Yoli Founder Daren Falter article “Scrutinizing MLM Support Companies.”
How to Select the Right Product Industry
What NOT to Sell, and Why
PART VI: MLM Support Companies, Avoid Like The Plague
By Daren C. Falter, Author of How to Select a Network Marketing Company
MLM Support Companies
Network marketing support companies are companies that offer products and services (mostly services) that are designed to support other network marketing companies. The most common support companies are leads generation companies, which are designed to produce qualified network marketing leads for distributors who want to build their primary network marketing company. In addition to leads companies, there are also companies that offer replicating Web sites, Web based-contact management, and auto- responder services designed to help you promote your primary network marketing company on the Internet. We’re also starting to see a lot of Web marketing services popping up, like search engine placement services and Internet advertising systems. I’ve only named a few, but you get the picture. Any company providing services designed to help you promote your primary company is considered an MLM support company.
There are many concerns associated with MLM support companies:
1. Most MLM support companies never survive. They take your money to perform a service, and the service is never performed before the company goes out of business. These companies generally are not trying to scam distributors; they’re just operating a very poor business model that does not stand a very good chance of survival.
2. The compensation plan conflicts with your primary company. If these companies didn’t have a multilevel compensation plan attached to them, they would not be rejected by other network marketing companies like they are. Actually, I use all of these services in my business, as long as they deliver on their promise and don’t offer a multilevel payout. But when you start offering a service to your downline that has yet another compensation plan tied to it, all of a sudden your distributors are spending more time trying to earn commissions promoting the support company than they are building their primary company. These programs can become distracting and they can create enormous problems in your downline.
3. Most MLM companies do not smile on the idea of promoting two companies simultaneously. Sure, you’re an independent contractor and you can do what you want, but only with your own contacts. If you were to refer someone to a support MLM who you met through another distributor in your primary company, you could violate your distributor agreement with your primary company and be put on probation or even terminated. It’s not worth the risk.
4. Most support companies offer very little value in their product or service. The opportunity only perpetuates based on the fact that distributors make money when they promote the product or service, which makes it an easy target for regulatory scrutiny. Companies that survive based on sign-ups rather than on the value of their product or service are doomed (more on this in later articles).
5. Attaching a multi-tier compensation plan to a leads program or other service can drive up the price of the service. Most distributors are better off purchasing these kinds of services from a company that does not have financial incentives to affiliates tied into the leads.
During my years of MLM experience, I’ve had several top leaders lured off the sure and steady path to success and into the dark and dangerous waters of support MLM hype, only to permanently lose their way. Their primary distributorship never recovered, and all of them eventually lost both incomes. In all of my years of network marketing and in all of my interviews, I’ve never met a single person who attributed their long-term success to working a primary program in tandem with a support company. I’ve also never met anyone who retired working a support company alone.
Based on these concerns, I’m eliminating MLM support companies from my list of considerations. MLM support companies include, but are not limited to, the following industries:
• MLM Leads Generation Services
• Search Engine Services
• Replicating Web Site Systems (designed to promote your primary MLM)
• Phone Auto-Dialer Systems
• Some Telecom MLMs (particularly pre-paid phone cards and flat-rate long distance)
• Advertising Services (including Web site traffic builders)
Loser Industries
While I’m in the mood to slash low-credibility industries, I’ll show you how to quickly get rid of a few more. The following product industries are certainly viable through other forms of marketing, such as retail and wholesale outlets, home-shopping channels, even door-to-door direct sales. We all need these products or know someone who needs them. However, history tells us that these industries are guaranteed losers in network marketing. They won’t make it. I will be elaborate on why in later articles.
Here are some of the industries that have never made it in network marketing and will most likely never make it in network marketing (at least on their own). Even if there is some ember of hope still smoldering, one thing I can say is that these are all extremely high-risk, low-return industries (historically speaking).
• Satellite TV
• Gold Coins
• DVDs/CDs
• Sporting Goods
• Gasoline/Gas Additives
• Vacuum Cleaners
• Home Appliances
• Stereos (Home Electronics)
• Search Engines
• Gas, Water, and Sewer
• Cigarettes/Cigars
• Fruitcake (I just threw that last one in there. Just a little side project I’m working on. I’m looking for angel investors right now.)
Any industry that has never been successful in network marketing, or is likely not to have success in network marketing, probably will never have success in network marketing. Ultimately, it’s still your call, so be smart and make the right choice. The only exception to this rule may be a company that sells everything through a catalog or online store type process. And even then, the primary focus better not be on any of the previously mentioned industries. Some of these could be tag-along products, but don’t expect much product volume from them.
Commodities and utilities
For the sake of being crystal clear, let’s define the word commodity so we are speaking the same language. A commodity in the world of business is basically a product in massive production whose value is in its sales price rather than its usefulness to a consumer. It’s a product that has a value that is somewhat standardized world wide, no matter who produces the item. When produced by many different manufacturers, these items are considered equivalents. In other words, if a commodity were a food item, it could be an ingredient in a recipe, and that ingredient could be substituted for the same ingredient made by another manufacturer. Examples of commodities might be oil, electricity, grains like wheat and barley, metals, even pork bellies and orange juice. In the modern age, things like computer chips and even bandwidth can be considered commodities.
Commodities such as these are not good network marketing products because they are not unique in the marketplace. The whole point of producing a commodity product is to be standardized in the market. Products marketed through MLM must be unique and exclusive to one company. MLM products must create enough appeal to be competitive and enough profit margin to reward independent distributors for their hard work. Good MLM products should never compete on price, but on exclusivity and quality.
Utilities like electricity, water, gas, sewer, and even phone service can all be considered commodity type products and services. They’re controlled largely by supply and demand, and they tend to be somewhat fixed. With utilities, one service is generally not any different than another. A network marketing company really couldn’t come into town and start offering better electricity or new and improved natural gas. Companies have tried to offer utilities and have failed miserably time and time again.
My advice is to avoid anything that reeks of commodity. It’s much too hard to compete on price, and you already know how I feel about service MLMs. At the same time, avoid companies that market products that other network marketing companies or other stores already sell. Imagine how difficult it would be to try to convince your customer to purchase a name-brand TV or a case of name-brand soft drinks when these identical brands are available through other companies and other outlets. I humbly advise you to eliminate all commodities and utilities from the list of industries before proceeding.
“Gold and silver have we none …” (And it’s a good thing)
Not only do gold and silver coins fit into the commodities model, there are a few other reasons to avoid these guaranteed losers.
Reasons to avoid gold and silver coin MLMs:
1. I fall back on my standard evaluation and conclusion for any industry like this: no matter how many times it has been tried (in this case dozens of times) no gold coin program has ever survived as a network marketing product. This should be reason enough.
2. The price of gold and silver is standardized and fixed by the market, just like the other commodities I just described. It fluctuates up and down from time to time, but there is not a lot of room for profit margins with any kind of commodity.
3. Gold and silver is regulated by the SEC (Securities and Exchange Commission) and requires a securities license. Because of this, the SEC keeps a close watch on this industry to make sure buyers and sellers are playing by the rules. Inevitably, distributors will hype the idea that customers and distributors will see an increase in the value of their gold investment even when the market forecasts say otherwise. The SEC will not tolerate this.
4. Since the gold or silver coin is the MLM product, some companies allow their distributors and customers to make payments on the coins until they pay it off and receive delivery (even a single ounce of gold can be very expensive). This kind of layaway plan could be fine in another setting, but in MLM, these companies actually pay commissions on these payments before the product is totally paid off and delivered to the customer. Regulators frown upon this lag time, and it violates anti-pyramid laws in many states.
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!
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