Yoli Founder Daren Falter reveals “Things to Consider When Selecting an MLM.”
MLM Company Leadership-Who is your Business Partner
Part VII: More Things To Consider When Selecting An MLM
By Daren C. Falter
Public vs. Private
Researching a public company (a company traded on the stock market) is as simple as pulling a Dun & Bradstreet report through your banker or attorney. These reports usually cost a few hundred dollars and are very reliable. Also, request an annual report from the company itself. Most network marketing consultants agree that going public is a Pandora’s Box. Once opened, it can’t be closed and it can lead to problems. Companies go public and sell stock in order to raise money for growth and expansion. I like to see companies raise their money through investors. As Len Clements says so well, “Going public is great when everything’s beautiful, but when it turns ugly, you can’t wear makeup.” Len Clements, author of Inside Network Marketing15
It is more difficult to scrutinize a private company since they do not have to release any financial information. Any information that is released by a private company may or may not be accurate since the giver does not have any incentive to be 100 percent accurate and objective. Therefore, it is even more critical with a private company to get to know the backgrounds, personal mission, and motives of the corporate officers. You can still order a Dun & Bradstreet report on the company and on all of the founders. The best and most objective information I’ve ever received about a company was gathered from people who had worked with the founders of the company before the company was founded. Again, you’re looking for a history of performance, integrity, experience, and resourcefulness. You must be able to answer yes when you’re asked if you really trust the people who are running your company.
Keeping Up With Growth
Most companies that go out of business do not go under because of lack of growth, but because they grow much too fast. In a popular MLM article, Len Clements discusses the issue of exponential growth. He states, “Consider what is involved with keeping up with a company’s growth curve. The difference between ‘keeping up’ and ‘catching up’ in this industry is usually the difference between life and death from a corporate standpoint. If an MLM company gets even one month behind the growth curve it can be like letting go of the reins of a wild horse.”16
Start-Up and Maintenance Requirements (SUMR)
One of the most important decisions a management team must make deals with what I call start-up/maintenance requirements, or SUMR. The term SUMR is used to describe the financial commitment level that is expected of each distributor at the point of start-up and the ongoing financial commitment necessary to maintain active status from month to month. The trick is to find a balanced package. In order to understand the importance of balance, we must first look at the two extremes of the SUMR spectrum.
High-end SUMR companies
There are three types of SUMR: high-end, low-end, and medium-range. Companies that opt to go with a high-end structure typically encourage or require $1,000–10,000 down at start-up and a $500–5,000 per month group volume requirement to maintain active status. These are fees required by the company itself and may not include additional fees for marketing tools and advertising. These companies are characterized by fast growth and high attrition rates. Many companies tolerate and even sometimes support front-end loading and encourage distributors to go full-time immediately, as this is the only way to have a decent chance of maintaining the heavy group volume requirements. High-end companies attract charismatic individuals who are generally excellent public speakers and very persuasive. There are a handful of distributors who have the ability to make $50,000–100,000 per month while thousands of others struggle to make less than minimum wage for their efforts. Many distributors end up with credit cards maxed and garages full of product. On the up side, high-end companies tend to attract higher caliber individuals, who treat the business like a business. Also, the possibility, no matter how remote, for reaching millionaire status within as little as twenty-four months is possible with high-end companies. Almost all of the high-end SUMRs are typically characterized by having breakaway compensation plans.
FTC Start-Up Limitations
The FTC has warned network marketing companies about unreasonable start-up costs and the stocking of unnecessary amounts of product. They have created laws like the 70 percent rule, which encourages the industry to eliminate overstocking and front-end loading. But if this isn’t enough to convince you not to stock up too much in your first order, nearly two dozen state attorney generals have set a start-up cost threshold at a maximum of $500. This means that many states will not allow initial purchases of over $500.
Low-end SUMR companies
Low-end companies deal with the exact opposite issues. They do not have any group volume requirement and have very low personal volume requirements ranging from $10–60 per month. These companies also grow quickly because of low personal volume requirements. But it takes many thousands of people to produce enough product volume to provide good commissions to distributors. Even a downline of one thousand distributors could equal only a few hundred dollars per month. Low volume requirements attract lazy distributors and/or distributors who have failed at other programs and want to do something that doesn’t require as much time and money commitment. Low-end SUMR companies have the highest percentage of inactive distributors of any type of plan, because sponsoring strategies focus so heavily on the ease of starting the business and not on moving large volumes of product. On the up side, low-end SUMR companies are more user friendly than the high-end companies. Low-end companies are fairer to the average person and allow everyone to participate. Most low-end companies are typically characterized by having a unilevel compensation structure.
Medium-range companies
Balance, as was stated earlier, is the key. A medium-range company, or balanced company, has just enough initial start-up cost to cause distributors to make a solid financial commitment, yet not enough to be considered front-end loading. Initial start-up costs range from $100–1,000. Half of this cost should be for purchasing your product and distributor kit from your company, and the other half should be for business-building tools and/or leads. Maintenance should consist of a moderate personal volume requirement of around $100 per month (the industry average). If your volume requirement is five times higher, the opportunity becomes five times less duplicable. If the requirement is half as much, the distributor’s income potential drops in half. The distributor’s average level of commitment drops way below average. Middle-range companies tend to find a healthier balance, attracting a high caliber individual while maintaining reasonable commitment levels.
What can the average person do?
In network marketing, the average distributor typically sponsors less than a handful of people and does an average of $100 per month in personal product purchases. Many of the top management teams in MLM companies now realize that in order for the company to succeed, they must design a marketing plan catered to the average person, not the below or above average person.
Is cheaper better?
There is one particular company offering a program that keeps you active for $40 per month and they are saying, “Join us; we’re less!” Now if less is better, why not appeal to even more people by going even lower. I know programs that require $20 and even $10 per month to stay active. Why not go with these? The answer is obvious! The more the company lowers the requirements past the average expectation, the less commitment the company requires and the less income potential exists. You begin attracting mostly couch potatoes. No duplication occurs. In addition, the payout begins to wither to the point that you need to sign-up half the population of Asia to produce a full-time income.
A particular friend of mine is a prime example of this mentality. He is constantly bouncing from program to program, looking for the deal with the least amount of commitment and with the same lucrative payout. My friend found a program just a few months ago that requires only a $20 per month maintenance. What has happened? He has attracted several like-minded individuals, who have all come in with the minimum investment and are doing $20 per month in volume. It’s a generic unilevel structure and the payout is 10 percent. None of them is making more than a few dollars per month. Six months from now, he will be in a new program with another pay plan that requires only $10 per month to stay active.
The Sponsor Sets the Standard!
The sponsor is the only one who can set proper standards for his/her downline team. Even after choosing a medium range company, the sponsor has the choice of following the recommended start-up plan or doing their own thing. The sponsor must set standards high, but they shouldn’t be so high that they discourage distributors. Investing $1,000 in a business upfront is very reasonable if the distributor is able to purchase everything, including product, training materials, a good amount of prospecting supplies, and even business leads. After all, even an inexpensive franchise costs over $40,000 in start-up capital with all of the same risks, enormous overhead, and less income potential. Compared to the cost of a franchise or a traditional business start-up, starting a network marketing distributorship is a drop in the bucket. Furthermore, spending as much as $200–500 per month on business-building tools and leads is quite common in the beginning of any network marketing distributorship. Invest in your business but try to maintain a healthy balance. Don’t invest too much or too little.
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
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