Random musings: Don't treat your network marketing business like a direct sales business

As Casey Eberhart said in his call last week, "Don't treat your network marketing business like a direct sales business". Even though there are some similarities, there are differences.

According to Chron:

Direct sales can be understood as face-to-face selling. Products and services are presented to consumers at work or home by an independent salesperson. Multilevel marketing is not actually marketing, but an additional technique to systematize and compensate direct salespeople. According to the World Federation of Direct Selling Associations (WFDSA), multilevel marketing is better depicted as a direct selling compensation plan where salespeople receive payment in a variety of ways.

So, network marketing is a subset of direct selling.

Companies tend to market higher-priced, one-time purchase items, such as cookware and air or water filters, through direct sales. Receiving customer feedback in person holds an advantage in adapting to market changes quickly. Multilevel marketing representatives also approach customers, but usually begin with a list of friends, relatives and other amiable acquaintances. Cosmetics, vitamins and other regularly restocked products are compatible with the multilevel marketing model. As consumers reorder consumable goods, this creates residual income and marks a distinction from direct sales.

An example of a direct selling company is Kangen Water. You buy a water ionization system from an independent salesperson such as Elon Rosenthal. Avon was more of a direct sales company, at least when my mom was an "Avon lady". My mom was an Avon representative for a lot of years when I was growing up. She had to go out every month to sell products in her sales territory. She did have quite a few repeat customers, but she had go to their home and take the order and then deliver the order in person.

There are many NM (network marketing) companies like Amway, Beachbody, SendOutCards and more. There are also party plan companies like Pampered Chef or Tupperware. A lot of these companies have an auto-ship option, where you sign up to receive a shipment of products automatically every month. I'm a lousy candidate for auto-ship...I don't use any products consistently enough to make it worthwhile. I was a Beachbody coach for a while. Their auto-ship product is called Shakeology...it's a good product but after four months I still had three and a half bags of Shakeology left!

Since I'm in SendOutCards, I'll use them as an example. They do have a direct sales component...we have bundles that our customers can purchase that have some optional features that you can add to your cards like your own handwriting as a font, personal branding on the back of your cards and others. The three bundles are the Personal Bundle at $195, the Marketing Bundle at $395 and the Business Bundle at $795. I'll describe the payouts for the Marketing Bundle since it's the most popular and because it's halfway between the other two bundles in price and payout.

The $395 Marketing Bundle pays out $335 in commissions, spread out over 6 levels of distributors. Only the three Eagle distributors earn the full $335 commission when they personally sell a bundle, a new distributor will earn $140 for every bundle that they sell with the rest going to their upline. Let's say that you're able to sell one or two of these bundles every month...you'll average about $200 in commissions every month. This is where the danger of treating your business like a direct sales business comes in...you're not maximizing your income. If you also sign up three distributors for $50 each, you'll be promoted and you'll now make $240 in commission from each of your sales...if you still make one or two sales a month you're now making $360 per month! This is where the magic comes in...you make $100 on every Marketing Bundle that your team of distributors sells. If each sells 1 or 2 a month, you'll make about $450 per month from them. But it gets even better...if those distributors sign up distributors who sign up distributors, you'll make $100 on each bundle sold to an infinite number of levels deep!

But we're not done yet! If you sign up 3 more distributors personally (and there are 12 total distributors in your group), you'll get promoted again! Now you'll make $290 on each bundle you sell and up to $150 on each bundle sold in your new group (and you still receive $100 on every bundle sold in your old group).

If SendOutCards was a direct sales company, you could make the full $335 on each bundle that you sold...about $500 per month if you sold one or two a month. But since SOC is a network marketing company, you make less when you first start out but you can eventually earn money on hundreds, thousand or even tens-of-thousands of distributors in your group.

I haven't even touched on the monthly residual part yet. Each month you earn 20% commission on everything that your customers spend every month on cards and gifts. And an additional 2% on the money spent by your distributors and their customers to 6 levels deep and 5% on your 7th level. Each time that you get promoted, you'll earn an additional 5% but this now continues to infinite levels!

Network marketing isn't built on a few people doing lots of work...instead it's build on a lot of people doing just a little. If you buy a Marketing Bundle for $395 plus add the Distributor option for $50, you'll have spent $445. If you then sign up 3 customers in your first 30 days, you get a $50 Fast Start Bonus. If you sell 3 Marketing Bundles, you'll earn $140 on each one or $420 for all three. Plus your $50 Fast Start Bonus, you've just gotten your money back. Now, if you help those distributors get their money back and if you continue signing up distributors and help them get their money back and if everyone who signs up just does enough to get their money back, you'll be both rich and wealthy. Getting 3 customers and 3 distributors is called a success unit. Just keep building success units for yourself and help those that you sign up to build success units of their own.

As Steve Schulz, the President of Field Operations for SendOutCards, says "Go for distributors, settle for customers". It's not that customers aren't important, they are the lifeblood of our industry. Instead, you don't need thousands, hundreds or even dozens of customers...in fact you only need 15 customers to be an Eagle, the highest rank in SendOutCards! Most people will have more than 15 and of course there are many other requirements to make it to Eagle, but it shows that it's more important to build your team and you can't do that if you treat your business as a direct sales business.