I wrote this a while back on Linkedin, but i never posted it here. Recent conversations regarding “Home Based Businesses” and “Network Marketing” reminded and i thought i would share it.
Just read one of the folks I follow here on Linkedin:
David DuHamel / Home-Based Business Advocate and his most recent post:
I have to say, I was a little disappointed. David referred to Mary Kay, Avon and Tupperware and linked “Home Based Business with Multi-Level Marketing. First of all, every person who starts selling shoes or beads or tee shirts or web services out of their living room is a Home Based Business, but not all of them are Multi Level.
The three companies above are MLM, in a sense, and always have been, but they are primarily sales driven, whereas most MLMs I have run into over the decades, play down sales and play up recruitments, and downlines and overrides.
(for the record, here is a list of some of the bigger MLMs)
Ever since I can remember, I have been doing sales, besides selling the house as a pre schooler, I loved selling candy, donuts or whatever, I sold soda, cars, bathrooms, food, and a few years ago, I tried, with my brother, to start a coffee company.
We had little money, and no coffee industry business experience, but we both love good coffee and have had more than a half century in sales and production management between the two of us. Our father has tried his hand at nearly every MLM scheme he ever ran into, with the exception of Herbalife and MonaVie. so while we were both a little skeptical, we decided maybe we should consider it.
We both had connections who had varying levels of success at MLM, so we consulted with an old and dear and trusted friend who had made and lost a couple of fortunes and was, at the time, sleeping on a friends couch and looking for the next big thing.
Pretty soon I came upon what I like to refer to as the “box of rocks” effect.
Most MLMs run on the idea that they sell a great product and it is really over priced, but it is okay, because you only have to buy $50-$100 per month and if you have a down line 6 deep and 6 wide and they all just buy the $100 and you are making and average of 3% override (more and less depending on the level), you will more than cover your $100, and if our of that 6 x 6, you hit at least one person who is a supper star, you will make $1000s per month!
So, in truth, if the perfume doesnt smell so good, the space age irradiated food is only so so, the detergent is not really better than the store brand, and the berry juice is almost undrinkable, who cares?
Here is the problem, somebody somewhere has to drink the stuff. If you really are pushing the highest quality product, you cant afford MLM. Which is why 97% of the money goes to the top 3% of MLM organizations. I know, in america, that is pretty much the way the money shakes out in other businesses. The difference is, The Waltons, love them or hate them, are on the hook for millions in inventory, millions in property and construction, if they succeed, so be it, if they fail, so what? but in MLM, the maker of the product and the top tier of the sales organization do the least, risk almost nothing, and you, the cog in the wheel grind away, burning thru your cash, burning thru your friends, and ALL your spare time, and if all you do is buy $100 worth of rocks and talk 36 others into buying the rocks, you made $8 bucks, they made less than nothing, the guys at the top made millions and the guys who own the rock making company sold their product for more than it was worth, because nobody was actually going to use the rocks.
Actual business model:
R&D + Big idea + lots of elbow grease +good luck + some capital (yours and probably your friends, and maybe some VC)= start up.
then, you have a product. each one costs you $20 to make, plus you use some marketing system that costs you say, another $5, and you sell to a distribution network, or build your own, but either way, your $25 widget leaves the factory for $32.00 if you are lucky, the distributor sell it to a retailer for $55.00 who then sells it to the public at about $79.00.
In MLM if you sell it to the network for $32, the network “sells” it to the “associates”, the guy running the home based business has to inventory, recruit and sell for $113.00 so he can get $13 off his box of rocks, and “only” pays $100.00, but he gets $13 on his first line, too!, and $9.00 on his 2nd and so on so that his 36 average $3, and he makes $8.00 PER MONTH for selling about $4000.00 worth of product. If you can sell $4000.00 worth of mediocre product, you need to be in traditional sales, and you would have made between $200 and $500 commission. If you can lead a team of 36 sales professionals, you should be getting close to a 6 figure salary. instead, you are getting frustrated and the top guys, are going to Europe and eating at Ruth’s Chris steak house. And your friends are afraid to answer your calls.
Find you passion, start a home based business, sell your paintings on line and at art shows and festivals. promote the hell out of what you believe in, but for goodness sake, dont get into the “Box of Rocks” business!