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

Companies with large overheads ALWAYS have extensive policies and procedures that you need an attorney to read because the company may need to steal your bonus check to pay for their overheads.

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

Once you fully understand this concept, you will have a clear view of your chances of success with any company.

Why you’ve struggled to build your business and why it’s not your fault

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

Why bigger is NOT better

There is a company that boasts of having 400 people who take product orders and enrollments from distributors over the phone. To do this, the first thing they need is a building large enough to house 400 people. Then they have to heat the building, cool it, and keep the lights on. They have to spray the lawn, mow the lawn, repaint the parking lot, paint the building, and wash the windows. It’s called maintenance. They have 400 people, so they have to clean the bathrooms and shampoo the carpets. They have to have hardware, software, 400 computers and 400 desktops. They have to have managers and assistant managers. After all, they can’t have 400 unsupervised people hanging around. So now they have to pay their salary, match their social security, have a benefits package for them, have workers’ compensation and of course they have to pay time and a half for overtime. After doing the math, it turns out that the overall monthly cost for those 400 people, all inclusive, is just over $2,000,000 per month!

So, as a result of their increasing overhead, they changed their Policies and Procedures about four years ago. One of the changes was that representatives would now have to sponsor a new distributor each month in order to receive a check from them. So that brought people out of retirement. There were people who made over $10,000 a month and because they didn’t sponsor anyone for a couple of months, their checks dropped to less than $300. Gosh, who got the other $9,700? It was for the company, of course. Why? Because the company had to pay its overhead!

Kind of like the mystery of the missing sock. “Where did my other sock go?” Well, the sock monster is your company.

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

Optimized for success

Meanwhile, there is another company that sells similar products. They created a business that is so optimized that they can pay more money to the field. They decided that if they could use more technology, they could use fewer people. Fewer 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 are going to buy their software from a software company that has never built a downline. They don’t even know how to spell MLM. “Website abandonment” occurs. (That’s when a website is so confusing that after the second click, your customer is no longer there.)

So instead of employing massive labor, this company is able to take 99.9% of its product orders and distributor sign-ups via the Internet with easy-to-use, 24/7 sites. week in real time, and provide them to your distributors at no cost. Basically the only overhead they have is server space at a total cost of around $200 per month. So, as a distributor for this company, you only need about 370 people to earn $10,000 per month.

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

Publicly traded vs. privately owned

Let’s compare three different companies, all selling virtually the same product.

• Company A (which is publicly traded) retails its product at $116 for a month’s supply.
• Company B (which is 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 pennies from each other. So what is responsible for the difference in retail price?

Can companies A and B (both listed) compete with company B (unlisted)? No. This is the reason. In a publicly traded company, you have investors who must make a profit. That profit is what would normally be paid to distributors. All of those investors have bookkeepers. So they need CPAs to look over the shoulders of bookkeepers and lawyers to look over the shoulders of CPAs. Once again, everyone must be supervised. There is also the president, the vice president, the CEOs and many other executives of the company. Each of them has a secretary. They all have expense accounts. Who is paying for all these people? Where does all that cost go? Enter the price of the product. The price of the product is reflected directly in the general expenses.

When a company is publicly traded and investors can now choose who will be in charge, it is rarely someone who is “rep friendly.” They can’t have simple-minded “country people” running a business now, can they? Heavens no! They may have to pay their distributors fairly!

If you can’t make money selling a consumable product, RUN!

So what behavior is happening in the field with Company A and Company B? Does anyone retail any of that product? No. This drives recruit, recruit, recruit behavior. New blood, new blood, new blood (vampire recruitment).

If you look at the numbers, to earn $10,000 per month in Company A you need 1,900 people and in Company B you need 2,400 people. Since no one wants to buy your expensive product at retail price, you are driven to mass recruiting behavior. Their distributors buy the product only at the wholesale price and on most plans you get 5% to 7% commission per level.

Considering that the industry standard states that 74% of your downline will be product users only, isn’t it better to get a 40% to 70% commission on the $40 retail price from both your distributors and your customers? consumers? This way, you can earn the same amount of income by selling your product at retail to customers who don’t want to become distributors.

Learn to read and understand their Policies and Procedures

Again, companies with large overheads ALWAYS have extensive policies and procedures that you need a lawyer to read because the company may need to steal your bonus check to pay for their overheads. 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 longer than five to seven pages, prepare for the sock monster.