Evaluating The Network Marketing Industry, Part 1

Aug 18, 2011, Network Marketing

Are you wondering why you should venture into the industry?  Or already in it, but struggling, and wondering if it’s worth all the hard work and struggle? For starters, if 100% of your income comes from your efforts alone, that’s just a scary place to be.  You’re limiting your potential earnings, and every day is […]

Are you wondering why you should venture into the industry?  Or already in it, but struggling, and wondering if it’s worth all the hard work and struggle?

For starters, if 100% of your income comes from your efforts alone, that’s just a scary place to be.  You’re limiting your potential earnings, and every day is one accident, bump in the road, or disaster away from keeping you from earning anything at all.  And, last I checked, we’re all only given 24 hours per day, and we can only be in one place at a time.

To get ahead of the masses, you must employ leverage!  J. Paul Getty, the first recorded Billionaire, once said “I would rather earn 1% off the efforts of 100 men, than 100% off just my own effort.”  Let me put it another way; would you rather be a real estate agent earning commissions on houses you sell, or the real estate broker getting paid a small percentage of all his agents’ sales?

[quote style=”boxed”]”Wealthy people build networks, while everyone else looks for work.” — Robert T. Kiyosaki –[/quote]

For the sake of this conversation today, let’s assume you’ve already discovered the true innate power of the network marketing business model.  Also that you’ve determined it’s the vehicle that will allow you to LIVE LIFE ON YOUR TERMS, earning you true time freedom through leveraging the efforts of others, and capitalizing on the opportunity to build a passive residual income.  And you and I both know those are things a job will never provide.

There is a wealth of evidence that proves the network marketing industry has created more self-made millionaires and rag-to-riches stories than any other industry out there.  The facts are solid, and tens of millions of people are catching on to this and getting involved in the industry in pursuit of their own dreams.

Failure In Multi-Level Marketing

You’ll hear stats along the lines of “95% of network marketers never make it” or “the average network marketer only makes $10/week”.  The main reason for these stats, is most people give up before allowing enough time for their efforts to result in success.  It’s a business, it’s real, it will take time to achieve success!  So, most people just give up or quit too soon.

But there are just a couple other reasons I believe are legitimate reasons some people fail…

1) They chose the wrong vehicle (company) to align themselves with
2) They didn’t have the right mentor

Now, before you get too far ahead of me here….Be Careful!!!…these two can be legitimate reasons, but DO NOT let them be an easy excuse for you like SO MANY people do!  These two things are obstacles that can be overcome, you can change them, you can change companies and you can seek out the right people to learn from and model yourself after.

So, How Do I Decide On The Right Company?

I’ll preface what I’m going to say in this next part with this: Your success is not completely dependent on your company. With the right mindset, you can go into almost any company and succeed.

However, you can choose a company that will make it hard for you to succeed, because of certain circumstances.  And doing so can lead to years of wasted opportunity time, wasted money, strain on relationships, and even loss of credibility and reputation.  We’ve all heard many stories, and we know people personally who have experiences, both good and bad, in network marketing businesses.  And likely more bad than good, just because of the sheer numbers of inexperienced people getting started in the first business their brother or co-worker exposes them to.  On top of that, they were told to learn how to succeed by following the guidance of someone not even making any money in the business themselves.

Below, we’ll discuss the main points to take into consideration in evaluating network marketing companies.

Level Of Competition In Niche:

Start by taking out a sheet of paper, and writing across the top all the different niches of the network marketing industry you can think of; such as vitamins, juices, skin care, travel, home care, telecom, energy, online web malls, air & water filters, legal services, insurances, etc.  Then list the companies that exist in the industry in each of those niches.

If you come up with numerous companies in a category, that’s a pretty good sign there will be major competition: not a deal breaker on your success, but certainly a strong headwind blowing against you from the very beginning.

Another point to consider here is, if there are multiple companies in that niche, it’s an indicator that it’s not hard to start up new companies just like it.  As a result of this, if you are in that niche and achieve growth momentum, it will be easily derailed by competitors starting into that space, stealing away your customers and/or distributors.  This litmus test is called the “Me-Too” test.  That is, can other companies easily come along and claim to offer the same product too?  Bottom line, if it’s copy-able, it WILL BE COPIED – you can bank on it.  And nowadays, that “copier” is likely to be big box stores like Wal-Mart…and there’s a tough row to hoe, competing against Wal-Mart.

You must find a “Non Me-Too” product, with a huge barrier of entry into the space.

Value Of Service/Product  Vs. Business Opportunity

Another factor to consider is whether the company offers a “stand-alone” product.  A stand-alone product is one a person would want to own or use WITHOUT there being a business or money-making opportunity attached to it.  What you will find, if you do some studying, is that many people involved in network marketing were first attracted to the company more so due to the financial opportunity than the true appeal or value of the product.  These people are willing to be a consumer of the product just as long as they are making money selling it.  But after they stop selling it, they most often stop using the product too.  This means they never really believed in the product themselves, they only pretended to in order to make money.

You must find a stand-alone product.

Age Of The Company

About 60% of the multi-level marketing companies fail within their first 5 years, and 95% within their first 10 years!  So, it would only make sense to find a blue chip company, one that has been around and is time tested.  Oppositely, it does NOT make sense to get involved in a new company, gambling on the fact that you THINK it will make it big!

Most start-ups do not have their act together in their first 2 years, and the organization you build will be difficult to maintain and hold together. If the company makes it that long, the odds are still stacked against them that they make it past the 5 year mark.

If the company does withstand its first 5 years, congratulations, you have succeeded thus far! But now the competition issue rears its head. Realizing there is a viable market, they enter into the same niche, and the wars begin.  You start losing your downline organization to these new companies that set up shop.  They lure your team away with special deals, signing bonuses to top leaders, and twists to the product marketing or compensation plans.

The point here is you need to find a company that has been around for at least 10 years and is still showing a growth trend, but with still low market penetration.  This part is critical.  Just the fact that the company has been around for 10+ years is not enough to warrant your decision to get started.  The company must still be growing, with a large share of its potential market still ahead of it.

The Compensation Plan

Let’s look at another factor to take into consideration; the compensation plan; the declared pay structure by which a company pays its distributors.  Many kinds exist; some are fair, some are lopsided, some are extremely complicated,  and some will frustrate you causing you to quit.

The true magic of the network marketing business model only happens when the average distributor can truly earn “meaningful income” immediately.  I consider “meaningful income” to be defined as $1,000 or more in the distributor’s first month. If distributors earn less than this, they often determine that the income is just not worth the energy and effort, and so they quit.

This is why the network marketing industry has such a high churn rate. A good company knows that the new distributors need to earn money quickly in order to keep them excited about their new business, and about their future business potential. But, the compensation plan must also be balanced and planned.  The middle level distributors must be able to see income growth as their organizations grow. Likewise, the top 10% must be able to earn the kind of income that causes the masses to dream and work hard toward their goals.

Ideally, if the company takes good enough care of the new distributors to ensure they are earning meaningful income right away, they will continue building their business, and the uplines will also be receiving their massive rewards.

Another caveat that you absolutely MUST review regarding the company’s compensation plan is whether the company’s model it employs is even legal! Some multi-level marketing compensation plans generate a majority of the distributors’ incomes from the recruitment of new distributors by charging high buy-in fees (often $1000 or more), but only a minority percentage comes from the actual sale of a product/service to a stand-alone customer (one who is NOT in the business itself). This is a major red flag to the Attorneys General, and should be! If the company’s focus is on recruiting, and most of your incomes originate from recruiting, do not join this MLM…it will inevitably be SHUT DOWN!

Recruiting is a great thing, providing a company a grass-roots promotion and expansion of their name and product, without the use and investment in traditional advertising media, instead giving that money to sales reps who are doing the promoting for them. But, IT IS NOT A GOOD THING to be generating an income from the actual recruiting process.  The income must be as a result of selling a product or increasing the customer base. A reasonable ratio of retail consumers to business representatives is 3-to-1, or 4-to-1, or better.

If you would like to see the company I found through my experience fits these criteria the best, check out Part 2 of this Post.


  1. […] my posts Evaluating The Network Marketing Industry (Part 1 & 2), to learn more about how to choose the right company to align yourself […]

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