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Network Marketing Business Failure - The #1 Reason

Aug 17, 2007
If you're currently building a network marketing distributorship, what are your 2 biggest business challenges?

OK. Would you like to do something about them? I bet you would. And here's the first thing you need to know:

These challenges are not your fault!

***The cards were stacked against you right from the start!***

You just didn't know it. You didn't realize it. And here is why they were stacked against you.

Let's take a very close look at the network marketing business model, because that's where you find the reason for network marketing business failure. You're an entrepreneur, you're here to make money, you're in business. So it makes sense to look at the business model, doesn't it?

What I've seen is that very often it's your company's business model that causes your problems, not you. Let me give you an example. I'm sure you've seen network marketing companies that brag about having a huge, multi-million dollar home office. They have pictures of it on the website, flash presentations, it's on all the brochures. But the millions of dollars that paid for that building is money that you will never get back in your compensation plan.

In network marketing, the ONLY place that money is made, whether by the distributors or the company, is from the compensation plan. Your MLM company does not have another stream of income that generates money for them.

***Company Income Always And Only Comes From YOUR Compensation Plan***

So whatever spending you see, that is money that will not come back to you in the compensation plan.

But here's where it really gets ugly. Your company's beautiful building requires maintenance. They need a cleaning staff. It has to be painted, windows have to be maintained, bathrooms have to be maintained, these buildings get cleaned every night. They have a water bill, an electric bill, heating, air conditioning. They do everything necessary to make that building a showplace for the company.

***Who Is Paying That Monthly Bill?***

Where's the money coming from?

Correct - it's coming from your compensation plan. That is money that you will never receive in your check. It's gone. That "stolen" income is a big reason for network marketing business failure.

Now ... when do YOU plan on using that building?

Did I hear you say, "Never!"?

Exactly. You will never use that building, yet you are paying for it. And that's not all. These bloated network marketing companies brag about their call center, and the hundreds of employees they have sitting there, ready to take your order, giving you the best possible customer service.

But every one of those people is a salaried employee. They get health benefits, maternity leave, vacation leave, sick leave. The company has sexual harrassment insurance. Those employees get bonuses over the years, raises. Each one works in an office at a desk, with a phone and computer.

That is a monthly bill.

***Who Is Paying THIS Bill?***

Exactly. YOU are! (Are you beginning to notice a nasty trend?) That's more money again that will never come back to you in the compensation plan.

Now ... where do you think THIS business model will go in the future? Do you think your company will have less expenses or more expenses?

Sure. It'll be more. As the building gets older, it needs more maintenance. The longer people work there, the more salary they expect. As the business builds, they'll outgrow the building ... and, of course, build another new building!

Another good indicator of the heart of a company is, where is the warehouse located? Most cities have a warehouse district, very low-rent, low cost. It makes sense for businesses to keep their stock there. But most MLM companies have the warehouse right next to their big new building. Why? Because it's more impressive, and they can say, "Look at us! Look what we've done!"

***Who Pays For That Extra Expense?***

Yes, of course. It is you.

So what's the solution? The key is to find a streamlined MLM business ... one that doesn't feel the need to put on a gaudy show with YOUR money! I'll talk more about that in just a moment.

First, let me give you an example of how this high-overhead business model affects YOUR ability to build your business.

I'm thinking of 3 different companies right now. They all market the same product, a multi-vitamin pack. It's an awesome product, flat-out works, and all 3 companies market the identical formula, identical raw ingredients. Except Company #3 has also added to the formula a chelated enzyme to allow you to digest & absorb nutrients better.

Now would you agree with me, that to produce that product, same quantity, same quality, same formula, the cost of production for those companies is within pennies of each other?

Of course it is.

Well, Company #1 markets the 30-day supply of that vitamin pack for $117. So do you think you're going to be able to retail that to someone? Do you know anybody who would gladly pay you $117 for a 30-day supply of a multi-vitamin pack, regardless of how great it is?

I'll bet you don't. It'll be tough, for sure. So therefore, you're going to have a challenge to retail that product.

Company #2 sells the same formula for $108. It's still expensive. You're still going to have a challenge retailing that.

Company #3, which has the same formula, with the added chelated enzyme, so you can digest & absorb it better, sells it for $39.95. Now, I ask you, is that affordable? Do you think you know people who may purchase that product from you?

Absolutely.

***The Business Model Drives The Behavior***

So what kind of behavior do these different business models create in the field? Here's what happens.

People who market the more expensive products spend their time recruiting. This is where the money is made for them. There's no money in retailing for them, because nobody's going to pay that high price for that product.

So what do they have to do? They have to recruit, recruit, recruit.

And what happens after you join them? When they sponsor you into the business, they have no time to work with you! You're in, they got the commission, and they have to move on to recruit the next person. They don't have time to work with you because their business is built on recruiting, since they can't possibly retail products. This is a big reason for your network marketing business failure.

Now, do you have any idea why Company #3 can afford to sell the same formula, with the added chelated enzyme for better digestion, better absorption, at $39.95? Why do you think they can do that?

"They must not have the overhead."

Exactly. They have way less overhead than the other 2 companies. Their warehouse is in the warehouse district. No multi-million dollar home office. They take 97% of their orders automated over the internet, so they need very few actual employees.

***Company 3 Has Just a Small Fraction of The Overhead of Company 1 or Company 2***

So it's a more distributor-friendly business model.

I've found that 92% of the population doesn't like to sell and doesn't want to be sold to. How aggressive do you think you have to be to move a box of a 30-day supply of a multi-vitamin pack at $117 each?

Pretty darned aggressive, don't you think?

And let me ask you this. Who do you think is buying this? You don't know anybody who'd buy it. I sure don't know anybody who'd spend $117 for it. But they sell plenty of it. Who do you think is buying it?

It's the distributors. The distributors are buying it. Why? Because they have to qualify to get their bonus check. That's the only reason they're buying it. This pricing doesn't create a retailing behavior.

***A Real Example Of How To Use An MLM Product***

Do you know anybody who suffers from a blood-sugar disorder like hypoglycemia or diabetes?

OK. This person that you know, do you think they might know 5 or 10 other people who also suffer from diabetes?

Yes, they probably would.

OK. Well, do you think they might be interested in a product that could help them rebuild the pancreas and possibly take them off insulin or at least cut down their insulin? Do you think they'd be interested in a product like that?

I bet they would. Do you think they can afford to pay $19.95 for that product?

Sure they could. In fact, if you had that product, you could even afford to gift that to the right people, using it more or less as advertising, couldn't you?

OK. Now what would you rather have? Would you rather have people coming to your website, purchasing this product for $19.95, all these different people sharing with each other, or would you rather be in one of those first 2 companies, trying to market a $117 multi-vitamin pack? Which one makes sense to you?

Sure. The diabetic product. And look again, why can this company afford to do this?

Because they're streamlined. It creates a retailing behavior. You can do business this way. Anybody can purchase products at this price, because it's affordable. Does that make sense?

Of course.

***But There's Another Big Surprise!***

This is really interesting - guess which company of those 3 pays more to the distributor in the compensation plan and requires fewer people to get yourself to a $10,000 a month income?

Yes, it's Company #3. How is it they can do that?

That's right. Less overhead. And now you're starting to get the picture. You're understanding why it's so tough for you to make money in network marketing.

Next question. As time goes on and the bloated business model of Company 1 & 2 continues, what is going to happen?"

Let me tell you what MUST happen. They'll have to raise the price of the products and pay less in the compensation plan. It has to happen. There's no other source of money for them, so there's no other way to pay for increased expenses. They've created a monster that they can't control. The only thing they can do to keep it going is to keep feeding it.

And this is where you'll end up paying $4 for a bar of soap, $20 for a bottle of shampoo, $100 for some liquid nutritional. There are MLM companies out there right now where you can find those prices.

***Where Have The MLM Giants Gone?***

And it will get worse & worse over time. That's why companies flat-line. You know the famous names of the big-time, old-line companies ... they are flatlined.

So what do they do? They go into new countries. They open new countries, because they cannot compete in the US anymore. Their product prices are too high, their pay plan is too inadequate. Their US business & distributor base just falls by the wayside.

I recently read about a well-known nutrition juice. The article had a lot of stories of people making money. The company has an absolutely gorgeous building, all decorated in Tahitian motif. The building temperature is maintained high to be the same temperature as it is in Tahiti! They have a beautiful waterfall, a fountain in the foyer with their nutrition juice pouring out of it!

And what is this company doing to make money? They're opening up restaurants where they'll serve food & their juice. Now where is THAT money coming from? It's coming out of the compensation plan, and distributors are paying for it.

They say they're doing it to generate leads which will go to certain leaders in the company ... which means that if any reps benefit, it will be the heavy hitters - the ones who've already built big. It's just a way of transferring money from the part-time rep to the company and the heavy hitters ... leading to many more people experiencing network marketing business failure.

You can look for product prices to increase and rep compensation to decrease. That's the problem when your overhead is sky-high.

The network marketing business model truly does drive the behavior in the field.
About the Author
Michael Dlouhy is the expert on network marketing business models and compensation plans. You need to start in the right position in MLM, and Michael will show you how. Visit AskMichaelDlouhy.com .
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