So how does one evaluate the "opportunity" offered by this company?
As anyone who has ever attended a multi-level marketing presentation should have figured out, the presentation is based on selling the lifestyle that comes from doing this business successfully. Using assumed numbers, the presenter will show how building an organization can leverage your time and build a substantial residual income. In the case of the presentation we saw last night, the assumptions were: Average customer's local and long-distance bill of $38/month, an "up to" 10% commission" on 20 customers, and a downline organization of 8 levels with each level being the square of the preceding level (1,2,4,8,16,32,63,128 for a total of 255 people below the "Qualified Team Trainer," each with 20 customers). Using these assumptions, the presenter forecast a monthly income of $11,000.00/month. And, of course, the presenter then infers that this income is perpetual without any further work on your part; you are assumed to go on vacation for the rest of your life, and the business is willed to your heirs, who never have to work a day in their lives.
And, of course, the cost to join the club is kept until the very end. (A sales technique that uses building value by discussing "benefits" before cost). In ACN's case, the initial cost is $499.00, with an annual renewal of $149.00. One of the lures, which is also a significant drawback to network marketing, is that it appears to be a low entry cost business with high earning potential. Unfortunately, this low cost can have negative side effects: people don't consider the initial cost as an investment and over look it while salivating over the benifits of the lifestyle they are being sold; and the low cost of buying the franchise often results in a minimal level of committment, which inevitably results in failure. (Contrast this with the hundreds of thousands or millions of dollars to purchase a fast food or other franchise: these franchise owners do their homework, master the system, and work hard to make their business work using the franchise system. They have to, because they are usually heavily leveraged and can't afford to fail.)
There is a serious bit of information missing from these presentations regarding the amount of work that is necessary to make this business work, and the amount of time necessary to build the business to a point where it will pay the rent. At best, this information is downplayed in all network marketing presentations, and this flaw, in my mind, makes all of these presentations suspect. And I get especially suspicious when someone tries to tell me that network marketing isn't "sales." It most certainly is sales, but in this case it isn't selling ACN's product, but selling other people on the "lifestyle" that allegedly comes from selling ... the "lifestyle." The actual products become an afterthought. (Although there is a legal requirement that there be genuine products and that the parent business's primary focus be on selling products.) You are encouraged to buy the products through "loyalty" to your own business.
Is this business model evil? No, I don't think so, but I'm not jumping at the lure either. There are a lot of people doing it, and its variations, and have been for a very long time. Many have become very successful doing it. So how do you evaluate this kind of business and decide whether or not to get involved?
First, you have to separate the facts from the hype. Yes, everyone uses soap, but not everyone uses premium soap, and not everyone uses enough soap to justify buying the minimum (to borrow a phrase from Amway). Research the market. Is there a solid market for the product you'd be offering, or would you be selling "lifestyle." Do you know enough about this market and product to be credible? Do you have access to enough of this market that you can sell the product? Can you justify purchasing the product for your own use? At the quantities recommended to sustain your own business? Is the product really price competitive? Are there bars to entry that would kill your sales, like customers that need to allow their existing service contracts to expire before doing business with you? Are there market risks that could kill this business (think Betamax vs. VHS; Macintosh vs. IBM PC; or Dot.com bust)
Second, recognize that there will be work involved, whether you are selling the products or the lifestyle. The amount of work you will have to do will depend on how fast you want to build the business and how good you are at selling the product or lifestyle. You should consider that you will only capture a small percentage of your existing "natural market," and you should be prepared to continue on with cold sales. How much of this work are you really willing to do? How much time can you devote to it?
Third, build a pro forma set of financial statements based on realistic estimates of what you think you will do with your business. Ask what costs there will be, such as admission to training events, motivational or training tapes and videos, gas and maintenance costs for your car, costs for the paper goods you will use (order forms, contracts, etc.), initial licensing costs, etc. This represents your investment in the business. Then project realistic estimates of earnings based on how quickly you can build your business. I would recommend building two sets of these pro-forma financials: one that uses the goals your sponsor in the organization wants you to reach (and which you should try try if you do join) and one that is based on only hitting about half of those goals (or less...). Ask the question, "When will I get my initial investment back?" If that date is farther out than you want it to be, do a third set and figure out the amount of effort necessary to recover your investment in a time period of your choosing.
For example, using the $499 initial start-up cost for ACN, and the 10% commission figure, and the $38/month figure, you would have to enroll one new customer per month for 15 months before you will have recovered your original $499 investment. At that rate, after two years of building the business, your income will still be less than $100/month based on your own customer base, and still pretty negligible from down line. At two customers per month, the investment will be recovered in 11 months, and the two year income level still be just over $200/month. You can project earnings from downline, but I would suggest caution in doing so; most of the new "representatives" you enroll will fall away without adding anyone else to your business, and the commission rates (for ACN at least) don't return significant revenue until you start to get several layers deep. Of course there are bonuses, etc., but in evaluating the business, you should examine the minimums and middle of the road in making a decision, then once you've opted in, strive for the maximums.
Once you've done those projections, decided if the return on investment is really enough to justify the cost in both dollars, effort and time. If it is, then go for it, and good luck!
If you do decide to take this path, there are a number of books available on the subject of network or multilevel marketing. Here is a partial list available on Amazon:
- The Ultimate Guide to Network Marketing: 37 Top Network Marketing Income-Earners Share Their Most Preciously Guarded Secrets to Building Extreme Wealth
- Your First Year in Network Marketing: Overcome Your Fears, Experience Success, and Achieve Your Dreams!
- How to Sell Network Marketing Without Fear, Anxiety or Losing Your Friends! (Selling from the Soul. Ancient Wisdoms. Modern Practice)
- The New Professionals: The Rise of Network Marketing As the Next Major Profession
Of course, if you do join in a network or multi-level marketing business, get involved with their training progrmas and follow their proven systems. These systems are built around the success of those that have blazed the trail ahead of you, and are designed to be duplicatable by almost anyone.
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