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  Category: Articles » Business » Home Based Business » Article

MLM Success and Choosing a Company - Business Models Drive the Behavior in the Field

By Terry Montague

Companies with large overhead ALWAYS have long Policies and Procedures that you need a lawyer to read because the company may need to steal your bonus check to pay their overhead.

In Network Marketing, your success depends on marketing. And whether marketing can be effective or not depends on the business model. The business model affects not just the reps, but also the prospects and the customers.

Once you completely wrap your brain around this concept, you will have a clear vision of your chances of success with any company.

Why you have struggled to build you business and why it's not your fault

One of the first things you must understand is that all the profits to pay your commission from any company comes from one thing - the sale of a product to the end consumer. The difference between the cost of the product plus the overhead equals the amount of commission that they can pay to the field. Sure, this is just basic math and common sense, but people usually don't see through all the recruiting hype when signing up with a company.

Why bigger is NOT better

There is a company out there that boasts about having 400 people taking product orders and distributor enrollments over the phone. In order to do this, the first thing they need is a building big enough to put 400 people in. Then they have to heat the building, cool the building and keep the lights on. They have to sprinkle the grass, mow the grass, re-stripe the parking lot, paint the building and wash the windows. It's called maintenance. They've got 400 people so they have to clean the restrooms and shampoo the carpets. They have to have hardware, software, 400 computers and 400 desks. They have to have managers and assistant managers. After all, they can't have 400 unmanaged people just wandering about. So now they have to pay their salary, match their social security, have a benefits package for them, have workman's compensation and of course they have to pay time and a half for overtime. After doing the math, it turns out the monthly overhead cost for those 400 people, all inclusive, is a little over $2,000,000 a month!

So as a result of their ever increasing overhead, about four years ago they changed their Policies and Procedures. One of the changes was that reps would now have to sponsor a new distributor every month to get a check from them. So that got people out of retirement. There were people making over $10,000 a month of income and because they didn't sponsor anyone for a couple of months their checks went down to less that $300. Gee, who got that other $9,700? It went to the company, of course. Why? Because the company had to pay their overhead!

Kind of like the mystery of the missing sock. "Where'd my other sock go?" Well, the sock monster is your company.

As a result of all the smoke and mirrors in their Policies and Procedures, in order to make $10,000 a month in their compensation plan you would need 2,857 people in your organization.

Streamlined for success

In the meantime, there's another company that sells similar products. They created a business that is so streamlined that they can pay more money to the field. They decided that if they could use more technology they could use less people. Less people equals less overhead.

The first thing they did was build their own software. This is important and here's why. 99.99% of Network Marketing companies go buy their software from a software company that has never built a downline. They don't know even how to spell MLM. "Website abandonment" ensues. (That's when a website is so confusing that after about the second click your customer is out of there.)

So instead of employing massive manpower, this company is able to take 99.9% of their product orders and distributor enrollments over the internet with user friendly sites, operating 24/7 in real time, and provide them to their distributors at no cost. Basically the only overhead they have is server space at a total cost of about $200 a month. So as a distributor with this company you only need about 370 people to make $10,000 a month.

Can you clearly see how the difference in these two business models determines how much money is passed on to the distributors?

Publicly traded vs. privately owned

Let's compare three different companies, all selling virtually the same product.
    Company A (publicly traded) retails their product for $116 for a month's supply.Company B (publicly traded) retails theirs for $104.Company C (privately owned) retails theirs for $40.
The quality of these products is exactly the same and their manufacturing cost is within pennies of each other. So what's responsible for the difference in retail price?

Can Companies A and B (both publicly traded) possibly compete with Company B (not publicly traded)? No. Here's why. In a publicly traded company you have investors that have to make a profit. That profit is what would normally be paid to distributors. Those investors all have bookkeepers. Then they need CPA's to look over the shoulders of the bookkeepers and attorneys to look over the shoulders of the CPA's. Once again, everyone must be supervised. You also have the President, Vice-President, CEO's, and numerous other company executives. Every one of them has a secretary. They all have expense accounts. Who is paying for all those people? Where does all that cost go? It goes into the price of the product. The price of the product is directly reflected by the overhead cost.

When a company becomes publicly traded and its investors now get to choose who will be in charge, rarely is it someone who is "rep friendly." They can't have simple minded "field people" running a business now, can they? Heavens no! They might actually have to pay their distributors fairly!

If you can't make money retailing a consumable product - RUN!

So what behavior is happening in the field with Company A and Company B? Is there anybody retailing any of that product? No. This drives a behavior of recruit, recruit, recruit. New blood, new blood, new blood (vampire recruiting).

If you crunch the numbers, in order to make $10,000 a month in Company A you need 1,900 people and in Company B you need 2,400 people. Since nobody wants to buy your overpriced product at the retail price, you are driven into a behavior of massive recruiting. Your distributors buy the product at just the wholesale price and in most plans you are getting about 5% to 7 % commission per level on that.

Keeping in mind that the industry standard states that 74% of your downline will be product users only, isn't it better to get 40% to 70% commission on the $40 retail price from both your distributors and consumers alike? In this way, you can make just as much income by retailing your product to customers who don't want to become distributors.

Learn to read and understand your Policies and Procedures

Once again, companies with large overhead ALWAYS have long Policies and Procedures that you need a lawyer to read because the company may need to steal your bonus check to pay their overhead. Remember, "Policies and Procedures" are NOT the same as "Terms and Conditions."

Think about this and consider all the possibilities. If your Policies and Procedures are more than five to seven pages long, prepare yourself for the sock monster.
About the Author
Terry Montague and Roberto Ramirez make up the MLM Mentoring team, Auspicious
Wishes-Mentoring for Success
. To learn more about analyzing your Policies
and Procedures, also visit their blog, MLM...unlimited, for more training, resources and valuable information in order to make your dreams of network marketing success become your reality.

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