There is a disturbing trend growing around the country. It has been growing for the last 30 years but it is positioned to explode over the next decade. If not put in check, it will destroy or waste millions of man hours and dollars that belong to people who can ill afford to waste either.
The trend I am speaking of is people who are in Direct Marketing/Multilevel marketing sales who do not keep good account of the time or resources invested in their businesses that pay temporary residual income. Now before anyone jumps all over me for speaking negatively about their precious MLM, I want you to go back and read the last sentence about keeping accurate track of the time and money invested for the return. This piece is not about how good or bad any direct sales business is. It’s about how good a business person you are.
Over the last few years the world has been overrun with people who are trading huge blocks of time at meetings, conventions, promotional events and sales seminars for their direct sales companies. These same people are investing almost as much time in their part time businesses as they are at their full time job but earning less than 10k from their business and investing twice that in travel, hotel cost, merchandise cost, rental cars etc. Their approach to business spits in the face of common business practices and is an abomination to the common sense they show everyday outside of their MLM business.
The facts are that less than 2% of reps who have ever joined a direct sales business ever made any real money and built a profitable and sustainable business. Can it be done, yes. Can you do it without adhering to sound business principles, probably not? http://abt.cm/1BiGvZF
In full disclosure I have operated in several MLM businesses but found them way to limiting for the creative way I love to do business and frankly it was always too much work for too little money. Over the years I’ve been blessed to generate millions of dollars in non MLM businesses that required me to be focused on the top and bottom lines. I never spent more time for less money that in recruiting and selling in an MLM because the business simply wasn’t designed to make me rich but to make the company rich through the use of labor and financial resources of many people who would never enjoy the spoils of the company.
In the business world important things like expenses, cost of goods sold, profit margins, return on investment and time invested are direct measures of how strong a business you have built. In MLM these things are rarely talked about nor calculated. In fact, the interest where these things are concerned are directly opposite of the interest of the sales rep.
Let me explain. The company that starts the MLM is a regular business like any other in the United States. They start with a certain amount of money and a business plan; they rent office space or warehouse space and hire hourly employees. They calculate the cost of the product they are selling and stock it. They have warehouse employees that handle distributions and they have a limited time to become profitable or they shut the business and declare bankruptcy.
The thing that makes these firms different is that their business model is based on telling people who are employed to make the change to become self-employed and embrace their limitless options. They build a virtually free labor force with no payroll taxes and workman’s comp. They tell people to stop being a slave to their 9 to 5 and invest their time, energy and money into the pursuit of financial freedom. To do this they can sell their products and earn a fixed commission which is tied to cost of goods sold and profitability, but is never disclosed. Sales Reps attend conventions and meetings in hotels where the company has room rental rate deals, but that’s not disclosed. They can recruit others to do the same and earn more fixed commission known as overrides, which again is tied to undisclosed profitability and cost of goods sold.
At the end of the year that MLM business is either profitable or not and if not it won’t be around for much longer. The residual income people speak about will not pay forever because people will switch or cancel services over time. At the end of the year the company files taxes and pays payroll tax on all the corporate office and warehouse employees just like any other business. At the end of the year the principals reward themselves with big fat bonuses for how profitable the company was that year. The only real difference from other companies is their cost of labor because they do not pay for the countless man hours the salespeople put in to make it to certain promotional levels and win prizes. Most fail to ever make a profit, but the profitability for the company is actually higher on the majority that fails than it is on the minority that succeeds.
This is a very profitable business model if you own the MLM/Direct sales business.
Conversely, for the common rep they do not evaluate how many hours they spent on their business per week, how much product they purchased, how many conventions they attended, hotels and rentals cars paid for etc. They do not subtract that from the amount of capital earned to determine their profitability. If they did they would see that they were upside down and need a plan to get right side up. They do not have an opportunity to lower the cost of goods sold or increase the profitably on the items they are marketing by getting better pricing at the manufacture, in fact they have no idea what COGS actually is.
The MLM/direct sales rep has no idea when the others they recruited will look at what time and money they invested and finally hit the wall and quit as happens with most. It’s a style of business with a 98% failure rate for the marketer and a very high success rate for the company.
They only way to change this paradigm is to run the direct sales/ MLM business like a real business and track all of those metrics that your parent company is tracking. Put together a plan and capital and build a profitable business before you burn through your budget and teach your recruits to do the same. Have monthly meetings that discuss and share hours and dollars invested versus dollars earned. Don’t be afraid of the hard truth.
Be realistic about the residual aspect of these businesses. People do and will continue to switch phone companies, utilities carriers, makeup providers etc., so the residual is temporary unless you invest your profits into truly residual financial products that pay life time income.
Have fun, do your best and leave a legacy and pathway to success but please run your business like a business.
Wishing you Wealth, Wellness and Wisdom
Manager of Wealth