NETWORK MARKETING THIRD PARTY CREDIBILITY

Don Failla wrote a book called The 45 Second Presentation That will Change Your Life. It’s a great little book about MLM and gives useful information. One of the points in his book is (TPI) Third Party Invitation (chapter VII).

In his book he talks about why to use TPI because it takes the pressure off of the individual you are talking to when you ask “Do you know anybody who’d like to earn some extra income?” If they are interested they will tell you by saying, “what is it?”

This brings me to the power of (TPC) Third Party Credibility in general when it comes to Network Marketing skills. A lot of people have problems trying to do this business on their own. In fact, simply having a lot of knowledge about the business and products is sometimes not enough. Sometimes telling people what you know may let them know you are smart but they are not interested (because it’s not about you or what you know).

That’s why many people in our business use stories about real people who use products and make income in order to “connect” with the person on some level. They may see themselves or relate to the situation presented in the story. Many companies have magazines about people and their stories to present the message. As one Diamond Pin earner explained, he got to the top level by just “pointing to the pictures” in the magazines.

If you don’t get anything from this subject please get this: “It’s not about you it’s about them!” TPC IS THE MESSAGE you are communicating to those you sponsor and that’s what you want them to duplicate. People you bring into the business will do what you do.

It’s good to have your own (30) second story but it will never be as powerful as TPC. That’s why many top network marketers will say, “Please hold on a minute” and get their sponsor or some third party on the phone (3-way phone call). The sponsor knows to edify (praise) you while you edify the sponsor and the company. You bring the people and the influence and they bring the credibility (TPC).

Here is the point. These people may know you and not give you the credibility they will give a third party. You may be selling nutritional products and have a PhD in Nutrition and can’t get your own mother to listen to you as an expert. You go to her house and she has purchased some “junk” someone told her would cure cancer instead of listening to your expert opinion.

Use TPC because that’s just the way it works as top performers have learned through experience.

HABITS EQUAL TIME

Ever have a goal and have your habits get in the way of accomplishing your goal?

• Diet
• Exercise
• Alcohol
• Smoking
• Pornography
• Gambling
• Sports
• Listening
• Procrastination
• Selfishness
• Job

I’ll let you decide if the above very incomplete list is good or bad. The point of these comments has to do with how we use time.

Time is a “Limited Resource” and is actually worth more than money. Given enough time we can replace money (especially by compounding or saving) and we can’t replace time with money.

Habits (good or bad) take up our time, effort, and even our money. Peter Drucker said, “The best way to predict the future is to create it.”

Why did I list a JOB as a habit? Because for many people it is a poor way to spend time and there are better alternatives like LEVERAGING TIME. Don’t quit your job “before” you learn how to leverage time.

This is the difference between people who become wealthy and people who are average. Rich people learn how to leverage time. In a job, we may make $50,000 per year for (50) years or $2,500,000. In other words, you have traded your “Life Time” for $2,500,000. Is that your worth? No, there are other things besides money.

People who learn how to leverage their time (through people, assets, talents, etc.) may make $1,000,000 per year for (50) years or $50,000,000 during a life time.

“Sow a thought, reap an action; Sow an action, reap a habit; Sow a habit, reap a character; Sow a character, reap a destiny.”
- Samuel Smiles

So, how are you spending your time?

Leadership is Herding Cats

A leader once said that Network Marketing was similar to herding cats. We all know that cats are very independent.

John C. Maxwell wrote this in The 21 Irrefutable Laws of Leadership: “…in voluntary organizations, such as churches, the only thing that works is leadership in its purest form. Leaders have only their influence to aid them. And as Harry A. Overstreet observed, ‘The very essence of all power to influence lies in getting the other person to participate.’ Followers in voluntary organizations cannot be forced to get on board.”

Obviously, Network Marketing (at its highest level) requires leadership skills in its purest form because your Team works voluntarily. The late Peter Drucker in his book Management Tasks-Responsibilities-Practices said this about the Manager: “But one quality cannot be learned, one qualification that the manager cannot acquire but must bring with him. It is not genius; it is character.” Character is essential to Management and Leadership.

What do people really follow? They follow our action and they follow our example (that’s called duplication in our industry).

In the 1990 epic film Dances with Wolves the movie starts with an interesting scene where Kevin Costner is wounded and appears to be loosing a leg so he decides to go out in a blaze of glory (commit suicide). While that idea may remind some of Network Marketing (loosing a leg and committing suicide) we see what Costner does in the Movie. He rides his horse in front of the enemy with his arms reaching backward and it’s so motivating to the troops that they charge the enemy and win the battle (duplication of action). I recommend you see that scene if you haven’t already.

In my opinion, J. Donald Walters wrote one of the best quick read books on Leadership, The Art of Leadership. In his book on page 106 he said to “Remember these rules, then:”

1. Leadership means action, not merely good ideas for action.
2. Don’t waste so much energy in planning that you have none left over for acting on your plans.
3. Action generates creativity.
4. Almost any action is preferable to prolonged inactivity, born of indecision.

GET OUT OF DEBT FREE PROGRAM

There are many ways to eliminate debt and a lot of ways to apply income to debt if you are concerned.  Many will show you how to manage your debt (for a price) but few will also show you the vehicle to be able to do it!

The majority of people who join Network Marketing organizations join and spend a few extra hours per week to accomplish some small goals. They only begin to take the business seriously when they see how much they can accomplish. Very few people start out in Network Marketing as their only source of income.

Because of the flexibility of Network Marketing many find this a perfect way to earn income to apply to credit card debt. Just like in buying a house, the main objective is to pay toward principal and not added interest.

If you look at the payments required to amortize a 10% interest loan and borrow $50,000 you can pay $537.31 per month on a (15) year loan or $438.79 on a (30) year loan. As you can see, it is very profitable to pay down principal in half the time. Would you prefer to pay $96,715.80 for a (15) year loan or $157,964.40 for a (30) year loan ($61,248.60 more or $11,248.60 more than the original loan)? Time certainly is money!

Why not spend some extra time in Network Marketing to pay down debt?

COMMUNICATION SKILL

The number one skill in Network Marketing is also the number one skill in life. How to communicate and connect with people. A really good book on this subject was written by Nicholas Boothman, how to connect in business in 90 seconds or less.

Communicating with people is verbal and non-verbal. Most people know that non-verbal communication is more powerful than verbal communication.

Our listening skills become extremely important too and really listening has to be developed by most people (doesn’t come easily).

The easiest way to begin developing these skills is simply this:

Make eye contact and smile so they know you are listening (watch your body language closely so that it supports what you say). Ask questions and let them talk. This will “spark” any conversation. Finally, watch their body language to see if they are “excited” and “comfortable” with the conversation.

COMMUNICATION SKILLS ARE GAINED BY “DOING.”

Understanding Override Commission

[Sponsor]

1 [X] [X] [X]
2 [X] [X] [X] [X] [X]
3 [X] [X] [X] [YOU] [X] [X] [X]

1 [O] [O] [O] [O] [O] [O] [O]
2 [O] [O] [O] [O] [O] [O] [O] [O] [O]
3 [O] [O] [O] [O] [O] [O] [O] [O] [O] [O] [O]

As an example of override pay (considered the base pay commission) we have some X’s and O’s.

In any multi-level plan commissions are paid on Sales Volume. In the above example, the X’s created $40,000 in Sales Volume and the O’s created $60,000 in Sales Volume. If the override commission is 3.5% of retail (Gross) Sales Volume the Sponsor would make $1,400 in override and you would make $2,100 in override for the pay period.

In our particular plan (Stairstep Breakaway Plan) a Distributor would be paid:

• Retail
• Wholesale
• Override
• Leadership
• Pay Period Production Bonuses and Trips

As you can see, because of exponential growth (multiplication) most of the $1,400 and $2,100 in override comes from the third level. If a person is building the business correctly then most of the commission coming from the third level would be the desired result. Why? Because that’s how the compensation plan and normal building of the business is designed!

The company pays the last three commission categories so that the Distributor will take an active role in recruiting, teaching, and training other Distributors. In return, both the Company and Distributor benefits from the exponential Sales Volume Growth. Wholesale commissions are really just discounted sales that the Company would deduct from Gross Sales to arrive at their Net Sales figure. Also, the company (in our example) would send the difference from a higher discount to a lower downline discount to the Distributor (Sponsor). Suggested Retail less your discount level (actual cost) would determine the retail profit made on a retail sale.

The advantage of the business model for the company is exactly the same as for the Distributor (Exponential Sales Volume Growth). As you can see, the multi-level business model is designed to efficiently market products through word-of-mouth marketing, and is not just retailing and wholesaling products.

Some people, for various reasons, give this direct sales model a negative connotation. That’s all Multi-level sales is–a business model. It’s no different from other Direct Sales Models in many respects.

To illustrate, let’s convert the people blocks into geography blocks and change the Distributor to the name Sales Representative (Mfg. Rep.). The Sponsor works for XYZ Corporation and the [X's] represent companies in the state of Oklahoma and the [O's] represent companies in the state of Texas. XYZ Corp. gives the Sponsor a protected territory–the state of Oklahoma. Let’s say that a person in one of the X companies really likes our products, and refers (word-of-mouth) another X company directly to XYZ Corp. The Sponsor doesn’t even know that particular X company even exists. At the end of the pay period, XYZ Corp. sends the Sponsor of the X companies a commission for a Company he didn’t even know existed. These kinds of business model examples could go on and on (termed: Free Enterprise System).

As you can see, the X Team Sponsor makes less in the two week pay period than You (the O Team Sponsor).

If you will study industry financial statements you will find that many companies pay commissions at approximately 40% (or less) of Net Sales. Therefore, the more Distributors that are recruited the larger the company Net Sales. Even if the bottom level Distributor in the company (so to speak) is the best producer and makes the largest individual sales commission.

That’s how some Distributors (even at the lowest levels) make more than the CEO of the company or their upline Sponsors. Often the oldest Distributors make more commission than the newer Distributors because of the difference in “Time Invested” in the opportunity. It takes “Time” to build a business and earn “Residual Income.”

DIRECT SALES GROWING PAINS

Dr. Tom Barrett describes three stages in his really good book on Network Marketing Dare to Dream and Work to Win:

1. IT’S NOT WORTH IT
2. IT’S WORTH IT
3. I’M NOT WORTH THIS MUCH

He compares this to a penny doubled each day for a month and on day (31) we see the figure $10,737,418.24. That’s a lot of money!

Unfortunately, there are times when we see these stages get flipped along with the normal growing pains. Wow, it must be painful when this gets flipped.

Stage One: Your sponsor brings the Third Party Credibility and you bring the people or Influence Stage (rapid growth, bonuses, and trips). Anyone who has been around network marketing observes the person being recognized on stage having no clue how they got to that point. Some people work really hard and, yet, could it be the hard work and help of a sponsor too? It must be really hard on the way down! Get ready for reality to set in if you don’t understand this dynamic of networking.

Stage Two: Cold Market Work Stage begins to weed out the people. Let’s face it, this is a hard (fun) business and to quote a past leader of ours: “When the business is easy work it easy and when it gets hard work it hard.” This is where our strong purpose or reason for doing the business sustains us.

Stage Three: Reality sets in Stage, Distraction and Disillusionment takes place Stage, killing our hope and spirit. This is where some people had such a strong hope they become bitter, and if that’s how you feel get over it. Like the weather, things do not stay the same. People have deaths in their family, get ill, move away, get fired, etc. everyday. The people you sponsor will get distracted and not do the business. Things will change!

I loved an article I read on a blog the other day that has these three classical stages. This person’s last comment was: “Only 2% become directors.” From the article I believe she has what it takes and may not realize it. There are reasons for the success rate she describes and it is normal.

These are work and growth programs (time investment) not get rich quick schemes. Some people do “extremely” well starting out. Yes, just like in a job, things have to go your way sometimes and winning long-term is normally “from the neck up.” Where in Corporate America do you find the possibility for the “Clerk” to make as much as the “CEO” of the company? Isn’t that a fair system? Is that CEO really worth all that money? Look for people who have that never quit spirit. Remember, we all start with the same start-up kit.

How strong is your reason or purpose for doing the business?

Direct Sales Compensation and Discount Structure

Ready to pour your heart and soul into building a business? “Risk” is a term to become familiar with when selecting a Network Marketing business, investing in the stock market, opening a franchise, etc. People will give you a lot of advise in picking a company to work with among them being:

• Do they sell consumable products so the income stream continues after the first sale?
• Do they have a track record and good management so you don’t work yourself to death running the roads while the company goes broke?
• Do sales create a large enough volume to get paid well (pay plan)? Unit prices and individual sales volume potential means a lot to me. Sometimes it takes no more effort to sale a product with a large price compared to a product with a low price (handling costs may be similar too).

The “due diligence” list goes on an on and sometimes your “gut” is a great guide too (as well as loving the people and culture of the company and the products). In fact, the culture is the number one issue with many people (it’s not about the money). It’s about the relationships and the great memories from taking the journey. Glenda and I have some really great memories and we wouldn’t trade our associations with people and what we have learned along the way for anything!

Yet, the numbers speak to me and the first thing I look at is the Discount Structure. Companies that have been around for awhile didn’t create their discount structure in a vacuum and a lot of thought went into their compensation plan. Despite what some people will tell you there are “no significant” entry barriers to joining a company and there are “no significant” exit barriers either. In many companies, 98% of the people are product buyers who only dabble in the business at times. Your company may be a “Private” company, like the one we work with, and “Public” companies give out a lot of good information (that’s the place to start). In my industry, I review the financial statements of companies like RELIV every so often. You should make a list of public companies you feel are related to your industry and review their financial statements.

• Rule of Thumb–Big Discounts are Good and Small Discounts are Bad (it’s etched into our brains).

Is it easier to sell a 40% or 50% discount? So you think retail is too high? How would you like to get it at 50% off? Why does this mind game work so well? When a person walks into a clothing store they notice two sales racks and one says 50% off (the other says 25% off). Which sales rack do you go to first?

The “suggested retail” price is not the price, and anyone who continually consumes products at the retail price needs to review the discount structure. In many companies you can pay a small annual fee and at least get 20% off. Therefore, for many ongoing customers the “suggested retail” price is meaningless and financial statement studies bear this out. Wholesale discounts or distributor (member) discounts would normally be deducted from Gross Sales and not be shown as an expense on the income statement.

Go to the Income Statement and look at Commission Expense and divide that annual expense by the Net Sales in order to determine the Real Commission Percentage. This is a very good Industry Comparison of the overall commissions paid out to distributors . Also, review the footnotes to compare their discount structure with the company of your choice. Industry Statement Studies provide a lot of information and are reviewed by financial analyst and lending institutions.

Recruiting - Going Wide or Going Deep?

Independent Members of your organization may decide it’s time to share what they know about the quality of the products by inviting others to become “Business Builders” and not just product users. How should they go about building a team?

My answer is that “It all depends.” In my opinion, the average individual will have to invest several years of time to reach critical mass and have staying power as a business (a lot of people taking a little bit of products). Our discussion is not about fireballs or flashes in the pan. Any legitimate company is product or services driven and provides a “work program.” Sorry, no free lunch for most.

Most compensation programs require a heavy “Time” investment to be successful and provide residual income (income earned while you sleep). After all, time is what we bring to the table. Our industry is heavily regulated if not outright tortured (see WEB site of constitutional lawyer Jonathan Emord) and most companies have to have liberal product return policies to stay out of trouble with government agencies. We aren’t asked to invest a lot of capital to start a business. We are asked to invest a lot of “Time.”

Everyone brings their personality into play (Amiable, Expressive, Analytical, and Driver) which impacts how they recruit. Some are more comfortable with retailing and going wide fast (instead of building relationships and building deep). In building our business, we have used the “Power of Three”to build strong relationships. We are just looking for three people to take the journey with us and plug into the company system, to teach the art of duplication and multiplication (going deep), and eventually learn the art of promotion (going wide).

Is it easier to find (3) Business Builders and help or teach (39) or find (39) people direct? You find (3), they find (3) = 9, who finds (3) = 27 or a total of (39) to earn residual income. You + Other People + Time = Exponential Growth.

Is this a pyramid or scam?

This is just a business model. Many businesses are built on a pyramid. Seth Godin: “…lots of people sign up for a health-club membership (having a lot of members lets the club keep rates reasonable), but the club itself is small because very few people actually come frequently after they join. That’s built into the system. If everyone who joined came, you’d never be able to find an empty bike or to afford a membership.

Netflix gives you an unlimited number of DVD rentals a month, postage paid, for $10. How can this be? If you watched a movie the day it came in and sent it right back, you’d get to see at least six movies for $10. Of course, the key is that for every person who sees six, there are plenty of people who lose interest and see one movie, or even no movies, a month. these people subsidize the committed members. Sure, Netflix wants you to see a lot of movies–that makes you a loyal customer. But the economics of the entire business would fall apart if it weren’t for the uncommitted users who just dabble.

For a long time, airlines oversold their flights because they knew they would profit from the no-shows.

Politicians fully expect that the lazy and ill-informed won’t bother to vote. These citizens pay taxes, which support the political life of the few who don’t quit the system.

And, of course, the entire college-football money machine is based on a pyramid scheme of players who aspire to the NFL but will never make it.

Whatever you do for a living, or for fun, it’s probably somehow based on a system that’s based on quitting. Quitting creates scarcity; scarcity creates value.“

In a quality MLM company you get what you pay for because commissions or royalties are always just a percentage of sales volume.  Admittedly, the fact that most people won’t take the “business” seriously is one reason that it is so profitable for those who do.