explore: 

(1) Where we’ve come from.
(2) Where we are right now.
(3) Where we’re heading.

So without further adieu, let’s get started.

5 Stages of the Network Marketing Evolution

Network marketing infographic outlines the history and evolution of the mlm industry.

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Network Marketing – The Beginning
(Evolutionary Stage 1: Inception)

This is often debated because the beginning of this industry was accidental.

Kinda like an unplanned pregnancy.

A few people got together, the right elements were in place, and BAM!… A new business model was born!

So who’s the daddy?

Well, we’re not exactly sure who the daddy is and unfortunately, there’s no way to run a DNA test.

However, it’s generally accepted that the network marketing industry was conceived by either Nutrilite (a California based vitamin company) or Avon in the 1920-30’s. (Wikipedia).

The #NetworkMarketing and #MLM industry was conceived kinda like an unplanned pregnancy. A few people got together, the right elements were in place, and BAM!... A new business model was born. Click To Tweet

These two companies existed as direct sales companies. Distributors could earn profit by selling products and building a customer base.

Enter Jay Van Andel and Rich Devos.

Jay and Rich signed up as distributors in Nutrilite and after seeing the huge potential in the leveraged part of the business model, they decided to open their own company.

From the beginning, this company was logistically planned as a network marketing business and Amway opened it’s doors in 1959.

Amway’s had it’s share of problems and been the subject of much criticism over the years.

The fact remains though, even with the bad press and criticism they’ve received, they’re still around.

In fact, they’re not just “still around”, they’re still the behemoth of the industry, posting revenue of 8.6 BILLION dollars last year.

They’re a monster company and currently the Google of the network marketing industry.

Some of the reasons for their criticism may be legit, but some just comes with the territory of being the first to market.

Creating a New Business Model

Rich Devos and Jay Van Andel were inventing and adapting as they went along.

They had to solidify the new business model, make it possible for a distributor to make money, and still keep enough cash reserves to keep the company running profitably (and make money themselves).

Keep in mind, at that time there weren’t super computers to run fancy algorithms and future projections.

They couldn’t set up a computer to run a billion different variations of outcomes by playing the game “what happens if…”.

That being said, the compensation model they came up with was probably a little harder than necessary (it’s since changed), but the first goal was to make sure the baby (their company and business) survived.

Remember, they were pioneering a new industry and new business model that was leveraged for exceptional growth.

If they got the numbers wrong… they would crash and burn quickly.

Rich Devos and Jay Van Andel were inventing and adapting as they went along. Sure, they made some mistakes, but we should be thanking them for creating a new industry. #mlm #networkmarketing #amway Click To Tweet

Think about it, if there’s rapid expansion and you’re making profits- that’s an incredible thing.

But if there’s rapid, uncontrollable expansion and you’re losing money on each customer acquisition and sale.. you’re like a freight train heading straight at a mountain!

Better to hedge your bets and mitigate your risk.

All things considered, they did a fantastic job bringing the model to life.

Here’s a little more about the history and progression of this industry by 2 guys… not sure who they are but they give a pretty good overview.

Evolutionary Stage 2:
The Baby Becomes a Toddler

Once the business model was pioneered and proven, other companies started to recognize this model as a real viable option.

From an owner standpoint, the network marketing model offers a lot of great options as well.

Rather than pay for marketing on the front end, owners get to pay only for performance.

What do I mean by this?

Well, instead of paying for marketing and hoping to sell products, the mlm model allows a business to pay commissions AFTER product has already been sold.

In the typical marketing model, you pay from future profits you hope to make but are not yet secured.

In the MLM model, companies pay commissions out of the profit they’ve already generated.

In the typical #marketing model, you pay from future #profits that are not yet secured. In the #MLM model, companies pay commissions from profit they've already generated. #networkmarketing Click To Tweet

This powerful concept was not lost on entrepreneur owners as they started to see this in action.

Evolution of Network Marketing:
Stage 3 – Awkward Teen Years

Teenagers. I work with them everyday.

They are arrogant, impulsive, and mouthy… but fun.

We are currently in what I call the teenage years of network marketing, but quickly coming out of it.

The industry is growing up and growing up quickly.

There are still some teenage tendencies we need to sort out like too much hype, over-promising and under-delivering, and a the stigma that remains from the early years.

That being said, the industry has started to mature in many ways.

The #NetworkMarketing industry is beginning to mature. #homebusiness #mlm #workfromhome Click To Tweet

The Law

Many of us had a rebel streak in us when we were young.

Maybe you did.
I know I did.

We hated rules until we learn that there is actually a purpose.

During it’s lifetime, the network marketing industry has been attacked on more than one occasion.

We get compared to a pyramid and every now and then a company has had to go to court to defend our honor.

This is a growing pain.

Just like a teenager, we had to learn what was acceptable and what was non-negotiable. We also needed this to happen to solidify some things and establish legal precedence.

There should be and needs to be a line between legal and illegal, right and wrong.

Thankfully, some of the giant companies who have found themselves in this position have been able to win on the legal front.

These legal battles have helped define our industry, standards, and best practices. The law helps identify what constitutes a pyramid or ponzi scheme as opposed to what is legitimate multi-level marketing.

This is good. I would never want to be putting energy and my reputation into something that I wasn’t sure was legal. That would be horrible.

The #MLM legal battles have helped define regulations for our industry. This is good. I would never want to be involved with something that wasn't 100% legal. Click To Tweet

These legal battles were necessity. They had to occur so we could start growing up as an industry.
If you look at any new industry, they all go through this.
It’s a coming of age process. Part of growing up.
Part of their… evolution.

Some other sectors that went through legal messes include alcohol, tobacco, social media, franchising, and big media to name a few.

Currently, the US cannabis industry, crypto-currency, and block-chain technologies are at the front end of their legal battles in the US and probably will be for years to come.

Whether you agree or disagree with what some of these industries stand for, the point is that all large industries go through a similar metamorphosis.

Network Marketing Compensation Models

One area of maturity that’s occurred since inception is the different compensation plans that have been born.

Once the network marketing business model was proven, companies started experimenting with all kinds of compensation structures.

This has been a huge growth point for the home business industry as a whole.

Compensation plans will continue to evolve, but 4 main pay structures have emerged during the industry’s evolution.

  1. The Uni-Level
  2. The Binary Plan
  3. The Matrix
  4. The Stairstep Breakaway (older and not as common today)

Each model offers different pros and cons.

Most of the compensation plans today have a foundation in one of the first 3 compensation models above.

There are 3 basic types of #NetworkMarketing compensation models. What's your FAVORITE and WHY? 1) The #Uni-Level 2) The #Binary 3) The #Matrix #MLM Click To Tweet

The video below by Bob Proctor seems to be geared toward corporate companies who are in the planning stages of launching a network marketing business, but it’s the best overview I was able to find and it works for our purposes here.

Bob Proctor
Different Types of MLM Compensation Plans

As the industry grows and people become more educated on all the options, maybe one of them will emerge as a victor but right now I think they’re all just considered different.

I’m a firm believer in the binary model.

Once you you start to break it down, you see that even though team commissions are calculated on the binary legs, other income and bonuses are tied to personal recruits.

This allows leaders to go as wide as they want, while still earning residual income on infinite volume. It’s still not completely understood, but as time goes on and more people understand it, leaders will gravitate to this model.

If there’s one thing I’ve learned in this industry, it’s that you have no idea where or when your growth will occur.

You may THINK you know… but you don’t. Trust me.

In #NetworkMarketing you may THINK you know where you're growth will come from... but you don't. Trust me, you don't. #MLM #WorkFromHome #FinancialFreedom Click To Tweet

The binary model protects you and reduces the risk that you’ll miss out on massive commissions from unanticipated growth.

For example, let’s suppose you’ve been building a business for 5 years.
Let’s also say a leader emerges 500 levels deep.

In a unilevel or matrix plan, it wouldn’t benefit you at all.

It’s just too far down in your organization.
But in a binary, volume is calculated for infinity.

So if a leader emerges 500 levels down, the volume still rolls up to you and calculates into your commissions.

But I digress, this post isn’t meant as an in depth look at the different compensation models.

If you want more details on each model, I discuss them all in my network marketing overview.

Drop Shipping

In the early years, distributors had to order extra product in order to distribute and service their customers.

Often they had garages full of products that they couldn’t move, which added to the bitter taste people had for the work from home model.

Now, virtually all companies utilize drop shipping, except maybe those focusing on non-consumable retail items such as clothing, cookware, etc. (which is more like direct sales than network marketing).

So what does this mean for the distributor?

It means you no longer need to stockpile a massive amount of extra product for customers. Instead, they simply order what they want online, it is shipped directly to them from corporate, and you’re credited with the sale.

Which leads me to my next point.

Online Business Management

While the network marketing industry as a whole was maturing, so was another industry… Technology.

You can contact more, reach more, and do more with your cell phone than any distributor could from their office 40 years ago.

Business and technology have created the perfect marriage and network marketing companies are taking full advantage of it.

In the early years of network marketing, everything was done on paper.

Sales were recorded on paper, genealogy lists and downlines were managed on paper, and commission calculations were done by hand.

It was a mess. Now, everything is done and managed online.

Companies offer online “back offices” that their distributors can log into for training, resources, and most importantly, business management.

You can see your downline, your volume, your team, your customers, and all things you need to manage.

As technology has gotten cheaper, faster, and more robust, it has effectively added more work to the corporate plate while at the same time taking away even more responsibilities from the distributor.

It’s a beautiful thing.

As technology has gotten cheaper, faster, and more robust, it has effectively added more work to the corporate plate while at the same time taking away responsibilities from the distributor. It's a beautiful thing. Click To Tweet

It’s wonderful. Distributors in companies can now have downlines in the tens of thousands (or more) and not have to actually “distribute” anything but information and training.

Actually, even those can be distributed through technology if done right.

This article is a great example. You’re learning from me and I’ve leveraged technology to teach you.

You can be anywhere in the world and in any time zone, but you’re still learning from something I probably wrote at least 24 hours ago and possibly a year or more ago.

Technology has changed the game!

Rewards and Bonuses

This is another element that has come a long way.

As companies learn to tweak the business models, they can also offer more exciting rewards and bonuses.

MLM companies currently offer huge rewards, incentives, and recognition (on top of the income).

Lifestyle strips, exotic cars, luxury RV’s, Corporate Jet Credits, and million dollar bonuses.
As compensation plans evolve, there’ll be even more of these things and probably some stuff nobody has thought of yet.

This allows the network marketing industry to be competitive with other industries.

In fact, over time, these incentives will make it difficult for other industry’s to compete with us.

#NetworkMarketing offers lifestyle strips, exotic cars, luxury RVs, Corporate Jet Credits, and million dollar bonuses. Over time, this will make it difficult for other industries to compete with us. #MLM #FinancialFreedom Click To Tweet

Stage 4- Young Adulthood

The industry is still maturing. It’s now entering young adulthood. Think 20’s and 30’s in people years.

It’s starting to get some traction and figure out who it is (and who it wants to be).

As this maturity continues, I believe a few elements that have started to take shape will become much more prominent and defined.

Professionalism

In the past, most growth was produced through hype and excitement.
Some of it authentic, some of it manufactured.

As time marches on, people are becoming immune to the hypy messaging.

This is in part because they themselves (or someone they know) have been in the industry.

They understand that it’s actually not easy and there is no shortcut to success.

Is it better? Absolutely.
Is it simple? For sure.
Is it easy? No.

Is it Better? Absolutely. Is it Simple? For Sure. Is it easy. No. Oops, I said it. #NetworkMarketing and #MLM is a great option if you stop listening to the hype and go DO the work! Click To Tweet

As this is happening, leaders are beginning to build platforms and become champions of the industry.

These folks are educating people in mass (thanks to technology) and teaching amateurs how to be more professional in order to elevate the profession.

People like Ray Higdon, Erric Worre, and Simon Chan are a few who come to mind.

In fact, these guys were the catalysts that made me realize that working within my strengths would be far more effective than trying to be something I’m not.

They have done more for my business than they will probably ever know.

I’m just getting started, so I don’t even think I know how much they’ve done for my business yet (and subsequently my life).

Greater Social Acceptance

As more professionalism comes to the industry, there’s been a shift in social acceptance as well.

It used to be that as soon as I mentioned anything that sounded like network marketing, people suddenly looked sick, made up an excuse, and ran away.

Usually never to be heard from again.

Now, it’s hit or miss.

It’s about 50/50 when I talk to people whether or not they are a hater of the industry.

But a new phenomenon has started to occur. Some people know a little about this industry and it’s actually what they’re looking for.

If nothing else, they’re at least willing to re-evaluate the merits of the industry.

When I came back into this profession after time away, somebody asked me “is this like Amway?”

I cringed.

I thought I knew where the conversation was going because 10 years ago, if somebody asked that… the conversation was about to get derailed.

While I was formulating an answer in my head, the person continued “…because I’ve been looking for something like Amway.”

Social shift? You bet! So why is that?

Part of it is what I discussed earlier. There’s more overall professionalism creeping into the industry.

But it’s also because slowly but surely, more established professionals are entering the arena.

When a legitimate professional, whether it’s a doctor, lawyer, contractor, pastor, leader, or business person latches onto this business model- they tend to do very well.

This business (like any other) requires a core set of competencies to be successful.

Many people playing at a high level in society have spent their lives cultivating those core competencies in other fields.

So when they get involved, they’re not starting from scratch.

They’ve already developed the skills, they’re just applying those skills to a another field.

As social acceptance increases over time, a larger number of high caliber people will get involved. As they do, they’ll perform at a high level and find success. As they find success, there will be even more social acceptance.

It’s the gift that keeps on giving.

Eventually, the network marketing model will be as socially accepted as franchising.

New Income & Recognition Levels

Every year it seems companies are adding income and recognition levels because their leaders have blown the lid off their compensation plan.

The first company I was involved with continued to add levels, recognition, and rewards until I left. This was to make sure there was another level… another proverbial carrot for leaders to strive for.

It’s fun to achieve if you’re not in a corporate job-like environment.

It's fun to #achieve if you're not in a corporate job-like environment. #WorkFromHome #NetworkMarketing #FinancialFreedom #mlm #HomeBusiness Click To Tweet

It used to be that if you were in network marketing and making $100,000 a year, you had arrived.

But that is quickly changing. Six figure earners are a dime a dozen.

Erric Worre has talked about this multiple times in his podcast. In fact, he has a great series called million dollar interviews in which he interviews these high caliber earners.

Worre believes a million a year is the new threshold (or will be soon).
I agree with his analysis.
I also think a million a month will eventually replace that figure.

I’m not sure how high it will go, but I think we still have decades of growth before it stabilizes.

Rapid Global Expansion

As the world has continued to shrink, Network Marketing companies have gotten better at opening new markets.

They know what’s required in each market, what’s allowed and not allowed, and how to translate sales to commissionable volume points so that overseas volume is not wasted or lost.

As distributors also get better at using technology and social media in their marketing, they’ll become experts at opening new markets and global teams.

When that happens, business growth will explode every time a new market opens.

It will also allow leaders to offset their potential losses by leading teams on multiple continents.

If you have a team in Asia that falls apart, but you have teams in 11 other countries, the risk of your entire organization falling apart is greatly reduced.

Evolutionary Stage 5:
The Boy Becomes a Man

We aren’t to this stage yet.
But it’s coming.

For this stage, think industry maturity.
A boy becomes a man.
A girl becomes a woman.

In this stage, distributors will stop hopping around from company to company.
They’ll spend more time picking their company and leadership.
People will start realizing the power of longevity in one company.
There will be an emphasis on customer acquisition and retention.
Income levels will continue to rise.

There are a few things I believe are just around the corner and will happen during this stage of network marketing’s evolution.

1) Influencers with Established Platforms will Get Involved

There’s an interesting dynamic that was happening for years in our profession.

A person would get involved in network marketing, rise to the top, make a ton of money, and then parlay that income into other business ventures and exit the profession.

This was (and is still) happening because of the stigma attached to the network marketing profession.

As social acceptance becomes more prominent, those with established social media followings and other platforms will begin to look more seriously at this business model.

Some will enter the arena.

As social acceptance becomes more prominent, those with established social media followings will begin to look more seriously at the #MLM business model... Some will enter the arena. #networkmarketing #homebusiness Click To Tweet

When that begins to happen, it will be a test for the network marketing industry and hopefully they’ll be able to handle the growth.

For example, let’s suppose for a moment that Neil Patel decided to do an experiment and apply his marketing knowledge to build a network marketing business.

What would happen? 

I can tell you. He would go really, really fast and his chosen company better be ready. He has the following, the trust, and the marketing knowledge to build a massive organization in a short period of time.

Does he need the money? No.

But it would only take major influencer like Neil Patel to legitimize the model for other influencers. If and when that happens, it will bring other leaders out of the shadows and into the arena as well.

The same way Roger Bannister inspired others with his four minute mile, the first bonafide guru who builds an organization fast will inspire others.

Can you imagine what would happen if a few of these influencers teamed up and launched at the same time?

We haven’t even scratched the surface of what’s possible with this business model!

What would happen in your company if somebody enrolled thousands of people in just a few short weeks?
How much momentum would be created?
How much income would they make?

The numbers (as far as serious people vs. not serious people) would probably be about the same.

But success loves speed.

#Success Loves Speed. Click To Tweet

For example, if somebody came into a company and enrolled 5,000 people in one month, I can’t imagine what would happen in their organization.

Assuming just 1% of those people went on to be rock star business builders, that would be 50 bonafide leaders all joining at roughly the same time.

That would be enough to take a person to the top compensation levels almost immediately and probably create hundreds of thousands in monthly recurring revenue.

He would climb the ranks at a ridiculous pace.
Regardless of where he landed in the end, the bar would be set.

Other leaders, influencers, or gurus (for lack of a better term) would see what’s possible and more of them would give it a shot.

Because of their reach and influence, public perception would also start changing at a faster rate.

Which leads me to the second thing that will happen in the future.

2) Network Marketing Companies Will have Greater Longevity

It seems like network marketing companies come and go by the hundreds (maybe thousands).

There are a handful of companies who have stood the test of time and have become household names (Amway, MaryKay, Avon, Pampered Chef, etc.)

As time goes on, there will be more and more companies who stand the test of time. As an industry, we’re learning what is good, what is not good… what works, what doesn’t work… and how to navigate it all.

On top of that, distributors who have been successful in the past are looking for companies that have a long term strategy.

More and more distributors want a company to marry, a company they can be with forever (aint that sweet).

I know that was an important element for me. Nobody wants to start over, even if you have the ability.

3) Greater Expansion of Product Lines

Don’t get me wrong. Multi-level marketing companies are constantly expanding their product lines.

But in the future we’re going to see more of two categories.

(FYI- I have no data to support these conclusions, they’re just my opinion, but it just seems to me these are the next logical steps for the industry.)

  • Business to Business Products: The small business sector is a huge part of the fabric of the US market. A product that solves a business related issue would sell at a higher price point and have the ability to draw more business people into the field.
  • Digital Goods and Software as a Service (Saas): My understanding is that one of the main drawbacks of Saas products is the low customer retention rate. If there was a great Saas product that counted toward monthly volume quotas, it would essentially give a business owner a way to help their primary business by building a network marketing business.
  • Marketing and Promotional Materials: One of the drawbacks I’ve seen in many companies is that distributor marketing materials aren’t assigned a point value and don’t count as volume. I’ve seen a few companies currently doing this and I think that trend will continue to rise.

4) Compensation Plans will Equalize

As Network Marketing Compensation Plans continue to be improved, somebody will figure out how to create a plan that serves both the amateur and the professional.

What do I mean by this?

Well, right now, it seems most compensation plans lean toward those that can make it rain. Which is great. Companies know that rainmakers are needed and they need to be compensated accordingly.

However, lot’s of people leave the industry because the time between making zero and being profitable is to long for a majority of new networkers.

We can argue whether it’s actually too long, but the perception is that it’s too long, so distributors quit.

As an industry, network marketing companies need to find a solution to what I call “the in-between” time.

Figure out a way to structure the compensation plan so that people can be profitable faster, while still allowing for ridiculous earnings for the rainmakers.

Currently, many marketers use affiliate marketing programs outside their primary company (such as MLSP) for generating additional revenue.

If a person is making some profit and feels like their making progress, they’ll stick around longer. This increases their chances of long term success.

I’m not sure what the answer to this is yet or even if it’s a problem that needs solved. Maybe we could make people put $5,000 into an escrow account and if they don’t get profitable in a year they lose it to their sponsor.

Ha! Just kidding (kind of).

The real problem is deeper. People don’t treat it like a business. Part of me thinks helping people get profitable faster would help and part of me thinks it would have little to know impact on people’s success.

Time will tell. We haven’t even been through one 100 year cycle of business yet.

In Conclusion

So there you have it, the evolution of network marketing.

To recap, here are the 5 stages we covered: 

  • Stage 1: Inception
  • Stage 2: The Baby Becomes a Toddler
  • Stage 3: The Teenage Years
  • Stage 4: Young Adulthood
  • Stage 5: The Boy Becomes a Man

We’ve come a long way, but there is still a long way to go.

The 5-State Evolution of #NetworkMarketing Stage 1: Inception Stage 2: The Baby Becomes a Toddler Stage 3: The Teenage Years Stage 4: Young Adulthood Stage 5: The Boy Becomes a Man Click To Tweet

In network marketing, with it’s emphasis on hype, excitement, and the next big thing… It’s easy to feel like you’re late to the party.

You’re not. We’re not.
I’m super excited about the industry.

I really believe that now is the best time in human history to be an entrepreneur and certainly the best time to be building a network marketing business.

This industry is just starting to grow up.

So tighten up your laces,
Fasten your seat belt,
And get ready for a wild ride that can change your life.

Learn More. Earn More. Dream More.
And remember: If nothing changes… nothing changes.

Jason and Daniele

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