Not all Network Marketing companies were created equal, and selecting the right one (for you!) may mean the difference between success and failure.
Two basic rules to find the right company:
- First, do your own research. Don’t trust someone else’s facts and figures.
- Second, do not make decisions while you are in an emotional or hypedup state.
Questions we will be looking:
- Which product or service industry is the most profitable?
- Should I go with a new idea, or with something tried and true?
- During which phase of growth should I join a company?
- Which distributor compensation plan is best?
- How can I tell if a company’s management team has high integrity, and that they are experienced, competent and committed?
- How can I find time to study and compare all of these companies?
- Which company is right for me?
Please bear in mind that while no scrutiny system is perfect, a good system is better than taking the first opportunity that presents itself, and certainly better than a stab in the dark. To make the task manageable, we break our quest down into four components:
- Product / Industry
- Compensation Plan
- Company / Management
Product / Industry
This includes Buying Clubs, Catalogue Shopping, Household Products, Lead Generation Programs, Jewellery, Gold, Silver and Collectables, Legal Services, Nutritional Supplements and Health Products, Personal Care Products, Telecommunication Services, Water Filters, Travel Programs and others. After reviewing over 200 Network Marketing companies, Falter found that the overwhelming majority fell into four categories:
- Nutritional Supplements 71%
- Personal Care / Skin Care 14%
- Household Products 6%
- Telecommunications 5%
This gives a good idea of the trends in Network Marketing. To further evaluate an opportunity, goods and services can be checked against the following seven criteria:
- Emotional. Ideally the product or service should trigger an emotional reaction, which in turn creates an emotional bond to the product. It is easy to see how nutritional and skin care products may do this, if they make you feel better and look better. Telecommunications would however have limited emotional appeal.
- Consumable. The product or service should be used regularly and replaced on a monthly, weekly or even daily basis. Vacations, exercise equipment and such are not “consumed” on a weekly or monthly basis and so do not generate residual income. Falter considers this to be the most important of the seven qualities.
- Unique. The product or service should have a unique twist, something that the competition doesn’t have or can’t get.
- Valuable. Although a product should be unique, it must not be so unique that people cannot recognise it or identify with it. Once you have to explain what it is, you are edging into dangerous territory.
- Traditional. The product or service must be worth its price, yet allow for a healthy profit margin. If everyone (distributor, company, customer) benefits, you’ve got a winner.
- Timely. The product or service must be in high demand, RIGHT NOW.
- Stable. The product or service must also be in high demand LATER. Will the product or service be in high demand in 20 years? If the answer is yes, you have a winner. If demand increases with time, all the better.
Now check the product you are considering against these seven characteristics. Your objective is to get seven yeses.
Finally, keep your focus and don’t get sidetracked by personal biases, personal likes and dislikes; in the end what matters is what other people want.
Now double check your research results:
- Make a list of the top twenty most successful companies and find out which products they are marketing.
- Make a list of the top twenty income earners in Network Marketing and find out in which industries they are earning their millions.
This should give you a good idea of what works well in MLM. (This sort of information can be found in MLM books and trade journals.)
Timing is Everything
A company goes through several major growth phases as it matures into a stable, long term opportunity. The first growth stage is known as the “formulation stage”. This is the start-up phase when companies are most vulnerable and over 90% go out of business within 12-24 months.
The second phase of growth is referred to as the “concentration phase”. During concentration, the company is getting its ducks in a row and working out the bugs. Similar to the formulation phase, the concentration phase is still considered a start-up phase and it is a risky time to get involved.
These two phases are often referred to as the “pioneering phase” and most experts agree that the risk to reward ratio is too high to consider getting involved. If and when a company reaches around $50 million in annual sales, the company experiences a phenomenon known as “critical mass”. This figure should not be taken too literally but it is a real phenomenon and will occur slightly before or slightly after the first $50 million, bringing with it the beginning of the company’s “momentum growth phase”. During this phase, if the foundation was properly laid, a company can go from obscurity to becoming a household name with 4-6 years.
When critical mass hits, suddenly everyone wants what you’ve got, growth goes into overdrive and sales begin to explode!
The last stage of a company’s growth is the “stability” or “maturity” phase. This is a great time to have a large downline but a tough time to build one. Growth in the stability phase is significant, but slower. However, it is now clear that many companies have learned how to maintain healthy growth during the stability phase.
One way they do this is by continuing to diversify the product line. Sometimes companies will go through second, third, and fourth momentum cycles as a result of this type of innovative marketing. Also, entering new international markets every year can keep a company profitable for decades. When a mature company expands into a new country, this creates a true ground floor opportunity without the risk associated with start-up programs.
As Network Marketing continues to evolve, distributors will realize that getting in early will become less and less important. An entrepreneur’s primary concern will be selecting a company that has long term stability, not short term “flash-in-the-pan” profits. But although selecting a company in the stability phase will be a much more inviting option than it once was, there is still no better time to build a Network Marketing business than during the “hypergrowth” momentum phase.
There is much debate in Network Marketing surrounding different compensation plans – and separating the wheat from the chaff is not always easy. The four most commonly used pay plans are the Breakaway, the Unilevel, the Matrix and the Binary. There are others, but we will limit ourselves to a discussion of these four. Picking the right compensation plan can make a big difference in developing and growing your own networking business.
The Matrix, as the name implies, limits your organisation to a prearranged matrix. Distributors cannot sponsor outside the matrix and the depth is limited. Common Matrix configurations are:
2 wide x 12 deep
3 wide x 9 deep
4 wide x 7 deep
5 wide x 7 deep
7 wide x 2 deep
A 2×12 matrix allows a frontline of two people only and a depth of 12 levels. The first two people you recruit will fill up your frontline, so the third person will “spill over” onto the next level down.
Because of this spillover, the matrix plan looks great on paper and can be exciting to present to prospects but most Matrix plans usually pay on about 15-20% of their potential. If you establish a successful business and fill up much of your Matrix, you will inevitably sponsor a hot distributor who is beyond your payout level, so while your organisation may be growing by leaps and bounds, you don’t benefit.
Moreover, because of the spillover, the Matrix attracts people who don’t want to work and expect people above them to build their downline for them.
On the whole, the Matrix plan has not been accepted as a mainstream plan and is commonly utilised by smaller service and support MLMs like Sales Lead Generation programs, buying clubs and subscription sales companies. There are a few Matrix plans that have a better track record than the traditional Matrix plans. These newer plans include the 4×7 and 5×7 Matrixes and behave more like a Unilevel plan because of adequate width and depth.
The Breakaway is currently the most widely utilised plan in MLM and has been called the “full-timers plan” because it is characterised by high quotas and commissions.
Unlike the Matrix, the Breakaway plan allows distributors to sponsor an unlimited number of frontline people. As a distributor you will go through a process called a “stairstep”, leading you to increasingly higher commissions. When you reach the top, you cannot progress any further on your own. Your incentive becomes promotion of those below you. Once these distributors promote to your level, they break away and become independent. You still get a commission on this breakaway group, but it is usually a lower rate. However, even with the lower rate of commission, you have larger earning potential from the breakaway leg, because you are paid on the total group of that breakaway distributor, rather than just on those distributors in that group who happen to fall within your normal pay range.
No plan matches the stairstep/breakaway in sheer earning power. Through breakaways, people can build large organisations and earn commissions from deep levels in their business.
So far, so good. But then it gets sticky. In order to earn a percentage on your breakaway’s group volume (GV), you must maintain your own group volume requirement (GVR), which is made up of the product volume that you and your distributors purchase. However, once an individual breaks away, their downline volume no longer helps you qualify, and if you don’t qualify you don’t get a cheque on your breakaway legs (which incidentally make up most of your income at higher levels). GVRs range from $500 to $5000 or more per month. Although the Breakaway is still the most widely used plan in Network Marketing, recent studies show the Unilevel and Binary plans are gaining rapidly. The Breakaway is a full-timers plan designed for well-connected charismatics and heavy recruiters. For this type of person the Breakaway can be one of the most lucrative plans in Network Marketing, but parttimers and newcomers may find it difficult.
The Unilevel plan resembles the Breakaway but without the breakaways. It is one of the best and simplest forms of Network Marketing compensation structures.
The Unilevel plan allows unlimited sponsoring on the first level, thus creating unlimited income potential. Unilevel plans generally have low group volume quotas, which make them more appealing to parttimers, enabling them to stay motivated and rewarded before they reach much higher volumes. Together with lucrative “infinity” bonuses and other forms of “compression”, top distributors can now earn incomes that match the Breakaway plans. The Unilevel is considered by many to be the most stable and lucrative plan in Network Marketing today.
The Binary plan is based on a structure of two legs, right and left. Distributors can only sponsor two on their first level and everyone else spills down below those two. Maximum commissions are earned by balancing the left and right side of the binary.
The Binary is designed without levels – only volume counts. There are no group volume requirements or group quotas. With a modest personal product volume requirement each month, distributors remain active to receive commissions on unlimited levels, but the two legs must remain balanced to earn maximum commissions.
If only one leg takes off, you cannot benefit from the extra volume on the larger leg until the other leg catches up. Balancing the two legs can be difficult and requires a strong, long-term commitment.
These runaway powerlegs are of course very desirable, but there is the chance of missing out on the momentum because a distributor sponsors them into a weak leg to build it up. This can discourage distributors who are aware of the powerleg concept and hear the success stories, but don’t receive the benefits.
The modern Binary is constantly evolving and is a revolutionary and highly innovative plan. It is fair, lucrative and has an element of synergy and teamwork not found in other plans. But try not to join companies that stress joining the “powerline” because many distributors will never have the advantage of being in a powerline.
What good is a great compensation plan if the product is hard to sell and the retention rate is low? On the other hand, you can certainly disqualify a company because their pay plan doesn’t suit your own circumstances and lifestyle.
Company / Management
The following sources of information can be accessed:
- Company Literature
- Trade Publications
- Dun & Bradstreet
Things to watch for (but please bear in mind that just like any industry, no company is perfect; they all have their own strengths and weaknesses)
Assess not so much the number of complaints, but whether they have been
The most reliable indicator is not what the management is promising to
do, but what they have actually done. The management must have a track
Start-up companies can sometimes be risky.
|Training and development
Does the company offer adequate training materials, tools, web sites and
|Long term growth strategy
Is the company dynamic, with plans for expanding its markets and product
Lack of start-up money is one of the main reasons that some companies
can go out of business.
|Credit and cashflow
Has the company applied for credit? Was it denied?
Is the company having any financial problems? Is the company timely on
Does it have anything to hide?
Of importance is the SMR (Start Up and Maintenance Requirement). What is the joining fee? More importantly, what is the monthly financial commitment necessary to maintain active status? Almost all of the High End SMRs are typically characterized by having a Stairstep/Breakaway compensation plan.
Companies with low SMRs, on the other hand, have very low personal volume requirements ranging from $10-60 per month. The downside of this is that it takes thousands of people to produce enough product volume to provide good commissions. Even a downline of one thousand distributors could equal only a few hundred dollars in commission. Low SMR companies have the highest percentage of inactive distributors. Most Low End companies have a Unilevel compensation structure.
A medium range, or balanced company, has just enough initial start-up cost ($100- 1000) to cause distributors to make a solid financial commitment, yet not enough to be considered front-end loading. Maintenance consists of a moderate personal volume requirement of around $100-200 per month (the industry average). If your volume requirement is five times higher, the opportunity becomes five times less duplicable.
While all four criteria (product/industry, timing, compensation plan, company/management) are important, the management team should be the foremost consideration. After all, it is people who make the products, people who design compensation plans, people who make the decisions that affect the success and prosperity of the company. It’s a people business, and it’s the people that count.
Now that you have done your due diligence and selected the best company for your own personal reasons, there are three additional steps:
STEP 1 Select the best upline Make sure your upline is committed, and if they are (and they’re successful) make sure they will have time for you. If your upline is new to the business, make sure there is someone above them who will help you.
STEP 2 Utilise the right system Make sure there is a system in place that enables you to acquire the tools and procedures necessary to get started within your first week.
STEP 3 Make a commitment Does that mean you will do your best? Hell, no. It means you will do better, because you will surround yourself with like-minded people who will help you expand and grow. And isn’t that what Network Marketing is all about?