Stories That Teach Life Lessons

Constructing a Thriving Enterprise: Recognizing the Role of MLM Structures


Producers can get their wares to consumers via one of two delivery channels. Direct and indirect methods exist. There may be some wiggle room for debate, but that’s all I see.

We are constantly exposed to indirect advertising at stores like Sears, Safeway, Home Depot, Best Buy, Macy’s, Amazon, etc. Even if a retailer has its own “house brand,” the products on the shelves are made by a third party and rebranded.

In contrast, there are two distinct kinds of direct marketing. To begin, there must be a business or product that bypasses traditional distribution channels. This would primarily consist of automakers. A Toyota or Ford shop will sell you brand-name products because they are the ones they receive directly from the factory. Because of franchisees, the exact details are unclear, but you get the gist. The initial investment and ongoing maintenance costs for both this and more traditional forms of secondary marketing are incredibly high. Low-profit margins mean that revenue is generated primarily through volume and word-of-mouth.

The other form of direct marketing is when a manufacturer sends a team of freelancers (distributors) into the market. Those distributors, in turn, “hire” or enlist other distributors to work under them. (AKA Direct sales). Network marketing and MLM collapse in this way. This is a great business plan if you can contact the right distribution team and implement the guidelines here. This is a low-cost, high-volume entry point for the manufacturer into the industry. You’re motivating your distributors to do well by offering them incentive plans that, ideally, have a high-profit margin. Distributors in this strategy traditionally focus solely on sales, while the Supplier bears all marketing expenses. With the rise of the internet and other forms of digital communication, previously unconnected delivery channels and sales forces have emerged to compete in the marketplace. These sales groups are crucial to the success of this company strategy. They offer invaluable one-on-one guidance and access to their wealth of business knowledge.

The MLM business strategy has been called a “pyramid,” a scam, and many other negative connotations. I don’t get these folks, to be honest. Simply put, they have never bothered to learn about, much less grasp, how an MLM compensation system impacts a business’s product promotion efforts. Using the guidelines provided here, you can try to find a compatible Supplier, but keep in mind that there are substantial differences between them in terms of their goods, payout structures, etc. There are multibillion-dollar, well-respected, rapidly expanding businesses like Herbalife, Avon, and Mary Kay, and there are others. There is nothing enigmatic about direct marketing (sales), Network Marketing, or multi-level marketing (MLM) businesses; these are just different names for the same thing. Some reputable businesses and some less reputable ones both use this pay method. It’s the same as everything else. Avoid relying on internet commentary and instead use hard evidence in your research.

There are three widespread misconceptions about this dispersal model.

Many attendees of meetings and recipients of training packages leave giddy about the wealth they will soon amass. They dive headfirst into the chance, and despite being told that hard work is the key, they dismiss this advice because the allure of the brass ring is so strong. When their lofty goals of making $10,000 per month in six months don’t materialize, they become dissatisfied, place the blame on the chance, and give up. They weren’t dedicated, and they didn’t stick to the guidelines presented here. To all of you who have attempted and failed at an MLM: THE BIG SECRET IS THAT THE REASON IT DIDN’T WORK IS that YOU DIDN’T WANT TO DO THE WORK NECESSARY TO BE SUCCESSFUL. Always remember the three main reasons small companies fail: unwillingness to work, insufficient marketing, and insufficient management skills.

How can we counteract this trend? Set realistic goals for development and make a steadfast pledge to pursue them. This may sound easy, but it’s incredibly challenging to accomplish without help. It’s proven that individuals who receive coaching and support have a much higher chance of success than those who don’t, regardless of the program they’re following (e.g., Weight Watchers).

What does it matter if you attempted hiring a direct marketing firm five, ten, or fifteen years ago, and it bombed? Some activities you tried 15 years ago may have paid off, while others may have been a bust. All things must evolve at some point; this includes individuals, markets, necessities, etc. I have conversations with leads all the time. I swear to you that some of them will say things like, “Well, my sister tried that ten years ago, and it didn’t work!” as if “something” that happened to “somebody” 10 years ago — a different person, different circumstances, different products, and different people to work with — is the same as the lead right now in this world. I hear this all the time, and it is 100% TOTALLY BIZARRE.

Learn the ins and outs of a direct marketing company’s compensation plan for its sales reps. From the manufacturer’s perspective, you’re a distributor who sells products and who, in turn, is compensated for expanding your business by “hiring” or recruiting other distributors. This is, after all, Business 101, the American Way, etc. So, with a reliable business, you won’t just get paid to sell their goods; you’ll also earn a commission for bringing in new customers and expanding your team. Do not get involved in a company that pays you solely for recruiting.

Many people get stuck on the idea of hiring. Look at your compensation plan if you don’t want to recruit. I know people who make $5,000 to $7,000 a month just retailing. Hard work, but what if it isn’t for that kind of income?

If you’ve used the term “Pyramid,” a reference to a pyramidal shape, please explain what you meant.

Unlike the $50 billion Madoff Ponzi scheme or the $100 million you could help a “Nigerian” get by giving them your private banking information, multi-level marketing (MLM) is not a pyramid. However, human greed knows no bounds, and so make bad investments and the belief in unreal returns.

If by this you mean they pay more to those higher up the corporate ladder, then yes, they are just like every other corporation in the world. Name one company, government, or organization that doesn’t have a hierarchy or organizational structure.

One of my coaches made half a million dollars in 2007 after starting as a solopreneur. It didn’t matter when you started; it mattered whether or not you produced. This is what makes the direct marketing industry unique. There is no politics; you don’t have to wait for someone to die to get “promoted.” Every payout is based on results.

Helping other people will do wonders for your company.
Do what you want (maybe you believe you’re too good to make $500,000), but be prepared to fail.
You may disagree with your coach’s recommendations for making positive changes in your life, but you must follow them.
The truth from a self-made millionaire: her finest month was $40,000. How much would you be willing to grind for that kind of money?

I’ve met people who think getting a residual of $1 a month to sell domain names is fantastic, but if you want $10,000 a month – you need 10,000 people — that’s a lot of people. If you want to succeed, you must follow the guidelines I’m laying out here, do your homework, and follow the money.

Lori and Gordon Townsend have over 40 years of combined business experience in team building, coaching, sales, marketing, and personal development. Lori has an MBA, left as VP of a real estate appraisal company, and runs a successful home-based coaching business. Gordon has a Masters in Econ, left AT&T as a VP of Sales and Marketing, pounded on VC doors for funding, and built and sold companies from scratch.

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