Yoli Founder Daren Falter answers the question “Evaluating the Telecommunications Industry: Is It Viable?”
Telecomm in MLM, It it Too Late?
By Daren C. Falter
Telecommunications: Long-Distance Service/Cell Phones/Calling Cards/VOIP
When considering a network marketing industry, telecommunications can be an attractive choice at first glance. After all, where else can you find a product or service where you don’t have to stock inventory, don’t have to collect money, and don’t have to convince people about the need for the product? I must admit that marketing long distance and other telecommunication services seemed so attractive to me that I tried it twice. It took close personal involvement to help me realize how difficult it is to create residual income in today’s telecommunication market and how much more difficult it will be in the future. If you are interested in pursuing an MLM career with telecommunication services, please read the following with an open mind and you might be able to avoid some of the challenges that caught me by surprise.
Thousand of customers required
Did you know that in the average telecom MLM, if you wanted to make a good full-time residual income, you would need over ten thousand customers in your downline within the first seven pay levels? Since nearly everyone has a phone, there are plenty of potential customers, so don’t let this number scare you off. But you will never hear about this at an MLM opportunity meeting. Make sure you are ready to dedicate yourself completely to this venture. A half-baked effort will not do when trying to amass these numbers.
Take time to study the compensation plan before you sign on the dotted line. Make sure the plan you are reviewing offers plenty of residual income from the products and services, not just commissions on linear (non-residual) training bonuses. Traditional network marketing plans offer over five percent commission on six to seven levels of product volume. Most telecom companies offer an average of less than two percent commission on six to seven generations of long distance customers and sometimes as low as half a percent. That’s why you need so many more customers and distributors to make a telecom program work.
Many new telecom companies, but no new market
This low payout is due to the competitive nature of the telecom industry. The long distance market is limited in its size. Almost everyone in North America already has a phone and already has long-distance service. The number of new long distance users is not expected to double, triple, or quadruple over the next several years. As a matter of fact, while technology is growing by leaps and bounds, the long distance market is not. New long distance companies are flooding the market, but the market is not growing to match the demand. Make sure the company is diversifying to remain competitive.
Deregulation and price wars
Since the deregulation of long-distance service in the 1980s and 1990s, hundreds of new long distance companies have entered the market, trying to compete for AT&T’s scraps (almost everyone who has long distance is, or at least was, using AT&T). Since competition is so fierce, prices are rock-bottom. With the heavy increase in competition, the long distance phone rates in the United States have dropped from ten cents per minute, to five cents per minute, to a penny per minute and less. Now with flat-rate long distance made possible through Internet services like VOIP, you can spend $20–40 per month and receive unlimited service in North America. Yes, it’s a great value to the consumer, but it leaves virtually no profit margins for the companies to cover overhead, payroll, and commissions to sales representatives. Most distributors for long distance telecom MLMs are only receiving about 1–2 percent residual income on an average phone bill of less than $30 per customer, seven levels deep. That’s about 7–14 percent payout total. Most other top companies pay from 30–50 percent in distributor incentives. This brings us to a dilemma. Does the company hold onto high rates to pay higher commissions to independent distributors, or does it match the market by dropping rates, thus leaving very little for the distributors? This problem exists in all competitive service markets, not just telecommunications.
Creative commissions
When telecom companies went MLM, they realized that they would either have to go with premium prices and give good commissions to their distributors, or go with discounted prices and pay horrible commissions. Needless to say, everyone chose to offer deep discounts since they could not seem to take business away from AT&T and the other large providers any other way. Consequently, these MLM telecom programs have had to come up with some fairly creative ways of paying their distributors.
Coding Bonuses
The most popular and controversial way of dealing with the lack of profit margins in telecom programs is a little thing called a coding bonus. This is a bonus paid to distributors for something other than the product or service being offered by the company. In the case of most telecom programs, these coding bonuses are paid on trainings. Technically, they could be called training bonuses. Why is paying override commissions for trainings controversial? It’s not necessarily the act of paying someone for teaching a training class that is taboo. It’s the act of paying someone in the downline for enrolling a person into that training class that is illegal in most states. Coding bonuses are simply a creative way of rewarding distributors for recruiting new agents. However, these coding bonuses are highly controversial and technically illegal.
In an article written by Spencer Reese, a prominent and respected network marketing attorney, the dangers of coding bonuses are exposed. Mr. Reese states, “Paying commissions based on enrollments into a training program can easily be viewed as a headhunting operation that compensates participants for signing up new participants. This is simply the operation of an illegal pyramid.”22
Service Charges
Other telecom companies have chosen to charge a monthly fee just for the privilege of calling long distance at a great discount. When customers factor in the extra $20–50 per month to their phone bill, they don’t get too excited about their phone rates. Most people will spend more with the new pricing structure than they were paying previously. Many of these companies are now out of business.
Pre-Paid Phone Cards
Several years ago, pre-paid phone cards were the big craze. No doubt they will cycle back around soon, offering cell phone minutes, international dialing, remote Internet access, and other modern features. These cards are usually ridiculously overpriced. However, the rational is “as long as your customers sign up two, who sign up two, who sign up two, then their calling cards are free!” So rate per minute is not an issue. Get the picture? The more the minutes cost, the more you make. Watch out for pre-paid anything. It’s a great way to pre-pay for a failing business.
Wrapping it up!
Telecommunications is still a very exciting and dynamic industry. There are a handful of charismatic people at the top of several main telecom companies, making millions and beckoning to the masses to hop on the bandwagon. Still, telecom is one of the most difficult industries for the average distributor in today’s market. If you have your heart set on telecommunications, check out the specific criteria for evaluating a telecom company located in the next section.
About the Author
Daren C. Falter is the author of the network marketing industry-wide best seller How to Select a Network Marketing Company. Daren has been a consultant to the network marketing industry for over 12 years and a student and participant for over 20 years. Daren has built downline organizations into the tens of thousands of distributors with several different companies. Daren is a popular convention speaker and trainer. You can visit Daren online at his blog at www.networkmarketingreview.com. You can also order Daren’s best-selling MLM book at www.networkmarketingbook.com.
Daren recently launched a new network marketing company, Yoli, Inc., near Salt Lake City, Utah. Daren and his four partners are excited to introduced the worlds most nutritious beverage using patented BlastCap™ Technology. For more information about Blast Cap Technology, Blast Caps, or Yoli, visit Yoli at www.prelaunchinsider.com.
Copyright ©2009 DC Falter Marketing, Inc. ALL RIGHTS RESERVED
ATTENTION: Breaking News!
Daren Falter will be launching a new company called Yoli. We will be introducing an incredible new nutritional formula in the form of a delicious functional beverage using Mikel Anderson’s patented Blast Cap Technology. The founders of Yoli are Robby Fender, Daren Falter, Rick Eisele, Corey Citron, and Michael Prichard. To find out more about Yoli Blast Cap Technology, visit www.prelaunchinsider.com
Kingsley Ennis is one of the few “hand selected” FOUNDING DISTRIBUTORS that are helping to launch this new company … and you can join him and one of the fastest growing teams in all of Yoli at the very beginning of this great network marketing adventure!
With a background in the Seminar Industry and 12 years of Noteworthy Success in Network Marketing Kingsley is the Author of “Split Second Marketing” & “Your Extreme Advantage”. You can listen to them FREE at www.usahomebusinessexperts.com
QUESTIONS ABOUT YOLI? Email kingsley@goyoli.com or call 717-303-5710.
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