When you go into business, it’s all about the product. Because no matter which marketing method you use, ultimately the customer will either buy the product or not. That’s why, if you are considering multi-level marketing, you must seriously consider the desirability of the product. Would you buy the company’s product at retail? If not, it may be too hard to sell your customer or sell yourself, and somebody has to buy the product in order for you to make money.
When you look at opportunities, you really need to do the math. You are looking for a 20%+ rate of return for your time, materials, and cash investment. For instance, if you spend $100 a month and at the end of the year have a $20 per month commission check, you are right on a 20% return. So how do you do the math? Try the following on for size:
cr / ci = ri
cr is what you expect for commission or profit for an individual customer in a year
ci is what you spend in dollars to get a customer. You should include time, materials, advertising, and other expenses.
ri is your return on investment. .20 would be a 20% return.
For your customer, you may sell to end consumers or other distributors. You might want to figure out your return in both ways to see which gives you the most immediate return. Traditionally this is going to be your customers. Distributors get a break on the product so you get less of a profit on the volume.
The thing we are not figuring on is when your direct distributor gets another distributor. You do get a cut on the sales to your second-level distributor, but it’s not usually as much as your first-level distributor. What I would do about the multi-level aspect of your business is to ignore, for financial purposes, that you will ever get beyond your first level. You might want to allow for a smaller initial return on investment to compensate for the multi-level effect, that’s up to you.
Again, product sales is the most important thing so you should always be selling the product, even when you’re recruiting. In fact, sponsoring sales people, people who will sell the product to consumers, is usually the best way to go. Some of you may say that selling the dream works best. However, the dream gets people sponsored into the business, not selling product. It also produces unrealistic expectations and unhappy distributors. You may also get a look from the FTC. So we sponsor sales people to get product volume, and we can generally bank on the fact that we’re only going to get first level distributors unless we train our great sales people to be good recruiters.
The downside to multi-level marketing is what the MLM company can do to you. You are pretty much at their whim. You advertise their way, you sell their way, and at a moment’s notice they could decide not to use distributors any more. So be careful out there.
We are starting to be really active with a multi-level marketing company again. We joined the company in 1992 and they have been very consistent. I believe they produce a very good return on investment for recruiting and have an exceptional product line that customers love. Check them out.