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 Category :: MLM |
Author :: Carol Woods  |
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| Article Title :: Evaluating a Network Marketing Business |
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I've recently been on a search for a reputable network marketing
company with a product and comp plan I thought would make me
money. As a mom, I have different priorities than some of the
"typical" network marketers (at least in the way I picture them)
- but still want to increase my income so I have more time to
spend with my kids!
Now before you say "ughhh" to network marketing, let me give you
a few facts: ·There are a lot of people who have been made
wealthy through network marketing ·There are some very high
quality products sold through these companies ·It's much less
expensive for a company to use commission-only reps (you!) to
sell their products rather than mounting a major advertising
campaign and buying shelf space in retail stores ·When
franchising first started, many people called it a pyramid
scheme, said it should be illegal, and generally thought badly
of it. Franchising is now an established way of doing business,
and I suspect network marketing soon will be as well. ·You don't
have to hassle your family and friends to do network marketing.
There are new approaches which use mass media such as classified
ads and the internet to identify interested people. Your job is
just to tell them about the opportunity and see if it's right
for them. I'll give more detail on this below.
A couple terminology items before we get started: ·Upline: This
refers to all people "above" you in the hierarchy of the
company. The person who signs you up for a network marketing
opportunity is your primary upline. ·Downline: This refers to
all people who sign up "below" you in the company - either
directly signing up with you, or signing up with those who you
brought on board.
Here are some quick facts about the way network marketing works:
·You are responsible for selling the products and for bringing
on others to help sell the products. In most programs, the
emphasis is on bringing on others - since sales can be increased
much more quickly by a group than by an individual. ·All orders
are sent in to a central location, and the company sends the
products ordered directly to the purchaser. (In the "old days"
people often had to keep a stock of products on hand in their
garage, but this isn't usually done anymore.) ·The company
provides extensive marketing materials for you to use in selling
and recruiting. ·You have a great deal of flexibility in how you
run your business and in the hours you put in.
Evaluating a network marketing company:
If you think you might be interested in network marketing, your
next step will be to start looking at the opportunities
available and to find the right one for you. There are a lot of
them, so I would suggest you first define what you want (read
the info below and you'll be ready to put a list together) and
then look for opportunities that match up with it. Here are
things to look at:
The Product ------ It is important that you can get excited
about the product. If it's something you aren't interested in,
you will never be successful at it.
In addition, look at the use of the product. If it's something
which is used on an occasional basis, you will need a lot more
customers / downline reps to sell a particular amount of the
product. If it's something which is used on an ongoing basis -
vitamins, cleaning products, meal replacement shakes - you will
have a higher level of repeat sales and a more stable income
stream, since people will order these items on a regular basis.
I would strongly suggest you find a product which is consumed on
an ongoing basis.
The Company ------ As in any industry, the majority of network
marketing businesses fail in the first five years. Therefore,
you need to be extremely careful in selecting a company that
will stand the test of time. The easiest way to do this is to
select only a company that has a track record of increasing
sales and profits for at least five years. This narrow the field
drastically.
On the plus side, if the company you're researching is public
traded, so much the better. It will be easy to scan financial
statements and quarterly earnings reports. You're looking for a
company that is well managed, solvent, with little or no debt,
that has reached a critical mass of distributors to sustain
growth and that has been around enough to have worked out all
the beginning bugs.
Compensation ------ The most important consideration when
choosing a pay plan is the number of people that you must enroll
to begin earning income. The lower the number the better.
There are five or six different and competing systems that
network marketing companies use to reward their
distributors/associates/affiliates. They are the breakaway, the
unilevel, the matrix, the two-up, the binary, and various hybrid
or combination plans. Each of these is described in more detail
below.
BREAKAWAY
The stairstep/breakaway compensation plan is without question
the most common of all compensation plans. It is also
responsible for most of the really big money being made in the
network marketing industry. However, this big money is being
earned by a small percentage of those distributors involved in
breakaway opportunities. What does set the breakaway apart from
most other plans is that they are definitely geared to a full
time effort. As a result, attrition is higher with breakaways as
well as the expense involved in working and building a
distributor base with them
The Breakaway plan generally has 3 or 4 increasing rank
positions that can be achieved by meeting progressively higher
sales volume requirements over a specified period of time. All
the distributors under you are considered part of your personal
group and their personal sales volume combines with yours to
help you to move to these progressively higher rank positions at
which point you will breakaway. You will generally earn higher
commissions on the lower rank distributors under you (in your
personal group) and this commission will decrease as they too
move up the stairsteps to the breakaway side.
When you do breakaway, you become your own "organization" - in
other words, you are no longer part of your upline's group. Your
downline group comes with you as well as their sales volume
which combined is called group volume. With most breakaways
there is a set/defined personal group volume that has to be met
each month in order to qualify for commissions on other
breakaways. There is also a personal sales volume requirement
that you as an individual have to do each month.
When someone you personally sponsored in your personal group
qualifies as you did to breakaway, they officially breakaway
from your personal group and take both the distributors and
volume that are underneath them from you. They are now
considered one of your first generation breakaway groups and you
will earn on a monthly commission on this entire group by
meeting the plan's monthly defined personal group sales volume
requirement. With most breakaway plans, the more first
generation breakaway groups you have the more generations deep
of breakaways you will qualify to be paid on. Keep in mind that
what makes a breakaway more of a full-time work program is that
you have to constantly meet your monthly personal group sales
volume in order to be paid commissions on your generational
breakaways. However, if the goal is to have as many first
generation breakaways as you can, you will continuously be
losing distributors (as they breakaway) in your personal group
whose volume will have to be made up in order for you to meet
the monthly group volume requirement. This means lots and lots
of recruiting for new distributors.
BINARY
Each person can sign up only 2 others which directly report to
them. If you bring on additional people, you sign them up below
others in your organization. So, you have two "downline" groups.
You are paid on the sales of the lower-selling group for the
month. The difference between your higher-selling and
lower-selling group may roll over to the following month.
Obviously there is a big advantage to you if it does, so this is
something to ask about.
This is probably the most popular plan for part-time network
marketers, since you only initially need to locate two others
interested in your opportunity and since those above you in the
hierarchy have an incentive to place people in your organization
for you, to help you get started and to increase their sales
volume.
UNILEVEL
In this plan, you can have as many others as you want sign up
directly under you. Then, there is a set number of levels in
your downline, usually ranging from three to nine, and varying
bonus percentages on each level. To explain a bit more, if you
have "John" sign up directly under you, and he gets "Suzie" to
sign up under him, "Suzie" is level 2 to you. You will receive a
percentage of all sales up to the number of levels allowed,
though the percentage will decrease as the person is more layers
removed from you.
MATRIX
A matrix plan limits the number of distributors you can sponsor
on your first level, usually to less than five. The most common
form of matrix is called the 2x12, meaning two wide and twelve
levels deep. Another way of looking at this is that or you can
have on your first level, a maximum of two distributors, second
level - 4; third - 8; fourth -16; fifth - 32; sixth - 64;
seventh - 128. Aside from the 2 x 12, other common matrices are
4 x 7, 5 x 7, and 3 x 9. Matrix plans generally tend to pay down
more levels than other types of plans, at least on paper. Since
the width is limited, and organizations tend to go deeper in
matrix plans, so do the levels bonuses are paid on. It is also
much easier to predict how much you will earn on each level,
since you will know exactly how many people will fill each one.
Generally, matrix plans are simple and easy to explain and
understand.
TWO-UP:
Well, I heard of this compensation method in many of the things
I read but couldn't find any detail on it. The articles I read
referred to it as a "scam" - so beware if this compensation
method is used by a company you're evaluating.
HYBRID OR COMBINATION:
The options here are almost unlimited. Companies can combine the
basis compensation plans in any way they want!
Residual Income: ------ Income can only be considered truly
residual if you can go on vacation for an extended period of
time and still get paid. If you are looking for residual income,
watch out for "personal sales volume" requirements. This means
that you personally must sell a minimum amount of the product
each month in order to be paid. Obviously, that doesn't meet the
vacation test.
Upfront Costs: ------ All network marketing opportunities will
have some sort of upfront starter kit that you need to purchase.
They start around $200 - $300, and can go quite a bit higher
than that. For your money you will get some initial sales
materials and products.
Ongoing Costs: ------ You will generally be expected to purchase
the company's products on an ongoing basis for yourself - you
can't sell something you don't believe in!
In addition, if you will be marketing person-to-person, you will
need to purchase marketing materials, and if you will be
marketing via the internet you will likely have ongoing costs
for a company web site, an 800# for prospects to call, and for
advertising your opportunity.
This is definitely a "your own business" situation, so you will
have some ongoing business costs as described. Also keep in mind
that these costs may be tax deductible, so keep good track of
your expenditures.
Marketing ------ The "traditional" model of network marketing
involves making a list of 100 people, sending them all letters,
following up with calls and cornering them into face to face
appointments where you sell them on the business opportunity.
This is fine for "natural" sales people - but there aren't many
of those out there.
However there are many successful people doing network marketing
in a true marketing sense - meaning giving a little information
to a lot of people and waiting for interested parties to contact
them - using mass media like classified ads and the internet. If
you're interested in this approach - I would suggest you find a
company who is already doing it, since they will have a lot of
tools (ad examples, web sites, etc) that you can use right away,
rather than having to develop your own.
Also, if you plan to market using the internet, make sure it is
allowed! Some companies restrict the use of the internet to
promote their products.
Training and Mentoring ------ Many companies don't offer much
training or mentoring, so many people joining these
organizations are not successful. I would suggest you look for a
program with a strong mentoring component and a strong training
program.
Also, keep in mind that many organizations have weekly training
meetings. This sounds good - but can be a problem if you have
children to take care of in the evenings. You may want to look
for an organization which offers their training via conference
call instead.
(c) Carol Woods
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