Understanding Gross Profit

Every successful person in MLM is good at convincing others to join their Team. However, it is important to understand retailing products so that you can be successful and your new recruit can be successful. A big part of keeping people in your organization is understanding the numbers and not getting them in debt from trying to market products. People can get into debt because their operating costs are too high to be covered by sales.

As a Certified Public Accountant (CPA), I could walk into any business (in any industry) and determine how profitable the company is by understanding a few key accounting concepts. All you have to do is take the Sales from the invoices per month and determine or estimate the product cost per item (cost of goods sold), and determine the gross profit:

• Invoice Sales
• Cost of Goods Sold
• Gross Profit
• Break Even Sales

Time for a real life example to make our point. I have the chance to join two different companies. One company markets makeup and the other company markets weight loss products. Here are the key numbers:

	Tube of Lipstick	Weight Loss Product
Sales Invoice	$2.00 100%	$50.00 100%
Cost of Goods	$1.20 60%	$30.00 60%
Gross Profit	$ .80 40%	$20.00 40%

Gross profit ratio of Lipstick to Weight Loss Product is 25:1. In other words, you will have to sell 25 tubes of lipstick to equal the same $20.00 gross profit as one weight loss product.

Let’s look at Break Even:

Break Even Sales is determined by dividing the Operating or Fixed Cost per Month by the Gross Profit percentage.

For example, if you spend $300 per month in delivery, stationary, meetings, etc. Your break even sales is $750 ($300 cost divided by 40% gross profit). Once you get past break even you can pocket 40% or $.40 cents on each sales dollar.

In other words, you would have to sell 375 tubes of lipstick or 15 boxes of weight loss products.

Or, you have to find 375 retail customers versus 15 retail customers to break even. Which product would you prefer to sale and which product would be the easiest to keep new recruits in the game?

Working with People

According to J. Donald Walters, The Art of Leadership, “As a leader, you will get the best results for the least amount of effort if you work with those who are in tune with your ideals.”

“The stronger the vortex of positive energy, the greater the creative flow. This is the opposite teaching from the well known saying, ‘A chain is only as strong as its weakest link.’ True, if you are working with a chain you’d better see that every link in it is strong. More often, however, you’ll be working with vortices of energy. In this case, you’ll only dilute their energy if you devote much time to negative vortices, which may seem more like black holes in outer space, drawing even the light rays inward to themselves, than like stars that emit light.”

According to Dr. Tom Barrett, “One of the most positive and unique aspects of network marketing is the way leadership is exercised. In reality, network marketing requires a higher level of true leadership than is needed in traditional places of employment. There is no room for the negative forms of leadership commonly manifested in the traditional work setting. Fear, shame, guilt, or intimidation cannot be used as substitutes for genuine leadership. This is what is so appealing to people involved with the industry.”

Of course, the industry is made up of people and people are the same everywhere. You will see people give a good presentation and then, in practice, you will see them violate everything they have just said. That’s why working on self is so important and aligning our true feelings with what we say we are and what we do that is effective in the business.

Many high level people will find that they need completely new leadership skills when they decide to stretch themselves in a Network Marketing endeavor.

Market Plan

Now that I am part of an MLM Business Opportunity What do I do? These comments are for the advanced (serious) Business Builder.

A. People or Sales Force Plan:

Much of the time in network marketing the focus is on recruiting. (Who, What, Where, When, and Why) are the questions we ask about the people we recruit. For example, in our company we concentrate on Legs. Legs are people that we have sponsored into our organization which create $100 overrides per pay period through retail volume. The retail volume is normally Team Volume created by people they have sponsored to a certain number of levels. (12) Legs gets us to the highest pay level and is often broken down into obtaining (3) Business Builders to work with times four. Obviously, all of this can translate into Sales Volume per pay period and that’s where the advanced student can change their focus.

B. Market Niche - Does a company spend all its time on how to obtain a sales force?

Obviously, the company spends a lot of time on products, culture, pricing, markets, etc. As a serious Distributor you need to do the same. Instead of breaking down the retail volume into recruits (people) you need to begin breaking down the volume into products. Here is an example: If you begin to notice that a certain class or group of people are successful in your company or drive your company–why? What attracted those particular people or groups of people (culture, products, etc.)? How do you fit into the organization (do you fit the mold and if you don’t what can you do about it)? When joining any company we need to consider how we are going to be successful. What products am I going to sell and what markets will I attract?

Begin to focus on your market and if you understand your market the right people will come. Often, if we can’t attract people it’s because we don’t understand what we are marketing.

Prospecting

What are the best prospecting methods in MLM?

• Patience - Being anxious about being able to tell those you meet about your products or business probably causes many people to steer clear of you. You will be able to present your products and opportunity by learning how to read people and knowing when to bring it up (and when not to bring it up).
• Do as You Go - Work prospecting into your daily activities and get creative. Obviously, you have to figure out ways to meet new people.
• Customer Lists - Most companies produce some kind of customer list. You will have people in your organization you don’t know so call and get acquainted. If you notice someone ordering products this is your opportunity to find out if you can help them. Remember that FIRE BURNS UP so if you get good results from someone be sure and contact their sponsor to inform them about the activity going on below them.
• Referrals - If people are getting good results on your products ask them for referrals.
• Corporate Sponsors - find key people to get you into their business to promote products.
• Trade Shows - various trade shows may be good opportunities to promote your business.
• Online Inquiry - WEB presence to get inquiries about your products and business.
• Wear Your Colors - Soften the market by wearing logos, etc. so that people will ask about your business.
• Be a Product of Your Products - If you are selling weight loss products (for example) then lose weight on the products. How can you expect people to buy your products if you can’t get good results from using the products yourself? Also, people will buy what you use. If you are getting great energy sell energy.
• Be On Fire - If you aren’t passionate about what you are doing don’t expect others to be passionate either. If you can’t get on fire then go find something to be passionate about. People will come just to see you burn.

SUCCESS

We want to consider (5) reasons for success in MLM.

1. The number one reason for success is communication with people.

• Communicate with people at the lowest level possible in your organization (downline). Fire burns up - keeping the higher levels in the game and teaching them how to do the business.
• Recruit people at the lowest level possible because this keeps each leg strong.
• Remember the end of the pay period drill to gain volume in the organization.
• Remember that it’s much easier to keep customers than to find new customers (it’s also less expensive).
• Be a good communicator and not a good salesman. Churning recruits leads to burn out and a lot of frustration.

2. Understand Leverage (Don’t build a house of cards).

• Leverage is about Time and a lot of people using a little bit of product. Love the check buyers because they buy product and move in and out of the business. Keep in mind that 98% of the people will be product buyers and only 2% will take the business seriously. These numbers won’t change so Lighten Up and understand the dynamics of the business.
• Empower people and devote time to those who are willing to work (80/20 rule).

3. Duplication (the power of going deep and wide).

• Look for people who want to be Business Builders and work down through their warm market. If you find (3) Business Builders and work through their warm market the recruits become exponential (3 plus 9 plus 27 = 39 people).
• How do you teach your people to duplicate and recruit? By explaining the power of leverage.
• Understand that people will work the business like you work the business. For example, if you continually create volume through trade shows that’s how your recruits will work the business. Make sure you are using your strengths (talents) in building the business.

4. Third Party Invitation

• The most powerful multilevel concept is the Third Party Invitation. Make sure your people understand the power of the third party.
• The people you sponsor should get you on the phone to promote their business because of the power of Third Party Credibility.

5. Know The Industry

• Read everything you can about Network Marketing so you can really understand how the business works.
• Study the competitors and other successful companies using the Network Marketing Business Model.

Burn The Boats

When Cortez landed on the shores of what later became Mexico, he issued the famous order, “Burn the boats!” This has long been a call for commitment to a cause, business venture, or your dreams.

If you ever get a chance to hear Andy Andrews in person, or read some of his books, he gives his perspective on how to be successful and has a great story about Cortez having his army burn the boats to insure victory.

Most people who are successful have that same concept to a great degree (defeat is not an option). They understand what direction they are going in life. If we really want something we have to go after it with all our being because if we give ourselves a way out we will be tempted to take that way when it gets hard.

I was visiting with the CEO of a company and we were discussing a start-up company that had turned into a real gold mine. He told me that for years consultants had suggested that he dump the company because it was a real dog. He said, I would have done just that but couldn’t figure out how to gracefully get rid of it–this was a real blessing. In his mind, he had no option except to make it successful and he did beyond his belief.

If you want to limit your risk monetarily you might want to consider Network Marketing because it is a simple vehicle (boat) to financially get you from point A to B. It doesn’t take the start-up cost and capital that it would take in a lot of businesses. Certainly not the risk of a Cortez. If you don’t have a boat then where are you going to get a boat to take you where you want to go? Are you committed to your dreams or do you even have a dream?

“I’m going to the top of the mountain.  You are either going to see me waving from the top or dead on the side.  But you know what? I’m not coming down.”  Eric Worre, author, speaker

Personality Fit

Teams work because we all have different personalities (that means a lot of different talents). My wife and I complement each other because of our different personalities and when it comes to our business we are on the same page.

When it comes to picking a business it is a good idea to be in front of trends and not behind the trends. That’s why many people are trying to understand how they can capitalize on the Internet. Also, when it comes to markets it is a good idea to be involved in an expanding and not a declining market.

Scott Fox, in his book Internet Riches has what he calls the ICICLE formula where he begins with this question: “What business should I start?”

In my opinion, he starts with the right theory. “My theory is simply this: When you start a new business, there is no one more important to understand than yourself. I believe that you are the expert. You are the expert on you, on what you like to do and how you prefer to spend your time. The best person I know of to explore million-dollar business opportunities for you is you.”

Don’t Sweat The Small Stuff

Richard Carlson, PhD is certainly known for his book Don’t Sweat The Small Stuff and it couldn’t be more true for people in Network Marketing.

We are all different and we need to respect other people who don’t see things as we see them and not let that cause us to overreact. Some people just let other people push their buttons and get them into trouble. Are we going in our own direction or are we on a course set by someone else? We can overreact to situations that come along in life. I once worked with an individual that didn’t seem very proactive and it appeared that the house was burning down around him and that he should be more proactive in dealing with some of his big business problems. After awhile, I began to realize that doing nothing and letting the dust settle was his option. If we don’t feel comfortable with a course of action then we might want to do nothing and see how things develop. Politely not let other individuals push you over a cliff by allowing them to take you in a direction you don’t want to go!

When dealing with other people we need to remember that a hot head will not generally accomplish what we want to accomplish (we certainly are not talking about letting people walk all over us). Also, we all know that the people we mistreat on our way up won’t give us much support on the way down. We can all think of high profile personalities that we somehow enjoyed seeing them get what they had been giving to others. Climbing on the backs of others on their way up the ladder.

Annette Simmons says, “Morale is not a function of removing problems.  Good morale is when a clear sense of personal gain or personal mission shrinks unavoidable problems from mountains to bumps in the road.”

As Carlson states in his book: Lighten Up. “The root of being uptight is our unwillingness to accept life as being different, in any way, from our expectations. Very simply, we want things to be a certain way but they’re not a certain way. Life is simply as it is. Perhaps Benjamin Franklin said it best: Our limited perspective, our hopes and fears become our measure of life, and when circumstances don’t fit out ideas, they become our difficulties.”

Package Your Story

Sometimes through “Body Language” we can tell that we are having a private conversation with ourselves instead of the person we are talking to. So, if you find yourself talking to yourself just STOP! Learning to read body language is very important.

A powerful story not only attracts other people it keeps us strong in the business too. Why? Because we know why we are doing the business.

There are (4) Parts to our Story:

1. Where I was - gives good reasons for being involved with our company and gives the listener hope. Perhaps they can change things too?
2. What I saw - people getting great results on the products and people changing their lives by the income opportunity (other stories). I liked what I saw.
3. What I did - action tells the story. For things to change we have to change. People may not hear what we say but they will see what we do.
4. Where I am going - paint the picture. A strong picture of where we are going will not only keep us on track it will cause others to want to go too. Being able to paint the picture of where we are going is the most important part. For example, by June I am going to be debt free and staying at home with the kids.

As we said, watch the body language and keep the story brief. Normally, if a story is over (90) seconds long we have lost our audience. Our objective is for them to see themselves in our story. We can start with other people by asking questions: Are you debt free? Do you have a plan to be debt free? We can open a conversation by listening to people because they will direct our path.

LAG TIME

What does Lag Time mean in terms of Network Marketing? Farmers understand what lag time is because it is their way of life. Much of the year they are getting the ground ready to plant, they may plant in the Spring and in the Fall, and at some point they will reap the harvest.

Lag Time is a necessary part of many businesses (including Network Marketing) so we need to learn to recognize the seasons and begin to do those things necessary for success.

If you were a farmer and didn’t plant seeds would you expect a harvest? Some people in MLM are out their looking for that fireball or diamond and that’s not what makes us successful in the business. What makes us successful is tilling the ground and planting seeds because their will be a harvest.

• Preparing the Soil - is talking to people, building relationships, and creating a warm market. In order to do this we have to have a List Mentality. Everyone we come in contact with goes on our warm market list. People will buy you before they buy your products.
• Retailing Products -is an ongoing process that is necessary (planting seeds) particularly in the “off season” and when Business Building is slow. There are certain times of the year when people are distracted (making it difficult to even move products). However, we are still planting seeds and preparing the soil. A good rule of thumb is to always have (30) retail customers in the pipe line moving from product users to distributors.
• Follow-up - There is a 72 hour rule for people on products or people who want to do the business. We have to get people results on the products or in the business almost immediately. We should have a sense of urgency to get people success on the products or in the business. Would we expect to have a good crop if we never eliminated the weeds, removed the bugs, etc.?
• Business Builders - will begin to pop up out of the ground because we have been preparing the soil and planting seeds. Also, these are the people who love the products and those getting good results. How can you move products that you don’t use and you don’t believe in? We have to be passionate about the products and the opportunity. Since we intend to work down through their warm market we are looking for Three Business Builders who want to take the journey with us.
• Duplication - developing people to maturity so that you can reap a plentiful harvest is through duplication.  Recruits will do what you do! The KISS principle is needed (Keep It Simple Stupid) because people will duplicate everything you do good or bad. If we are doing something, because of our skill level, that is generally not duplicable then we need to take a look at what we are doing. If it is generally not duplicable then it won’t be duplicated (and we won’t be successful because people can’t or won’t do what we do).
• Lead By Example - We can’t expect people to do what we are not willing to do ourselves. However, we have to realize that everyone has different skills and different personalities so we have to help them use the skills they are good at. If they are better than you–get out of their way and let them go!
• Empower People - If we always want to be the Big It (talking too much and telling people what we think we know) then building a business will be difficult. The objective is to get people into action immediately, get them duplicated and on their own. They need to be teachable and plug into the system through one-on-one or two-on-one presentations, three-way phone calls, small meetings, and large group meetings.

As you can see, Network Marketing is a time investment and it will take most people several years to reach critical mass in their organization (a lot of people taking a little bit of product). Normally, there is a (90) day lag time moving people from products to building a business. Therefore, it is extremely important to consistently retail products and/or plant seeds (Daily Method of Operation) DMO by talking about the products and the opportunity.