Where did Network Marketing Come From?

Network marketing has an origin. In this episode I’ll be giving you a brief background on it. 

Back about 30 years ago, I was in a network marketing company and some attorney generals claimed at the time that we were a pyramid scheme. I come from a background of military service, and had been in the Navy special operations, so I’m not somebody who defects. I’m not going to run just because there’s a challenge, but I didn’t know if I should run or not, because I really didn’t know what the company was all about. 

This question caused one of the greatest things that probably ever happened to me, because it challenged me to go and do research and really study network marketing.

I’m going to tell you what I found.

The Origin of the Direct Sales Industry

I remember I was going through it with a professor who had a PhD from Harvard. He and I studied the subject of network marketing together, to try to figure it out. Our studies led me into where it originated. 

The direct sales industry has been around since about 1886. I think the first company was Avon. They didn’t call themselves Avon at the time; they called themselves the California Perfume Company. 

A little summary of direct sales is written by the Department of History at the University of Delaware. In it was this quote: “Now you are in business for yourself.” – the independent contractors of the California Perfume Company, 1886 to 1938. (In 1938 they converted to being Avon.) 

This is the summary of direct sales from the University of Delaware Department of History:

“Few business historians think about independent contractors like Avon ladies and Fuller Brush men as business owners, but every Avon lady actually owns her business. Tiny in scale, with no capital outlay, and operated with occasional labor, Avon ladies and Fuller Brush men occupy a unique economic and entrepreneurial niche. They embody corporate identity, but work within individual household units. The direct selling industry doesn’t fit the standard model of business as manufacturing and distribution enterprises. The history of the California Perfume Company invites us to question our conventional wisdom about how business is organized, and it contributes to business history by describing an alternative strategy for managing distribution.” 

I couldn’t have stated that better. It said it so well, because direct sales doesn’t agree with the standard, but it is very viable. It moves a lot of sales volume. 

I got a kick out of this old ad I found. It said: “Wanted: Agent to take agency for California Perfume Company products. Experience not required or necessary. Phone number 418R.” (There weren’t a lot of phones then.) 

They had 10,000 sales women in 1906. That’s a lot of salespeople back then. 

From that company, some people came over and started another company called The Fuller Brush Company. They made cleaning brushes for paneling, carpet, and other inside surfaces, and they were really good products. The Fuller Brush man would go door to door and sell these products, and a lot of men did this. 

That company then yielded another company called Stanley Home Products, which ended up merging with Tupperware. Then Tupperware pulled all of their products off of the regular channels because they were getting such better sales inside of the direct sales space. 

Here’s another ad for that, which you can see is very similar to the first ad I showed you. The ad that I answered that got me into network marketing said, “No experience required. Will train.” That was the only reason I answered it.

Where Did Network Marketing Come into Play in Direct Sales? 

In 1945, the California Vitamin Corporation created the first documented compensation that paid on more than one level. Distributors bought supplies at a 35% discount to encourage distributors to sell more. Companies gave a 2% bonus on total sales. After the distributor got 25 customers, he was allowed to become a direct distributor, which meant that he could find others who wanted to sell the products and then they would buy their products from him or her. So once he got 25, then he was able to get reps as an incentive to train his distributors. The company gave a 2% commission once you had amassed 150 customers. 

I drew out a little scale of this. 

The network marketing company has manufacturing, employee, and advertising expenses. If you got 25 customers, you got a 35% discount. Then when you got other representatives, you got a 2% bonus on their sales. That was the first documented multilevel compensation. 

If the customer pays $135 for a product, you paid $100, so you make a $35 profit. After 25 customers, you’re then able to find others who will sell. And as an incentive to train them as distributors, you get a 2% override. 

It’s very logical. Why is that very logical? Because without paying these bonuses and incentives, the California Vitamin Company will have to have a department to recruit salespeople. Additionally, who knows better how to train the sales reps than a person who’s getting customers already? That’s why it’s very logical to give a 2% bonus. 

Compensation plans after that begin to see differences. Does the rep you train eventually break away from you? Or if he or she gets 25 customers and his or her own reps, do you get compensation or bonuses for that? How deep do they pay? That is where it continued to grow with better and better compensation. 

Companies were realizing that people would rather do this than be in a traditional company where they were getting just a salary for selling. It was also very effective for people like moms. It started out as mostly women in Avon, but then the Fuller Brush man came out. The Fuller Brush Company created a whole identity around that. It could be a profession for men. 

That’s how network marketing started, and it was a long time ago. That’s the basis of it. I thought it would be helpful as you think about network marketing, to get a good background on where it originated from, and how it started. Comment below and let me know what you think about network marketing, or what questions you have. I’d love to hear from you. 

P.S.  If you don’t have a team, haven’t recruited anyone (or less than 10 people), this is THE course you should get – Network Marketing Training Course