Recently, one avid reader of this blog emailed me to ask my thoughts regarding highly controversial topics such as Network Marketing or Multi-Level Marketing.
I have often hesitated sharing my thoughts on topics such as network marketing, because for one, I don’t have much to share to begin with. I was not confident enough to share what limited knowledge I had about the industry. I didn’t want to share with you mere hearsay or what someone else has experienced good or bad.
Now, I know a little bit more and have gained first-hand experience to at least share with you simple tips to help you avoid falling into scams that has given this industry a lot of bad reputation.
First of all, let’s define what network marketing is so we all start off from the same page.
“Network Marketing is a system of moving products from the factory to the consumer, through an organization of users, retailers and network builders.”
Secondly, I highly encourage you to CLICK HERE to watch a video explaining how network marketing model really works and how is it different from other distribution models. The video features an interview with a university professor who holds a PhD in Business Administration from Harvard University who is involved on researching, teaching and consulting about network marketing.
Lastly, I want to help you avoid falling into ponzi schemes or pyramid scams. After learning more about the industry, it has become one of my advocacies to help educate people on legitimate and professional ways to build a network marketing business…and more importantly, if you decide to become part of this industry, to help you build your business with the right foundation of integrity, honesty and sincere desire to help other people get what they want in life.
Here are 5 questions you need to ask before joining a network marketing company.
1) Who are the owners of the company?
What are their backgrounds in terms of starting and running a business, especially a network marketing business? Every industry is different. Some people may be good with traditional businesses, or have succeeded in franchising, but it doesn’t necessarily mean they will succeed using a network marketing business model. How many years have they been in business? What is their mission and vision? What are their core values? Is it aligned with what you believe in?
You need to understand that a huge part of business success is about the people who own or are running the company. The owners, as well as the CEO, and the other employees who will be there face to face with your customers will make or break your business. You need to think like an investor who is looking for a CEO to run your own company. If you have doubts about their background, or worse, you don’t even know who the owners of your company are, better STOP and do more due diligence than regret losing your hard earned money in the end.
2) What is the track record of the company?
How stable is the company? A lot of the bad reputation the industry has been getting is based on some companies’ poor track record. Not a few companies have started so fast but folded up in a few years. As a consequence, many distributors were left hanging in the end.
The thing to understand about a network marketing business, is that IT IS still a business. The success ratio still applies: 9 out of 10 businesses fail in the first 5 years; and for those who survive, 1 out of 10 of them will fail in the next 5 years. The simple reason? Any start up business will go through growing pains. The systems are still being built and not yet in place. If the systems break down, the business collapses. That’s why, you need a great visionary team running the company, who will make good decisions and never compromise money over the long term health of the business. You need people who are going to be there for the long term.
How long is considered stable? A good benchmark is at least 10 years. By then, the systems are already in place and has proven to work through business cycles like economic recessions and depressions.
3) How is the product different from those in the market?
After watching the video earlier, I hope you at least have an idea how different the distribution model of network marketing companies are compared to traditional ones. Different they may be, both, however, have the same goal in mind — move the product from the factory to the consumer.
There are three things to consider when looking at the companies’ products: 1) it must have unique selling proposition, it must be of high quality and 3) it must be consumable.
First, the product should have a unique selling proposition. You cannot sell a product, distribute it via network marketing and have that same product also distributed in traditional retail stores. Just think, if the same product is available in your neighborhood grocery store, why go through all the trouble and buy it from somewhere else?
Second, the product must be of high quality. The good thing about network marketing is that because it minimizes the distribution cost, the products tend to be of higher quality. This ensures that it gets the better end of the network being a two-edged sword. People talk about great products. But they talk MORE about bad products. So if you are in a network marketing business, your products must be top-notch, otherwise, your network’s multiplying advantage may even be your worst enemy.
Third, you want your products to be consumable. You want your customers to keep coming back to use your products. That’s the only way to build loyal customers. That applies to a traditional business, but even more so for a network marketing business. And you can only do that if your product is of high quality.
4) Where are the sales coming from?
There are two-sides to a legitimate network marketing business. One, is direct sales, where you buy a product at a lower price and sell it higher for a profit. The other side is in sponsoring other people to help you sell more products to more users, retailers and network builders. Normally, the company will give you a start up kit or enrollment pack which contains your initial inventory of products.
To know if the company is legitimate or not, you need to watch out whether the direct-sale activities balance with the sponsoring side of the business. If the sales are coming mainly from direct sales with minimal sponsoring activities, then it is operating mostly as a direct sales business. On the other hand, if the sales of the company are coming mostly from selling of start-up kits or enrollment packs, and not much is coming from direct sales, then the company is bordering on becoming a pyramid scam or ponzi scheme. The company may be legitimate, but if the only thing they are selling is the startup kit, and there are no repeat purchases from satisfied customers, then sooner than later, the company will also fold up.
Obviously, the commissions should be based on how many products were sold and how many repeat purchases there are, and NOT based on the number of people who signed-up. In the end, the heart of a business is still and will always be satisified customers.
5) How fair is the compensation plan?
Is the compensation plan built upon rewarding only those people at the top? Is it possible for someone new to surpass the earnings of those who have joined the company earlier? How will you be rewarded?
How healthy is the financial condition of the company? Has the company put in place control mechanisms to ensure the long term health of the company? Obviously, the company has to make profits as well as give a fair share to the distributors. If all profits are given to distributors, it is just a matter of time before the company folds up and the owner runs away with your money in his pocket.
You also need to ask yourself how many people have already succeeded in the company, and what are your chances as a new distributor to succeed as well? What available training and support will you get in order to achieve the same or greater level of success in the business? What challenges will you expect if you decided to pursue this business to get the results you want? These are simple questions you need to ask to really understand what you are getting into. Network marketing business can give you potential residual or even passive income, but it doesn’t happen overnight. It is certainly not easy, but it can be done.
The above 5 tips is just a simple list you can refer to before joining a network marketing company. My hope is that you keep this handy list with you when you start exploring getting into a network marketing business. The world has changed…and one of those changes is the coming of age of the network marketing industry. It has even been tagged as the “business of the 21st century” by Robert Kiyosaki, the famous author of Rich Dad, Poor Dad. The only question is whether you will become part of it or not.
Starting a network marketing business can be your gateway to success if you do it right. It will most likely change your life for the better if you work on it and do your own due diligence. In the end, it is all up to you. Be driven. Be careful. Be wise.
Cheers to your success!
P.S. CLICK HERE to mail me if you are considering building a network marketing business and would like to be part of my team XTRM 1-11 Inc, one of the most professional and highly successful team in the network marketing industry. If you become part of the team, you will also get a chance to receive personal mentoring from me.
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