Blog Effectiveness

Blogs are a great way to explore (experiment) with the Internet Environment.

As of this time this particular blog has 80,014 hits (that’s small) but I don’t mention or advertise the blog because it’s my journal and only indirectly will it spill over into our business with totally new people.  I have not designed this blog specifically to be a Marketing Tool.

What does this blog do for me?  It allows me to experiment with those articles and headlines that appear to be effective and those that are totally ineffective. I also vent some of my personal views on this blog.  In other words, it’s part of my scientific platform. WordPress is great.  I think Blogger is good too but it’s not as flexible to me as WordPress as a free environment.

Please don’t go out and pay money to start a blog unless you really understand what you are doing on the Internet!

You may try that because you have read books by so-called experts. I’ve read tons of them and I go back a year latter to find that their website/blog no longer exists or I go to their blog to find that they have no traffic.  Just like the smoke and mirrors of a so-called “heavy hitter” in Network Marketing–where have they gone after (10) years–can’t seem to find them?  That’s the point in experimenting.  Unless you have tons of money to waste I suggest the scientific approach.  My wife has tons of traffic on Facebook (so it’s easy to get opinions on that platform too) but so far it’s just traffic (noise) but very useful for her (she’s a social being).

Network Marketing is still a face to face business for many of us but the Internet is a wonderful tool so learn to use it.

MLM Company Bonus

Creative Bonuses for MLM Start-up companies.

I am sure there are many creative compensation plans in Network Marketing (MLM) companies that I am not familiar with but there is one bonus I’m surprised not to see paid in most plans.  Of course, that’s a company incentive bonus that all Distributors would earn if the company is doing well (company performance bonus).

We may see a pin level added to compensate basically one person (if actually earning the pin level) or see compensation basically going one way.  No doubt many Distributors feel that working Distributors should earn a percentage off of hobby or semi-retired sponsors because of helping them with mixers, picking up products, team momentum, etc.

A properly designed company bonus should bring added “Team Spirit” and cooperation because people get paid well when everyone (the company) is doing well and you may want to think about that in your MLM start-up.  This should even please the heavy hitters.

Great Corporate Events

How to do a great Corporate event is important with an MLM Startup.

I just got back from a great one with the “quality” company my wife and I joined over (10) years ago and was thinking about what made it such a great event (the energy was in the room).

When a Network Marketer says:  “The energy is in the room” it means you just have to be there to experience it.  You will understand what I mean (if you were there) but I’m not going to try and describe it.  Also, you will know when the opposite is true.

Why was the energy in the room?

• It is a melting of the professional people and the distributor (field leaders).

The corporate leaders are professional and have done a tremendous amount of work to organize and direct the event (management role).  The trainers and the people on stage are the top distributors.  Why is this important?

• Those people are the role models talked about daily with the distributors (linage).
• Those people are in the trenches (doing what we do).
• The people in the audience are connected to that linage.

What’s the difference from a professional motivator and top distributor?

Generally we have a well known professional speaker at our events. They are great motivators, teachers, and drawing cards but:

• That’s the end of our “connection” because most of us don’t know them personally.  They are not the person that “drives our hope on a daily basis.”  They are not the people we see with us in the trenches.

You must understand:  You can “tell” someone to do something but the power (energy) comes from “seeing” them “do it” on a daily basis.  The true role model is doing this business on a daily basis.

The people are connected to the working distributor. A retired distributor can get in front of the crowd and be a great “motivator” but not a “powerful” motivator because they are not “connected” to the audience setting in the room.  Most of the people there were brought there by the people in the trenches.

Can’t Make It in Network Marketing?

Network Marketing is a “people business” and is great experience for those desiring to start their own company.

Network Marketing is a great business experience even though you won’t gain the experience of managing employees, inventories, and meeting payroll deadlines.  You will learn something far more valuable! Why?  Because there is nothing more important than learning how to deal with customers and build an “informal” organization.  You may form a partnership with someone that has serious people skills but there is nothing like trying to learn how by joining a Network Marketing Company.

We are  starting to get feedback from distributors concerning a Network Marketing start-up, with good product potential, started by a successful business person.  Unfortunately, this business person did not have business experience in Network Marketing and negative distributor reports are starting to come in about the company.

If you decide to try Network Marketing go with a company that has a great track record in the industry.  A distributor base can melt just as fast as a great product can create it if the distributors are not properly managed.

The Network Effect

Don’t lose sight of “The Network Effect” when building your MLM business.

While quality products are extremely important don’t confuse products and “The Network Effect” of building a new MLM Business. The Business opportunity should “strongly tie” people to the success of your company by making them successful.

Pat Dorsey wrote about “The Network Effect” in The Little Book That Builds Wealth and listed it as one of the four Moats that provide long-term competitive advantage (entry barrier or protection).  I will quote one of his examples because it is such a powerful example.  Other authors consider Moats when advising on businesses we might wish to invest our money.  Authors like Phil Town in his book Rule #1 covers this subject quoting  investors like Warren Buffett: ‘…durable competitive advantage that protects it from attack, like a moat protects a castle.’  “In other words, we’re looking for a business that has a great big, wide, hard-to-get-across-and-attack-the-castle Moat.  We want massive protection from the attacking competitors who want a piece of the action.

While many computer Nerds hate Microsoft they have to admit that they are at a strong competitive disadvantage.  Pat Dorsey:  “It’s hard to argue that Windows is the acme of PC operating systems, but its massive user base means that you pretty much have to know how to operate a Windows-based PC to survive in corporate America.  Word and Excel are similar.  Even if a competitor showed up on the scene next week with a word processor or spreadsheet that was five times easier to use and half the price, it would have a hard time gaining traction in the market because Excel and Word have become (like it or not) the common language of knowledge workers around the world.

In fact, there has been an Office competitor called ‘OpenOffice’ on the market for several years, selling for a lot less than Excel and Word–it’s actually free, which is a tough price to beat. The word-processing and spreadsheet programs look and feel a lot like Word and Excel, and the files are (largely) compatible with their Microsoft analogs.  I’ve tried OpenOffice, and it’s pretty good.  But it really hasn’t gained much market share among mainstream businesses because there are some small differences, and since the rest of the world still uses Microsoft Office, people don’t want to bother using a program that produces files they might not be able to share with others.”

Nothing makes an MLM company more difficult to get off the ground than Business Builders spreading the word:  “This thing doesn’t work.”  We’re not talking about the guy in the corner office or the top distributors (sure it’s working for them).  We’re talking about those people in the trenches everyday using “Word and “Excel” (so-to-speak).

If people are working the business they should get paid to make your MLM company successful.  They aren’t just looking to get the products “free.” Make sure they get paid!  If you do you will own the market.

Geographical Momentum

The great thing about Network Marketing is “No Geographical Territory.”

Many new people will quickly find people in other parts of the country just because that’s how it works: “Word-of-Mouth.”

I’ve often been asked:  “What happened to a particular state or city?  They use to be such a strong power in the company.”  The answer is so obvious that you can’t quit figure out how they miss it.  The “driver” or leader (Distributor)  is missing in action.  He/she moved to another state and no longer support the momentum of the group.

While company support and meetings are great the only way to get the momentum “steaming” in an area is to have strong local leaders and structure!

Network Marketing is a Team Building sport!

A company can be in real trouble if their momentum is just in one geographical  area because people (depending on the economy) CAN’T afford to continue buying $1,000 (or more) trips to another area to attend meetings.  Of course, I’m not talking about the Distributor making a lot of  money I’m talking about their team.  Meeting structure (formal and informal) is the life blood of MLM (just like church).  Also, product distribution is expensive (strong distribution systems built Wal-Mart).

As a start-up company, if you can’t figure it out, you might as well move headquarters to the area of momentum.

“I know, there’s no place like home.”

How do you know if you have a strong leader?  People are following them–it’s that simple!

The people in that area of the country are riding the wave. And so, lose the leader and lose the group momentum!

Zero Sum People

Are you a zero sum person?

If so, you will never be a long-term player in Network Marketing (at least not with the same company). Let’s consider this zero sum mentality (you 7; them -7 = 0).

Many of us grow up in very competitive environments and in sports there has to be winners and losers.  In the business world many feel that in order for them to get ahead someone else has to lose.

The neat thing about Network Marketing is that it is not a zero sum game and if you (as a start-up entrepreneur) have a zero sum mentality you need to lose it along with your ego because it is a sure path to failure.

Let’s consider for a moment why MLM has a bad name with some people.  You have talked people into hope, trust, and dreams with your success stories.  You will hear horror stories too (we’ll consider that in a moment).

And so, for whatever reasons some won’t be successful and this will crush hopes and dreams. We’ve talked before about “fear of loss” and “promise of gain” as the most powerful concepts in MLM.  Unfortunately for you (the MLM entrepreneur) the word-of-mouth power works for your success and works stronger against you or for your failure.  Why?  Because disgruntled people talk more about loss than they do gain.  If they feel you screwed them we can guarantee that other people will hear about it “often.”

Let’s look at some zero sum practices of the typical MLM start-up:

• You don’t have the absolute best compensation plan in the industry. Why?  Because you don’t feel you can afford it.  The fact is that you can’t afford not to have the best plan if you want to attract good “people.”  It’s always just a percent of Net Sales so you want a lot of winners.  If you screw up the design of the plan who’s fault is that?
• You fix it so that only a few heavy hitters win the good trips so you can advertise their success. Why?  Because you don’t feel you can afford it.  Unfortunately, the other 99.9% of the players have mouths and they like to talk.
• You fixed your compensation plan so that it’s full of holes (breakage) or annual fees and it’s difficult to learn, earn, and retain people. Folks, one of the main reasons you won’t attract people is because they can’t understand your plan! How stupid is that?  MLM companies are all about “consumable products” and you want long-term customers because that creates the residual income and exponential sales growth (business builders).

Finally, you don’t understand the industry and why MLM works.  MLM companies are built on the concept of 360° success (people above, below, and each side).  THIS IS A BIG TEAM EFFORT–IT’S NOT ABOUT YOU! Why?  Because when the Distributors are wildly successful the company will be wildly successful.   It’s all based on people and word-of-mouth. If you make it win/win (not zero sum) then you win!

The other day a person was asking me to look at a new MLM start-up company they feel will be wildly successful. Note: I don’t worry too much about competitors because I’m not a zero sum person. Anyway, the first thing I noticed was their complicated (not smooth) compensation plan. And then, I noticed that their wholesale discount was 25%.  This was a big give away that the management is not MLM because they think that “Suggested Retail” should mean something.  What means something in MLM is 50% off!

This company started with a retail distribution system and has an obvious history of why they decided to go MLM.  If they think they should retain the 25% discount because of retail prices in stores (retail prices mean something) that’s a bad sign.

Do you think that Mary Kay Cosmetics will “ever” go retail? NO! Think about it.  The “NUMBER ONE” reason MLM companies fail is because they change their compensation plan or distribution system.  How bad do you think the word-of-mouth (going viral) would get if they went to retail stores?

Snake Oil Salesman

So you’ve decided to become a “Snake Oil Salesperson?” According to many friends and family members you’ve taken a professional step down in life because you have decided your products work and people need to buy them from “You.”

I am sure you don’t feel this to be a good description of selling quality nutritional products and a multi-level compensation plan but some people around you will.  Your products are “snake oil” and you profit from a “pyramid scheme.”

And so, here are some things to keep in mind when you think about getting into the business:

• People will see you differently when they understand that you make a profit from selling a product instead of  “just recommending”  a good product to try.  Now your motives will be questioned.
• What’s happened to you?  I can’t believe you are going to do that for a living (red face)?

Friends and family members don’t want to feel pressured into trying (let alone buying) products from you because you are a family member.  And many will be embarrassed that they have a vitamin salesperson in the family that’s stupid enough to flush a good career or degree down the toilet.  Obviously there is something wrong with your judgment or you have become a member of a cult (the religiosity factor).  Of course, this is not true of all family and friends.

There are many “life experiences” and “world views” that cause some people to feel negative about Multi-level products and Network Marketing.  That’s why a retail store will have a decided advantage with “certain people” over you because there is no one to bother them to buy products each pay period.

Before you got involved with the products and Network Marketing Company many of you felt the same way as them, and you still do when it comes to other companies and opportunities.  This mental environment surrounding direct sales takes a lot of people out of the business.

Here’s why it shouldn’t take you out of the business:

1. Listen to the talk about careers and jobs by family and friends.  Is it:  “I have the greatest job in the world” or “I’m so bored and disillusioned and my boss is a jerk, etc.?”  Or, I work myself to death and they cut my pay because our management sucks?  Hello car companies and Investment Banks, etc.!
2. How many of your family members and friends pay your bills or really even care what happens to you?  “Poor Joe he lost his job and can’t feed his family again–flip that channel to the big game.”  Do you think they are all that impressed because you are a Ph.D, MBA, CPA, etc.?  They may hope your certificate ends up where the sun won’t shine because they are sick of your big ego and your talking about your high level job, all the great things you know, your big pay, etc.  In reality, they know you are an engineer that counts paper clips for a living.

Here is what you need to do:

1. Work on eliminating false ego and pride.  You can’t be successful at a business opportunity that embarrasses you or makes you ashamed.  Also, this will make you a “much better person” in the long-run.
2. Don’t work the business alone! You can do this business by yourself but it will take longer and be much harder.  Get a good mentor to take you through the mine fields and stop you when you begin to reinvent the wheel because “this thing just doesn’t work!”
3. Work hard on reading body language and people.  Do not waste time on convincing anybody of anything! You will end with what you start with, and if you drag people into the business you will drag them around.  Don’t do it!

What you are looking for are people (business builders) that “get it.” They feel the products or see the business opportunity immediately. You are just looking for a few people as you work the business (don’t shut the door on the others).

When you make a million dollars per year (while they still count paper clips for a living) they may come around.

HAVE FUN BECAUSE THIS IS A FUN BUSINESS AND YOU CAN BE YOUR OWN PERSON!

Parable of the Sower

“Behold, there went out a sower to sow: And it came to pass, as he sowed, some fell by the way side, and the fowls of the air came and devoured it up. And some fell on stony ground, where it had not much earth; and immediately it sprang up, because it had no depth of earth: But when the sun was up, it was scorched; and because it had no root, it withered away. And some fell among thorns, and the thorns grew up, and choked it, and it yielded no fruit. And other fell on good ground, and did yield fruit that sprang up and increased; and brought forth, some thirty, and some sixty, and some a hundred. And he said unto them, He that has ears to hear, let him hear.”

The right people will hear you!

For others (be nice), “The car’s running and I’ve got five minutes to give you (as you look at your watch). Sorry you missed out.”

Start-up Income Statement Projections

You are a Champion!

Assume a Pro Forma Income Statement to project income and breakeven sales for the first year in the business and the following ratios for each $100 (average sales mix) Net Sales:

Pro Forma Income Statement	Dollars	%
Sales:
Gross Sales (Suggested Retail)	$166.67	166.7
Wholesale Discounts (40% Retail)	66.67	66.7
Net Sales (60% Retail)	$100.00	100.0
Variable Cost:
Product Costs (12% Retail)	$20.00	20.0
Distributor Commissions and Royalties:
Override Royalties (10.5% Retail)	17.50	17.5
Leadership Royalties (9.5% Retail)	15.83	15.8
Other Bonuses and Trips (4% Retail)	6.67	6.7
Commission Expense (24% Retail)	$40.00	40.0
Variable Expenses (36% Retail)	$60.00	60.0
Gross Margin (24% Retail)	$40.00	40.0

Since this Pro Forma reflects a Gross Margin of 40% we need to determine our breakeven sales.

Note: This is a simplified projection because some variable costs have been left out (like freight expense). However, we will assume that Freight Revenue covers the cost and this is our first high level projection.

We estimate that our fixed costs for the year will be $500,000 (salaries, benefits, rent, and other period costs).

In order to determine breakeven Net Sales we divide the $500,000 fixed costs by the 40% Gross Profit Margin and determine the breakeven sales to be $1,250,000 which can be tested as follows:

Net Sales	$1,250,000	100%
Product Costs	250,000	20%
Commission Expenses	500,000	40%
SG&A (Fixed Costs)	500,000	40%
Net Income (Breakeven)	$0	0%

Obviously, before we do a Balance Sheet and Cash Flow Projection we test the reasonableness of breakeven sales and fixed costs. Based on average sales per customer, and industry turnover, we can determine how many Distributors we need to recruit to hit our sales projections. These are very KEY PROJECTIONS! Once the company reaches the Net Sales figure the net profit goes to 40% (within a reasonable range of sales and fixed cost).

Many start-up companies will copy other company agreements including their commission breakage rules and annual fees. DON’T! For one thing, it cost more than most annual fees (studies have shown 5 times more) to get a new customer. Distributor turnover or new recruit fees normally takes care of most of the annual cash flow lost by not charging annual fees to ongoing customers.

Studies have also shown that breakage on base commission (required sales volume to qualify) can cut average order volume by almost 2/3.  Don’t be penny wise and pound foolish!

As we’ve said in other articles we would be better off if the Suggested Retail Discount is 50% (instead of 40% in this projection) because of sales psychology. Use the maximum Distributor commission schedule to do initial projections to eliminate any possibility of understating commission expenses. Remember, commission expense is a percentage of net sales and you want the best you can afford to attract the top Distributors. Reputation and Character are your most valuable corporate assets (word gets around).

If you can get past Breakeven Net Sales you will attract Distributors that they can’t attract. The Keys to Network Marketing companies are:

• Net Sales
• Fixed Costs

NEVER DRAG NET SALES!

If you can attract recruits (and get past Breakeven Net Sales) you have accomplished your major start-up objectives!

Pricing

You are a Champion!

Pricing is not a one man show and should have input from accountants, engineers, economists, statisticians, and marketers. Also, pricing requires significant judgment and is not just a computation as any small business person or entrepreneur would know.

Many small companies approach pricing from a cost accounting point of view where product prices are evaluated internally in relation to the margins (percentage of profit on sales). In other words, a target gross margin. If that target isn’t achieved those products are phased out or priced out of the market. Obviously, a product should at least cover out-of-pocket (variable) cost unless it’s an important loss leader to other profitable business. However, we will soon show that this is just half of the computation.

In many small businesses we would rarely see pricing based on investment returns (ROI) even though it is a long-run necessity. Unfortunately, many small businesses have faced the Wal-Mart experience and are no longer in business. Many undisciplined managers get wild hairs or out-of-body experiences at night that cause them to add unnecessary costs to the business. In other words, over time they are not even remotely the low cost producer. That’s why many new to a business start with a franchise because the business model is extremely structured and controls the amateur exuberance (things that don’t work).

Let’s look at the following simple example: I go out and spend $200,000 for a new truck which I assume will bring a good price on the market if I need to exit the business. Of course, I have all the costly insurance policies (trucking is a risky business) even though my operating costs are reasonable (I have a new rig).

Your experience in trucking tells you to buy a good used rig for $50,000 (you let me take the hit from driving a new rig off the lot) and you just happen to be a mechanic too. Also, you let your increased operating costs from running an older rig offset reductions in other expenses. You assume personally as much risk (self insurance) as possible because you have a great safety record.

From a P&L or income statement we both run 500,000 miles at $x per mile. In other words, we both make the same profit on the income statement. With just business experience and judgment only, who’s more profitable (ROI)?

Let’s look at another example:

• A 20% profit margin multiplied by one turnover equals 20% return on investment.
• A 10% profit margin multiplied by two turnovers equals the same (20%) return on investment.

Any questions?