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Article:
Business Models Make or Break the Independent Distributor.
On a recent Mentoring for Free training call, struggling distributors shared these business challenges:
- My sponsor signed me up, but I never heard from them again. I know nothing about how to build this business, now there is no one to support me.
- My sponsor tells me to be aggressive and close, close, close. But, I just don't feel right talking to people that way.
- My company changed the compensation plan, and now my bonus check is half what it was last month.
The good news we tell people who have business challenges like this is: It is not your fault!
The main reason distributors struggle in any Network Marketing Company is due to their company's business model.
The most common business models for Network Marketing companies today stack the odds against the distributor's success.
So, what happens? What do Network Marketing Companies do to make it so hard for their own distributors to succeed? I'll give you a hint: Greed and Ego!
Company Mistake #1
Following a Business Plan that promotes owning and building larger and larger office building for headquarters
It seems with every new company launch, it's a race to see which one will announce the opening of it's newest and best office facility. It's impressive, it's state of the art, it costs millions of dollars. Must be a sign of prosperity for the average distributor who is working hard to produce all that revenue for the company.
But, the millions of dollars that it takes to pay for that building is money that distributors will never see in the compensation plan.
This is key, because in Network Marketing, the only place money is made, whether for the distributor or for the company, is from the compensation plan. The compensation plan determines which slice of the revenue goes to pay for business operations, and which goes to the distributor for finding the customers and making the sales in the first place.
The Network Marketing company has no other stream of income. It relies solely on the distributor to find and keep the customer base growing.
So, when we see that kind of spending, we know that money will not come back to the distributor through the compensation plan. Money must be redirected for maintaining, staffing and operating the facility.
The bottom line is this business model is setting up the company for more and more overhead expense:
- Ongoing facility maintenance
- Ongoing cleaning and janitorial staff
- Increase in Utility bills
- Ongoing property maintenance - mowing, etc.
- Increase in staff wages, benefits, insurance liability costs
- More lawyer's fees for increased workload
Bottom Line: An increase in overhead expense means less and less money in the compensation plan. It shows that the company leadership is in it for their own egos that need a big, fancy building to prop themselves up, at the expense of the distributor.
Distributors struggle because it takes a boat load of customers to get paid any appreciable amount of money for all their effort. With ego is at the forefront, more money will be taken out of the pay plan when it is needed for overhead, with no regard for the years of service distributors have invested in the company.
Another good indicator of where the heart of a company is has to do with the warehouse location. Most cities have a warehouse district with very low rent, which translates low cost. It makes sense for a business to keep their stock there. But most Network Marketing companies have the warehouse right next to their big new building. Why? You guessed it: it looks more impressive next to the fancy building. "Look at what we have done!" All the while the distributor pays for it all.
Let recap: Fat cats in the home office means slim mice in the field.
What if a business model was built on Streamlining - a plan to make the overhead less and less as time goes on?
This would ensure that there would always be money to fund a fair compensation plan, and more money in the future to feed into the compensation plan to reward distributors when sales increase.
Now for mistake #2: what happens most of the time in Network Marketing where high-overhead business models affect the distributor's ability to build their business. Hang with me as I go through the scenario step by step:
Company Mistake #2
Company Mistake #1 Produces Monsters
I am thinking of three companies right now that all market the same product: a multi-vitamin pack. It is an awesome product, flat-out works, and all three companies market the identical formula, identical in raw materials. Except Company #3 has also added to the formula a chelated enzyme to allow you to digest and absorb nutrients better.
I think you would agree that to produce that product, same quality, same quantity, same formula, the cost of production would be within pennies of each other.
Yes. Within pennies.
Now, Company #1 markets the 30-day supply of that vitamin pack for $117. So, do you think you are gong to be able to retail that to someone? Do you know anyone who would gladly pay you $117 for a 30-day supply of a multi-vitamin pack, regardless of how great it is?
Seems like a stretch to me.
It would be very tough to do. So, you as the distributor are going to have a challenge moving this product at retail.
Company #2 sells the same formula for $108. It is still expensive. You are still going to have a challenge retailing that.
Now Company #3, which has the same formula, with the added chelated enzyme, so you can digest and absorb it better, sells it for $39.95 retail. Now, I ask you, is that affordable? Do you think you know people who may purchase that product from you?
Absolutely!
Now for the Monsters: what kinds of behavior do these different business models create in the field?
People who market the more expensive products have to spend their time recruiting because it is too difficult to sell product to customers. This is where the money is made for them. There is no money in retailing for them, because nobody is going to pay that high price for the product.
They recruit, recruit, recruit.
And what happens after they sponsor you into their business? They have no time to work with you! You are in, they got the commission, and they have to move on to recruit the next person. They don't have time to work with you because their business is built on recruiting because they can't possibly retail product or show you how.
Why, do you suppose, Company #3, which has the same formula, with the added chelated enzyme, so you can digest and absorb it better, sells it for $39.95 retail? You're catching on: because this company doesn't have the overhead.
They have less overhead than the other two companies. Their warehouse is in the warehouse district. They don't have or need a $30 million home office. They take 97% of their orders over the internet, so they need very few actual employees. Their overhead is a small fraction of those first two companies.
Bottom-Line: Company #3 is more distributor-friendly. Which means less struggle building a business.
We have found that 92% of the population doesn't like to sell and doesn't like to be sold. How aggressive do you think you would need to be to sell a 30-day supply of a multi-vitamin pack at $117 retail? Oh, not the aggressive type?
Now you are back to struggling, again.
You need to hear this last bit:
Company Mistake #3
Company Mistake #1 Causes Company to Cut off it's own Nose
So, here is a product that costs $117 that no, or only a few, really, really beat down customers are buying. Where are the sales coming from? They are selling plenty of it. They have a $30 million building to prove it?
The distributors are! They have to quality for their bonus checks so they are required to buy it. That is the only reason they buy it.
Bottom Line: This business model does not create a retailing behavior in the field.
Let me elaborate with another example:
Diabetes. Do you know anyone with Diabetes or blood sugar level concerns? It is a very big concern for a lot of people today.
Do you think that this person who has diabetes, knows 5 or 10 other people who have the same concern?
Very likely. Ok, do you think they might be interested in a product that has an ingredient that helps to rebuild the pancreas and possibly help them get off insulin of a least cut down their insulin?
That answer is easy.
Do you think they could afford to pay $19.95 for that product?
Very good chance.
Now if you had that product, could you afford to gift that product to the right people, to use as advertising?
Sounds easy and makes sense.
You choose at this point: would you rather have people coming to your website, purchasing this product for $19.95, and they all share the product with their friends - or
Would you rather be in company #1 or company #2, trying to market a multi-vitamin pack eventhough it is overpriced, because you aren't the aggressive type and want to help people but it's so hard and you don't quite know why you can't get people to buy it, and you think it's your fault .........
Bottom Line: Streamlined Business Models create a retailing behavior in the field.
Anyone can do business this way, being themselves and helping other people, by providing a quality product at a value price, that sells itself and is referred from customer to customer.
Back to the compensation plan: which of those three companies pays more to the distributor and requires fewer people to get to a $10,000 a month income?
It's not rocket science: Company #3, because they have less overhead.
If a Company has set itself up with a situation in which their overhead will go higher and higher, the only way for them to keep up is to raise the price of the products and to take money out of the compensation plan. This steals the every day distributors' chances at success, which underminds the company's success. No nose on the face.
Unfortunately, companies like this find ways to make up the difference. And you can bet they aren't nice for the distributor. But I think you've heard enough.
It really is very simple: The business model tells all.
If you would like to explore a Company that has a Streamlined Business Plan, please contact:
Dorothy Lam, Success Coach/Trainer
Hedgesville, West Virginia
304-754-6348
dorothy@oasishealthteam.com.removethispart
"Be a Mentor with a Servant's Heart."
"This article was adapted from a telephone training transcript, copyright Network Professionals. Original copy available upon request."
Copyright 2006 - Dorothy Lam, Owner, OasisHealthTeam.com
Updated 11/18/2006
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