Network Marketing vs. Franchising

In 2013, more and more people feel the urge to be their own boss, make their own schedule, travel whenever and wherever they want, work from home, and generally create more freedom for their family and themselves. For all these reasons, and more, many of us are looking toward owning our own business, in the hopes that our wants and needs will be met more fully.

But then we start looking, researching and listening to those around us, and more times than not, end up with more questions than we started with. Phoenix Alliance’s business segments address one of those questions every week. This week we will explain the difference between Network Marketing and Franchising, as well as the pros and cons of each one.

First of all, it is important to realize that Network Marketing and Franchising are both «Franchise Concepts», the first being a «variation on the theme», a «derived product», or an «evolution» of the second. Because of that, most (if not all) of the advantages of Franchising are also found in Network Marketing. Let’s explore Franchising first.

Isaac M. Singer is credited for the modern version of Franchising in the U.S. about 200 years ago, but it really goes back to the Middle Ages in Europe. The basic concept is that a brand owner rents out the right to the franchise owner to sell the brand’s products, in exchange for a purchase price and a monthly «commission» paid by the franchise owner to the brand owner.

J.R. Watkins founded one of the first Network Marketing companies about 150 years ago, based on the travelling salesmen of the earlier 1800’s. It is interesting to note that some of the first Network Marketing companies (that still exist today) are half-franchise and half-network marketing, because the business is still very much based on selling.

In Network Marketing, the basic concept is to have independent associates give the information about the brand’s products to consumers, whom will then purchase directly from the brand owner, who will in turn pay «commissions» to the associate, on all products consumed by each person who received the information from that specific associate, forever.

The biggest difference between Franchising and Network Marketing is that Franchising is about selling the brand’s products, whereas Network Marketing is about … well … marketing. We will go through the main pros and cons of both business models, but based only on this main difference, most people can already know which one is the best fit for them by asking themselves: «Am I better at selling or at marketing?».

The main advantages of Franchising are an established brand, comprehensive training, proven marketing strategies, continuous business support, high income potential, and the franchisor puts resources into ongoing R&D for new products.

The main disadvantages of Franchising are six-to-seven-figure start-up costs, it takes at least 2-3 years to generate profit, you need to work 60-70 hours / week, high operational costs, your revenue is limited per location, employee headaches, complex accounting, and your business only makes money when it is open.

I have never owned a franchise myself, but the few Franchise owners I personally know summarized their experience by telling me they felt they had become slaves to their business. According to my research, this assessment probably stems from the more challenging aspects of being a Franchise owner, as described here.

Network Marketing has all the advantages of Franchising, without any of the disadvantages. And it also has additional benefits, such as very low start-up costs, you can get into profit quickly, you can work part-time or full-time, working from home, making your own hours, no inventory, low operational costs, in addition to your own business you can refer other «franchisees» and generate income through their business as well, choose your business partners instead of managing employees, better use of the Internet tools and resources, simple accounting, and once established your revenue can continue to grow even if you stop working.

Everyone will agree that Network Marketing is certainly more accessible and flexible than Franchising, making it a better option for most first-time entrepreneurs.

But even with all these advantages, the biggest one, which only Network Marketing can provide, is true leverage: you own one business, but get paid on tens, hundreds or even thousands of businesses, at absolutely no extra cost or effort on your part, even while you are sleeping or on vacation!

It was almost 20 years ago, while studying to practice a liberal profession, that I was introduced to the Network Marketing business model for the first time. It was an «A-Ha» moment if I ever had one, and my opinion has not changed since: I believe there is no competition between the two: Network Marketing definitively has the edge.

But I’m not asking you to take my word for it, I invite you to visit this page of our website and hear about Network Marketing from two of the industry’s most respected experts.

For more in depth and detailed information, Phoenix Alliance offers a FREE specialized «Why Network Marketing is a better franchising concept than traditional Franchises» seminar to its registered members.

Interesting outside link: «Network Marketing or Franchise»