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How to Analyze Home-Based-Business Models

Aug 17, 2007
When an individual first starts to think about jumping on the home-based-business bandwagon, there are typically many questions that need answering. Unfortunately, the source of information that presents itself is usually someone that is trying to recruit for his or her specific opportunity...not a particularly objective point of view.

There are three main types of business models to consider. First, the sale of products and the business opportunity to friends, family, co-workers, acquaintances, and even strangers. Second, there is the pure network marketing model that entails selling mostly services (and again, the business opportunity) to the same set of potential clients. Lastly, there is affiliate marketing, which revolves around advertising others' products and services and receiving commissions.

While all three models are valid, and can result in enough income to substantially augment or even replace one's current income, the activities involved in successfully implementing any of these models vary to a great degree.

The sale of physical products via network marketing or MLM, (multi-level marketing) has gained popularity over the last few years, especially with the advent of the Internet making the ordering of these products quick and easy. The problem that most people face when trying to start this type of business is that it relies heavily on traditional sales techniques - real-time, personal contact with prospects for both the product and the opportunity.

Most people are uncomfortable with trying to sell to people they know, and even more uncomfortable pitching their wares to strangers. Industry studies show that a little less than 3% of these businesses result in a viable income.

However, MLM has been around for a long time, and many large, well-known corporations are starting to see the benefits of using this model. What's the advantage for them? Even at the low success rates, these companies realize large revenues at high margins from the sale of their products to their distributors, because most require a minimum order rate to be eligible for the discounts that allow the business owner to make a profit.

Many of these companies even make a profit from the start-up and annual distributor fees charged - especially when less than 3% are actually using the services provided on a regular basis. The other 97% end up with inventory that will never be resold, which is either consumed by the business owner or discarded.

The pure network marketing model is similar to the sale of products in that it involves selling to the same set of prospects...friends, family, etc. The difference is that there is no physical product involved, usually a service that gives the consumer/client access to information that they desire in order to achieve certain goals. This business model is one that basically feeds on itself, and is very popular with people that are interested in self-help and motivational materials.

Affiliate marketing is simply signing up with companies (for free) to direct internet traffic to a sales website. When a sale occurs, the person responsible for pointing the purchaser to the site receives a commission. Internet technology makes it easy to track where the buyer came from and pay the originating source the proper fee for the referral.

This business model is gaining ground in the home-based-business arena, because it doesn't require the entrepreneur to embrace and practice the traditional sales techniques that make most people uncomfortable. It does, however, oblige the business owner to know (or learn) effective internet advertising methods. The big advantage in this business model for the entrepreneur is that it requires very little capital expenditure to start and maintain. The primary investment for this type of business is time and effort.

When a potential home-based-business owner is evaluating the various opportunities available, he or she should be realistic about what they are willing to do in order to achieve success. All three business models discussed here are legitimate ways to make money, and all will require getting out of one's comfort zone to some degree. The decision about which business model is best depends entirely on the individual.

The key is to make sure that all of the questions are answered by someone you trust before investing...and of course, to have faith in your ability to succeed!
About the Author
Bill Cox is an entrepreneur and Network Marketer capitalizing on the power of the internet to build a residual income and financial freedom.

Find out how, check out Eclipse! here!
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