Even with practice, some problems can occur. (See, the MLMer Survival Guide) The main problem is a finite market size. The second big problem is the cost of entry (participation in MLM). As long as each new distributor can face the situation of market’ saturation, so she/he could not recruit new distributors, she/he is exposed to the risk of losing her/his money (costs of entry).

             1.2    Affiliate Marketing (AM)

Affiliate marketing is a method of distributing products or services to consumers through a  network of affiliates who refer customers to the seller. The affiliates are rewarded for these references and/or for sales to the referred customers.

According to Forrester Research,Inc., affiliates delivered 13% of retail sales in 1999, and will deliver 21% in 2003. The power of Affiliate Marketing is –viral distribution. According to research of Opinion Research Corporation International (ORCI), users told an average of 12 other people about an online shopping experience. So the Network of affiliates grows very fast. See table below.

             The main problem with Affiliate Marketing is that affiliates are not receiving full reward for their contributions to the network formation. They usually receive income (in addition to their own references) from first and some times second level affiliates, and do not receive income from affiliates on other levels.

             1.3    Synergy

The Law of Synergy (in a very primitive form) may be formulated as follows:

The whole is greater than the sum of its parts .”

There are a lot of examples of this law in many disciplines. The most well-known example for business people is corporate mergers.

The affiliate Network Marketing uses the advantages of both MLM and AM and in the same time has no their main drawbacks. 

1.4    Comparison

The table below shows differences and similarities of all discussed methods.

 2. Who have the best chances of success in Affiliate Network Marketing?

The first category consists of people who have a network or virtual network (relations with other people that can be quickly converted in to the real network).

The second category consists of people who are very creative and hard working. They can quickly beat competitors using their natural talents and working habits.

 3. Step by step guide.

 In this section, we describe a step-by-step way to ANM, affordable for anyone. For people/businesses that have products/services for sale, Step 1 should be skipped.

 Step 1. Selecting Merchants (AP)

 Key points in selecting a Merchant’s Affiliate Program (AP) are:

            -There is a risk that you may not receive some or all commissions from merchants

            Profit potential (select AP with highest profit potential).

There is a lot of information available on how to select reliable merchants (see, for example http://www.affiliateunion.com). To select merchants with a high profit potential (among the pre selected reliable merchants) you can use our simple spreadsheet (tools).

 Step 2. Analyzing the Network

 At this stage, you should determine (or guess) the growth factor of your network. As was mentioned above (see 1.2), the growth factor for best online shops is about 12. If your network has a different value, this is not critical, inso far as you can regulate your future income with your payments scheme (rewarding system). For example, if your growth factor is only 2, then you should extend the number of levels in your reward system up to 10 or more.      

 Step 3. Designing the Arbitrage

 Let us demonstrate this step by a simple example. Suppose that you select the merchant who pays you 10% from each sale to a customer that you refer to him.

 Assume that you have three level network of people who can be your affiliates (see table below). 

 Suppose you decide to reserve 1% (from 10%) for your own profit, and distribute 9% to affiliates. Suppose your sociological/marketing research shows that your potential affiliates have the following preferences: 

10% of the affiliates have no preference.

You expect that average sales per month per affiliate will be $100.

From this information, you can estimate an income from your ANM program (see, for example, Arbitrage_calculator) 

From the table above, you can see that scheme N1 gives you more income than other schemes, so you decide to use scheme N1.

In this way you designed the arbitrage between a one level network (10% ) and a three level network.

Without this arbitrage, your income is only $120 (10% from 12x100). Therefore arbitrage gives you about a 2,000% increase in income ($2,388 versus $120). 

If you are not impressed by this result, try to calculate income for forth, fifth , ... , nine level networks. The problem is the more levels you want, the harder it is to build the network. 

Step 4. Announce Your ANM Program

Now you can announce your ANM program to your prospective affiliates.

If you do not have any prospective affiliates, you can publish your ANM program in the Affiliate Programs directories. (See, for example http://www.refer-it.com ).

 Step 5. Manage Your ANM Program.

 This step may be detailed as follows:

Search for new affiliates (or super-affiliates)

Attract affiliates to your network

Register affiliates

Register orders/sales/leads

Generate reports

Reward affiliates

Register payments

Communicate with the affiliates

Analyze trends and performance

Make decisions.

Good luck in the world of Affiliate Network Marketing !