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The Free Cheese Secret™
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10 things that don’t work
in Network Marketing
The Direct Selling Association has proven specific facts in 73 years of Network Marketing and Party Plan companies. And though both are in the direct selling industry, they are very different.
To have a lasting, profitable independent representative distributorship in the industry, I strongly suggest you understand the following.
As I list them, I will try to include evidence in the form of links. Here are the 10 things that don’t work in Network Marketing:
1) Stair Step Breakaway Compensation Plans
I will get some pushback on this one. After all, Amway built a massive business on the stair step comp plan, But it is much harder for the part-timer.
In The history of Network Marketing, I talk a little bit about how the industry has changed. And some of those changes are very important.
When you remove the need for Inventory Loading, you also no longer require the Stair Step Breakaway Comp plan. I wrote a magazine article in 1996 about this topic, which was reformatted online for our Network Marketing News website in 1997, which you can view here.
That article is reasonably good though I would add quite a bit to it today. Anyway, you can see why it is tough on part-timers.
2) There has never been a billion-dollar Network Marketing travel company.
You can view a list of the top direct selling companies here. The one that jumps to mind in the travel industry is World Ventures, which narrowly escaped bankruptcy in 2021.
Now, I love to travel, but the truth is that selling travel is not the same as travelling. One is sexy. The other is not.
While it is easy to talk about the discounts you will earn for being in the travel industry, travel sales are quite the opposite, starting with the monthly fee for errors and omissions insurance.
As an independent representative selling travel, you pay insurance fees even if you sell nothing. And most travel purchases do not fall into the high-profit category.
You need to ask yourself if you want to pay a monthly fee for insurance and put up with people’s problems to make low profits most of the time? There is a reason why travel hasn’t spawned a massive Network Marketing company in 74 years.
3) The average family does not buy $75 worth of skin care products per month.
According to U.S. Census and surveys, the average American spends $15,000 on skincare in a lifetime (over 46.5 years). If we break that down to monthly, that is approximately $26 per month.
Since it takes about $70 or $75 in purchases every month to pay out enough to the field, these stats prove why skincare on its own does not a good Network Marketing company make!
4) Diet Products alone do not sustain income. Once the weight is lost, customers stop ordering.
A study has shown that less than one percent of respondents were able to stick to a diet for a 12 month period and a third of all women reported dieting for at least six months per year.
If you can only sell monthly diet products to 1% of people, you will lose 99 out of 100 of your customers. That is why DIET products alone do not a Network Marketing company make.
No business can support an independent representative on 1% of customers. And that does not mean you cannot create excitement around a new company and new-fangled diet product because it has happened many times. However, you cannot sustain an income on direct products alone.
5) On average, the only product lines where customers buy a combined $75 or more per month are vitamins, bath & body and cleaning products.
Those who do not understand might jump on this statement. Sure, electricity, Internet and Natural Gas expenditures total enough each month, but they are commodities. And commodities have low reseller profit margins typically.
The reason utility products have low-profit margins is the direct selling company does not own the pipeline or generate the electricity or provide the Internet or telephone services. With Bath & Body and vitamins and cleaning products, the direct selling company can make them and increase their profitability enough to pay the field well.
When a company needs to pay 40 to 50% to the field to keep people making solid money, and there is only 10 or 15% net profit, how do you create income?
Here are the household expenditure statistics in Canada. Remember that $75/month in U.S. dollars is $100 in Canadian dollars.
After you factor in the difference in the value of our dollars, monthly and yearly expenditures are very similar. If you click the link above, you will notice that average personal care expenditures are $110/month.
Personal Care includes skin care, bath and body products, vitamins, beauty products, and shaving. If you are asking for CDN$100 or USD$75 on just skincare or just vitamins, you are stretching the household budget.
Party Plan companies know that, so they incentivize getting new customers. To do well in that business, you never stop finding new customers.
The point here is about attrition rates—how many customers you lose. If the losses are over 50%, you work to replace what is lost to maintain your income in Network Marketing without building it.
6) No durable product company survived beyond ten years without adding a consumable.
National Safety Associates (NSA), which sold water filters, became Juice Plus (a consumable). This change saved the company.
Weirdly, in January of 1994, O.J. Simpson became the spokesperson for Juice Plus. In March, “The Juice” was recorded providing a testimonial of the new product and tens of thousands of VHS tapes were prepped for the launch. Then in June, Nicole Brown Simpson was killed along with Ronald Goldman.
Those videotapes ended up being unusable. Not that any of this was the fault of the company.
7) Most of the income earned by participants in Party Plan companies is made by selling new customers. Repeat business is not similar to Network Marketing.
Party Plan compensation is weighted to pay bonuses for first-time sales, which happen during home parties. Of course, the top performers in this industry try to sell or set up a home party with everyone they meet.
Do people buy plastic storage containers for the fridge every month? Of course not. So, if that is what you sell, you need to keep finding new customers.
To do that, people who will invite their friends to their home receive party gifts as an enticement. To succeed, the Party Plan rep is always looking for someone who will help.
8) If the price of your products doesn’t compete with items sold in retail stores, retention of customers will be under 10%.
The importance of price is not easily proven. It takes someone with tremendous experience to share stories.
I joined the direct selling industry with Amway in 1979, when I was 19. That means I have been 43 years in the industry.
I also wrote books about the industry and maintained a newsletter for nine years. Now that I own Dale’s site, I will be contributing regular content to this great industry again.
One of those stories I will tell soon. It is about how people are so unimaginative that they only know how to create excitement over something new or new to the country. There is another way to do this business.
9) Depending on the list, 24 or 25 direct selling companies globally do a billion per year in sales.
Most of these companies operate in the Network Marketing space, though Avon, Mary Kay and Tupperware are firmly on that list. These three are or were Party Plan type direct selling firms.
Of course, the privately held businesses never seem to make it on the lists of Direct Selling companies, which means everyone accessed one list, propagating the error. Melaleuca comes to mind.
At the top of this mini-post, I included a link to a list of successful direct-selling companies (that did not include Melaleuca). Much can be learned by looking at these lists if you know what to look for.
I will create a post on successful direct selling companies and explain what is and isn’t there.
10) There are two Network Marketing companies grossing a billion in sales with a commodity-based product.
Commodities include Natural Gas, Telecom, Internet, Electricity and cell phones, VOIP services, and probably a few more.
Any industry insider would wonder why ACN isn’t on this list. But we will leave that alone for a moment.
The two that are on the list are Utility Warehouse and Ambit Energy. According to what I was able to find online, ACN, Stream and others are below the billion-dollar hurdle.
Telecom Plus operates two companies. One is a Network Marketing company called Utility Wharehouse or UW, and the other is not Network Marketing and deals with B2C sales. No idea what the revenue split is and whether UW does a billion or not.
Anyway, UW uses videos that are like mini-movies, featuring personalities known as Brand Ambassadors. Actress Joanna Lumley recently passed the baton as the brand ambassador to Dan Fogle (a TV announcer who climbed Everest), who will handle front-person duties.
When you look at UW, a U.K. company, you can see why they are doing so well. For instance, they charge the equivalent of a $15 sign-up fee for independent reps and about $5 a month to maintain that “partner” status.
UW is cheap. Compare that to $195 upfront costs for some utility companies in the U.S., and UW looks better, even though they don’t operate in North America.
I believe the reason why Network Marketing companies in the Utility industry have not done better is the barrier to entry to get started and the Coded Bous compensation plans they cling to for some unknown reason.
There is no reason why there couldn’t be at least three more multi-billion dollar direct selling Utility companies in North America if they will stop playing copycat and eliminate the ridiculous sign-up fee!
The history of
Network Marketing
The history of Network Marketing and its origin changed on September 6, 2018. That was the day that the last of the two founders of Amway, Mr. Richard DeVos, passed away.
Three years ago, when I was researching for a blog post, I queried Google on something like the legalities of Network Marketing. Then I recalled something from Amway’s past, and the next thing you know, I found out that ‘Rich’ had just passed away a few months earlier. This news came with an unusual surprise.
The death of Rich DeVos was not the unexpected part of that day’s discovery on Google. After all, he was 92.
The online article about Rich contained a picture of W. and that got my attention. It turns out that George W. Bush spoke at the funeral!
It only took a few moments on Google to prove my hunch about why W. was a part of the funeral: the founders of Amway were significant contributors to the Republican Party. And building a multi-billion dollar direct selling business made this and the purchase of the Orlando Magic possible.
Amway
Amway was not the first Network Marketing company in the Direct Selling industry. That honor belongs to Nutrilite (1948), and beginning in 1949, Rich and his partner Jay Van Andel distributed this company’s products. Ten years later they left Nutrilite to start The American Way or Amway. By 1972 they bought a controlling interest in Nutrilite, and eventually, they purchased it outright.
The year after Rich passed, Amway did $8.4 billion in sales. Today, they distribute products in over 100 countries!
Some of Amway’s legal issues
The importance of Amway? They proved in court that they and, by extension, Network Marketing weren’t illegal pyramids. The FTC brought this action, and Amway took it to the Supreme Court to defend our industry. After four years, it ended in 1979.
In an article called The Landmark Amway Case, Jeffrey Babner started by saying this: the industry owes Amway a debt of gratitude.
I agree with Jeffrey’s assessment, but I would feel remiss if I did not share the following story with you.
While I was an Amway distributor, they had to admit to defrauding the Canadian Government of a tremendous sum in terms of import or duty tax. This was on shipments from Ada, Michigan, to Amway Canada, based in London, ON.
The settlement Amway paid to Canada was $28 million. Meanwhile, many Amway distributors in Canada lost significant portions of their business. In my case, I was so disgusted I quit and did not return to the industry for approximately six years!
Bar Codes, Microchips & Shipping changed Network Marketing
Microchips have advanced to the point where you can embed them in your pet’s fur, so when they are found a vet can find the address they should be returned to. Microchip technology changed a lot more than just the well-being of pets, it made Network Marketing a thousand percent better.
How?
Bar codes are an old idea, but scanning them on packages that are whizzing by on the conveyor systems that automate shipping, wasn’t possible for decades after the concept was envisioned.
When microchips made this type of bar code scanning a reality and eliminated hand sorting. This made FedEx and UPS very attractive because the cost to ship packages plummeted as much as the shipping time sped up.
The benefits of this tech hit the direct selling industry quickly, causing changes to the business model.
In the early days, you had to get to the point where you were buying $5000 worth of products a month before you could buy from Amway and its copycats directly.
Those who qualified to buy from the company were known as Direct Distributors. Everyone else had to deal with a direct.
This made perfect sense as the cost of shipping smaller orders was prohibitive. Even order picking had to be done by hand then but not anymore.
The term multi-level marketing described independent representatives who purchased their customer’s product from the “direct” (meaning buying directly from the company).
Amway even trademarked a term for this, calling it “Interactive Distribution,” but it is no longer needed because a single month’s order can ship to customers for $15.
Why ship $5000 of products and then ask other distributors and customers to drive to a Direct Distributor’s house to pick up orders when a boxed-sized order can be delivered that cheaply? So ended the need for Interactive Distribution.
Even though this change was brilliant and needed, there is a negative to this evolution. Customers no longer had to maintain a relationship with distributors. And this relationship often kept the loyalty of customers on a higher level.
Still, if you were to move to a remote place, like out in the country, getting products from Amway or any other Network Marketing company was challenging before bar codes and microchips changed shipping forever.
Inventory Loading in Network Marketing
In the dark ages of Network Marketing, to ‘qualify’ or get more significant discounts, people were enticed to buy specific amounts of products. And the process of doing this was called inventory loading.
There are so many negatives associated with inventory loading that I will write a blog post on that topic alone but you need to know the basics now.
Many people who bought products to get a discount ended up “Garage Qualified,” leaving them with products they either could not sell or had trouble selling. And, though you make more on paper from a deeper discount, you still need to sell the goods to get your money back!
Looking back, many of those who “lost money” in Network Marketing likely did because they wanted to make more. When inventory loading is banned by the direct selling company, people don’t lose money any longer.
Since revenue in Network Marketing comes from customers receiving and consuming products every month, more customers (not more inventory loading) is the key to higher income in this industry.
Network Marketing Customers
In my opinion, all companies should set a minimum number of customers that their independent representatives require to receive rank advancements and higher overrides. However, one way this happens by default is when the people quit!
That is not a typo. I am referring to people quitting the business side and continuing as customers. And, yes, this does happen if conditions are right.
Clearly, people need to love the product but what other conditions influence people to continue ordering products?
For starters, the product must compete in price with similar products sold at Walmart and other big-box retail stores.
If the products sold by the Network Marketing company don’t meet both of the following criteria, you will have 90% or higher attrition 12 months after they sign up as reps.
Do you really want to work your tail off only to lose 9 out of every 10 customers? I know I don’t.
Here are the two categories:
Products of the type that people buy anyway.
And;
The products are priced to compete with similar products at Walmart.
When both criteria are met when the person who gets into your business gives up on the idea of making dream dollars in Network Marketing, many remain as customers.
Now, some stop ordering because of disillusionment. But many of those who love the product remain loyal.
Retention in Network Marketing
In my downline, 5o% of people are retained after a year. And most of those customers never leave. Compare that to a 12-month attrition rate of 90%, where you only retain 10% of customers.
I have met people who had monthly Network Marketing checks drop like a stone. And their stories are mostly similar.
One was earning $5000 per month and ended up with his income being lower than the cost of his product—what he ordered for personal consumption. At that point, this former $5000/month earner cancelled his account with that Network Marketing company!
I should mention that this former four-figure monthly earner stopped working his Network Marketing business when his mom was diagnosed with cancer. His 4-hour plane rides to see her and the emotional trauma took him away from thinking about building his Network Marketing business.
Interestingly, he could only afford the extended time off because he had this side hustle with a decent income but that income did not last. And, as her health got worse, he was at her side while his check whittled down to almost nothing.
This is known as a House Of Cards. It collapses on itself almost as quickly as it was built, and that is why people get stuck on a treadmill. They earn 4-figures a month and want more but that never happens. Instead, they are merely replacing attrition to maintain the mid-level income in Network Marketing that they achieved
Attrition and retention, which profoundly affect income, are the result of quality and price. It is that simple.
I do not want a short-term income. If I did I would work for commission only and not build a Network Marketing business.
Please evaluate what you are doing because I hate to see people lose years of effort and have too little to show for it.
Success in Network Marketing
Money is one thing. Time is the other. To be truly successful you need both.
People who earn the big bucks in life usually have no time. Most of them work hard and long.
Real success is money and time. It is sometimes called Time Freedom and it really means you would have the income even if you didn’t work.
To be in that position—experiencing real success—you need to be involved in the right business and have the right mentor. If either is missing, the learning curve will take you far longer and your income will be capped by attrition.
If you would like to talk to me about this so I can help you understand the issues, contact me here.
The Rewrite & Republish Project™
This Network Marketing site is functional, but the previous owner of it had no idea about the intricacies of SEO. And though people in the industry loved reading Dale’s content, because of his lack of SEO know-how, Google didn’t give this site the level of authority the content deserved.
Quality training in 454 posts should have produced more search traffic if the SEO work was as good as the content. And that meant the new site owner, Steven Peter Burke (Smiling Steve™), had a decision to make.
Spend 800 hours correcting the SEO or leave it and let it fade into cyberspace?
How do you evaluate whether the effort was worth it? Well, at one time, this site had an average of 5,000 unique, organic visitors a month, with poor SEO. If it had great SEO, what would happen?
The answer to these questions, plus an ‘insider’s look’ at the SEO work, will be revealed in the first of a series of videos entitled The Rewrite and Republish Project™.
Who is doing this work? The first person to create a #1 ranking website in any Network Marketing niche!
Within the Network Marketing industry, Steven Peter Burke is known by the personal brand name Smiling Steve™. And, he also owns the SEO and Content Creation company listed below.
Who better to show others how to optimize a Network Marketing site than Smiling Steve™?
You will now get a front-row seat and see the traffic jump this website receives within months of the ongoing work starting!
The first video in The Rewrite & Republish Project™ series will explain how the website lost most of its traffic and how long this will take to correct. Each video after that will show exciting aspects of SEO and marketing concepts, with some lifestyle-orientated content mixed in. It will be a learning tool but fun too.
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Network Marketing Coach
