What is a network marketing company?

Definition: A business model in which a distributor network is needed to build the business. Usually such businesses are also multilevel marketing in nature in that payouts occur at more than one level. .

Network marketing is a type of business opportunity that is very popular with people looking for part-time, flexible businesses. Some of the best-known companies in America, including Avon, Mary Kay Cosmetics and Tupperware, fall under the network marketing umbrella.

Network marketing programs feature a low upfront investment--usually only a few hundred dollars for the purchase of a product sample kit--and the opportunity to sell a product line directly to friend, family and other personal contacts. Most network marketing programs also ask participants to recruit other sales representatives. The recruits constitute a rep's "downline," and their sales generate income for those above them in the program.

Things can get sticky when a network marketing network compensates participants primarily for recruiting others rather than for selling the company's products or services. A network marketing system in which most of the revenue comes from recruitment may be considered an illegal pyramid scheme.

Since network marketing programs are usually exempt from business opportunity regulation and aren't defined as franchises under state and federal franchise laws, you'll need to do your own investigation before investing any money.