Best Practices Series – FREE WEBINAR
THE VEMMA CASE -WHAT WE CAN LEARN
Wednesday, September 2, 2015 – 9:00pm Eastern
For C-Level Executives of Direct Selling Companies – SPACE IS STRICTLY LIMITED
What are the reasons behind the Federal Trade Commission’s aggressive action to shut down Vemma?
- How will this case impact you and your company?
- What are the implications for our industry?
- Are you following some of the same practices that got Vemma in trouble? You may be surprised!
- What you must do to protect your business!
- What to do if the FTC/AG come knocking on your door!
Join senior industry analysts for a fast-paced, informative, 60-minute look at this important case study!
Space is strictly limited – so enroll now to assure your seat!
Brought to you by ServiceQuest, A DSA Partnership Award Winner.
Starter Kit Strategy by Andi Sherwood, Dan Jensen
Consulting Starter Kits. Business Kits. Enrollment Kits. All of these names refer to the same thing: a packet of materials and/or products that is purchased at the time an individual enrolls with your company to become an Independent Business Owner (IBO). More importantly, this represents a strategy.
There are many types of companies in our industry.
– Internal/Self Consumption companies center their pricing strategy on the IBO/Wholesale (discounted) price, which results in most customers enrolling as an IBO in order to purchase at that price. – Customer/Retail Biased companies center their pricing strategy on the Retail Price and their IBOs focus on selling their products to customers who will purchase at the Retail Price and use the products without enrolling as IBOs. – Affiliate Programs are kind of a hybrid of the two. I say “kind of” because it is not really as simple as that sounds. There are some unique nuances and very few companies fall into this category. For that reason, the Affiliate type is not addressed within this article.
While this explanation of business types has been simplified, it isn’t necessarily a choice of one or the other, it’s a spectrum with Internal Consumption on one end and Customer Biased on the other end and most companies fall somewhere in between. There are companies that have succeeded and failed throughout the spectrum so there is no right or wrong choice. Alignment to business type, including the Starter Kit, is critical to success.
The Starter Kit strategies differ based on where your company is on the spectrum and it is vital that you understand how this impacts your desired business type. For purposes of this discussion, we will refer to strategies of the Internal Consumption and Customer Biased companies, even though many companies have a bit of both.
In this three part series, we will address the following Starter Kit related strategies: 1) Pricing 2) Products/Materials 3) Presentations
Strategy #1: Pricing The Starter Kit is not merely materials and products, it is a strategy that creates a healthy “barrier to entry” that can (when desired) separate customers from business builders. It creates a monetary gateway that an individual passes through, whether low or high, when enrolling as an IBO. While you may question the logic of creating barriers for a potential IBO, it is important to understand how this decision will impact your business type.
When the price of the starter kit is low, your barrier to entry is low. Many of the people that join your company are likely to be customers who want to buy your products for the best possible price – like a buying club. This is the nature of the Internal Consumption business type and is reflected in common starter kit pricing ranging from $10-$30.
In this low price scenario, very minimal commitment is made at enrollment so while the customers become IBOs, they do not act like IBOs. These companies will have some business builder IBOs that develop very successful teams made up of a few business builders and lots of customer-IBOs. While the average per IBO sales volume may not be high, the number of IBOs makes up for that.
Higher priced Starter Kits create a stronger barrier to entry. This often results in fewer IBO enrollments but higher commitment to building a business and thus higher per IBO sales volume. In Customer Biased companies, the IBOs count on the retail profit that they make when they sell to customers (who purchase at Retail) as a major source of income. In order to protect this vital aspect of the business, companies of this model should price their kit high enough to discourage customers joining solely for the discount and ensure that the starter kits have the proper mix of materials and products (this will be addressed in strategy #2).
Unfortunately, failure to price the Starter Kit appropriately has destroyed many companies in our industry. A Customer Biased company that fails to protect the retail profit will find that their IBOs do not make enough money for it to be worth their time selling and building a business. When earnings are not sufficient, an IBO will stop working their business and become a customer purchasing at discount. The company will find themselves unintentionally moving more towards an Internal Consumption model.
For example, an IBO who sells $1,000 in products to customers might earn a 25% retail profit of $250. If those same customers enrolled as IBO’s, they would get a 25% discount – in other words the retail profit to the seller becomes a discount to the buyer. The sponsor (seller) who would have earned $250 had they stayed as customers might now earn 10% on the IBO wholesale price ($750) = $75 total (instead of the 25% profit on the retail price). If the sponsoring/selling IBO had spent 10 hours finding those customers and taking their orders, then they would have earned $25 per hour for their time when those individuals were customers. When the customer became IBOs, that dollar-per-hour dropped to $7.50. When an IBO joins your company to make money, the $25 per hour is critical to achieving their goal as quickly as possible, thereby making the barrier to entry vital to protecting the retail profit.
As a rule of thumb, the higher your Starter Kit price is, the more Customer Biased you are and likewise, the lower the price, the more Internal Consumption focused you are. If I were to place a price on the Starter Kit for a company right in the middle of the spectrum, in today’s economy, it would be somewhere in the range of $50-60.
Please note that there are some legal requirements regarding the Starter Kit pricing in the USA. The are a number of states which specify a maximum amount that you may charge for the kit and there are rules that govern the cost of goods for the kit versus the selling price. Please check with your industry attorney for specific information on the legal aspects of the Starter Kit. In summary, the pricing of your Starter Kit is a very important strategy that should be considered in your business in order to create alignment between your kit and the business type that you intend to be.
Launching a new Direct Selling Company (home party or MLM) and getting it off the ground can be a very complex and difficult process. Especially if you’re doing it on your own. Unlike many things, the world of Direct Sales is not something that you can just YouTube and find easy-to-follow tutorials on how to effectively build and grow a Direct Selling Company. There are many areas that must be considered, such as building your compensation plan (and keeping it legal), training your field, compliance, legal, your sales pitch, how to motivate your sales force, recruiting, retention, logistics, what software are you going to use, how do you keep a balanced budget, communication with your field, customer service, social marketing, and the list goes on and on. The best practices for each of these disciplines is truly unique for the world of direct selling. Much of what drives the peculiarities is the fact that your products will be demonstrated and sold by an army of independent field sales reps – who will make a decision each day whether or not to work their business and stay with your company.
Because of these complexities, only 20% of all direct selling startups are in business after one year. The other 80% have failed in their attempt to launch. However, what we have found is that if the entrepreneurs will take the time early to learn and follow proven best practices and processes for starting and running a direct selling company – that success rate is as high as 80% still in business and growing after one year.
We want more successes and less failures! We’re sure you do to! Failures are bad for the industry and leave thousands of independent sales reps’ dreams laying in the wake. Successes breed confidence and good will in the direct selling industry and help independent sales reps reach their dreams and aspirations. To increase success rates – YOUR success, we have brought together in one place, at one event, the industry’s leading experts in these different fields to educate you on Best Practices of Starting, Building, and Growing your Direct Selling Business.
The Direct Selling Symposium is a place of education, learning, and mentoring – and includes front-of-the-room instruction as well as individual coaching sessions. It is NOT a time when services are sold – in fact it is prohibited. Whether you’re an entrepreneur starting from scratch or leveraging your existing business by diversifying into the direct selling space – attending the Direct Selling Symposium will shave years off your learning curve, and dramatically increase the likelihood of success. We look forward to seeing you there!
So . . . you’ve decided to start a direct selling company. Or at least you’re seriously considering it. You’re contemplating entering into that great world of MLM or party plan marketing – or some cross between the two. I still remember when I entered direct selling. It was over a decade ago. I was acting as an advisor to executive teams and I was leveraging specific areas of expertise that I had developed outside of network marketing. I had started, operated, and sold a half-dozen businesses of my own. As I began my career as a consultant to direct selling companies, a colleague who was experienced in the industry gave me some sage advice. He said: “Dave, about 70% of what you know about traditional business will apply with just a bit of adaptation. But the other 30% is REALLY different.” I remember thinking at the time – how different can it really be? Well, it’s very different.
Here’s what you’re getting into. Your products or services will be sold through a network of independent representatives – let’s just call them distributors. Each of those distributors will decide to “join” your company because someone they know and trust (another one of your distributors) recommends it to them, and because they like the products or services you’ll be offering. Most of them have probably already had some kind of personal experience with network marketing – and most of the time it probably wasn’t all that positive. If they haven’t been directly involved in MLM before, they most likely have some negative stereotypical ideas about it. But they’re taking a leap of faith. They hope your products and services actually provide the benefits that have been touted. And they hope they can make some extra money, like their friend has told them. They hope you’re a great company with a great leadership team, as has been promised. But they don’t yet believe. And they don’t even know you, your company, or your executive team yet – let alone trust you!
This is the very person, times thousands, who will make or break your business. And every day they will decide whether or not they are going to continue using your products or services and whether or not they are going to recruit others. They will do that based a great deal on how they “feel” and how much trust and belief they have in you and your company. And how you handle every single interaction with them, from the time they sign up, to when they open their first shipment, to every call they have with your customer service team, to the training you provide them, to the compensation system you offer, and on and on – will determine whether they move forward and do anything, or do nothing. A few even slightly negative experiences because you haven’t got the right systems in place – and you’ve lost them! And without them, you have nothing!
So, attending the Direct Selling Symposium is an acknowledgement that you are stepping into a unique, and very powerful, and potentially very lucrative business model – and that you must learn the best practices from industry experts who are most qualified to teach them to you. It is an investment in your future, and dramatically increases the probability of your success. Welcome to the wacky world of direct selling! I look forward to meeting you, and serving you!
By Terrel Transtrum
QUESTION: With the use of new “dimensional weight” formulas for shipping, how much should we charge for shipping?
ANSWER: Determining how much to charge the MLM distributor (and their customers) for shipping is a tricky question. It really comes down to a business decision; Are you trying to recover your actual shipping costs, should you make a profit on shipping, or are you willing to underwrite some of the shipping expense by reducing shipping costs?
Thanks to Amazon-like tactics, many now expect shipping to be free. However, depending on product mix and more importantly now with product size, shipping can be very expensive.
UPS and FedEx now use Dimensional Weight to determine shipping cost. True shipping cost is determined by size and no longer by scale weight. Shipping carriers typically do not fill up a truck based on maximum weight they can carry; they fill up the truck based on how many cartons they can fit on a truck. Larger packages means they need to have more trucks on the road and more drivers. To determine dimensional weight, take the Length + Width + Height of the shipping carton and then divide by 166. This calculated value (called “dimensional weight”) is compared to the actual weight on the scale; whatever “weight” is higher is the weight used to calculate shipping cost.
Because size now matters, it’s important to be efficient on both your product packaging choices as well as packing efficiently for shipping. Our shipping expert Dan Kremers advises that as you determine which products you are going to offer in your MLM company or Home Party company, a larger product will be expensive to ship. People tend to freak out if the shipping cost is almost the same as the product cost.
We have observed five methods that MLM companies commonly use for determining how much to charge for shipping. Each method is straightforward and simple, and there are benefits to each that will support your underlying product and marketing strategies:
- Using this method, a company absorbs all of the shipping charges. It’s an increasingly common feature in e-commerce transactions, and the obvious way to make this happen is to ensure that shipping costs are absorbed in product pricing. One caution is that where MLM products depend on multiple-times markup, we find that the better practice is to keep shipping out of the product cost and allow it to stand alone, because of its potential impact in the mark-up analysis.
Free Shipping when the overall Order value exceeds a specified dollar threshold
- This method allows a company to recapture a base amount of shipping, and the company subsidizes what it does not recover on larger orders. The argument is that the higher dollar volume (and the margin that goes with it) contains sufficient to boost revenues and volume, the extra shipping cost of which the company is willing to absorb.
- All orders are charged a flat rate for shipping
Tiered Flat rate based on Order Value / dollars
Tiered Flat rate based on order weight
The threshold problem with each of the methods described is that an MLM startup may not be able to determine whether they are charging too much or too little. Considering that the decision is in part a marketing decision, as well, the early unknown will also include an analysis of the MLM distributor sensitivity to shipping.
Thus, the key questions will be these:
Are we making / losing / breaking even?
Will the law of averages work in our favor?
How sensitive to shipping fees will the distributors be, and will it affect optimizing revenues?
What marketing considerations should affect our decision?
Actual Cost Shipping
Another method worth mentioning is charging actual cost, which works well when an intelligent system is in place. The system automatically calculates the number of shipping cartons required and the size(s) of each carton based on the items in the order. This will optimize shipping “weight.” Through a direct interface with the shipping system, actual costs will be determined based on your negotiated rates and discounts with the shipper. The cost is then captured at the point of sale and included in the order. Though technologically advanced, this approach is my personal favorite; and the formulas can still add a percentage mark-up (small percentages) to cover not only the actual shipping cost but also packaging and an allocation for labor. In this regard, it becomes conceivable that your pick/pack operation is self-funding if not profitable.
Don’t overlook using USPS flat rate boxes, depending on your product mix. As long as items fit in one or more of the box sizes offered, the flat rate is 100% predictable. With some thoughtful planning, you might be able to overcome the USPS branding that screams much louder than your branding could do on a box. For instance, you might lightly campaign that you are a supporter of the US Postal Service. Simple.
In the end, your goal should be to select the method or hybrid of methods that work best for your product mix, marketing and branding objectives, and shipping budget strategies.
A simple way to determine which method makes the greatest sense is to create a sample set of orders that best represent what you will ship to your distributors and their customers, and then calculate the shipping cost for each order. By running various scenarios, you will begin to see patterns emerge that will help you get real close. Then make your best decision and implement, tracking along the way and refining.
Terrel Transtrum is the founder and CEO of ServiceQuest, the Direct Selling Experts. He and his group are the recognized experts in MLM and Home Party success. firstname.lastname@example.org
We have received interest from a viable COO candidate and I was wondering if you had some criteria for me to use to compare his past experience.
If he seems as good as I think he is, would you suggest setting up a conference call so that you can interview him with me after I speak with him first?
It’s an important hire. As a general rule, I’m always inclined to start the search for and MLM Operations executive at an Operations Director level, and with someone who is hungry and eager to get out of bed early in the morning and work all day. Many COO candidates in MLM have “been there, done that” and will thus prefer to have someone working in the mud and blood of the business.
I wanted to put that out there, with the caveat that the tradeoff is the risk of substandard operations practices and standards that the right COO will bring.
The main criteria I will personally demand is that they don’t have an office to sit in, and that they have a finger on the pulse of the business and how every single transaction and touch point and behind-the-scenes process or system is impacting the individual distributor. They will have very little time to sit, although a conference room with a huge whiteboard is an excellent venue, and it can provide privacy when it’s needed. It’s a different mindset for most COOs I have either worked with or hired, and some simply don’t see themselves signing up for an hour weekly on the phones taking distributor service calls, for example. That’s the real test.
The right person will not only say that this is important to them, but they will demonstrate it from the very first day (and even in their interview). And, they will need to be accountable to the Chief Experience Officer (whatever title you assign that person, or in your case, that could very well be you). Recall from our discussions that the CXO (Chief Experience Officer) is the most powerful position in the company, since it is there job to craft and protect the distributor experience. The distributor service group should report to this officer, and the COO will be constantly asking, “How can I improve operations to meet with your expectations?”
They must be a “servant leader” who is devoted to the notion that their purpose is to serve and clear a path for each person on their team who reports into the COO office. It’s usually viewed the other way (deep, deep down), and I’ve separated myself from companies that take the traditional “cushy position” for their CHIEF officers. CHIEF means that they have the authority, smarts, and experience to know exactly how their organization thinks and how they can best help each individual and team in the organization. They clear hurdles, they serve as mentors, they are coaches when they need to be, and above all, they are serving from early morning until end of day. Not vice versa.
The rest of it is detail — fulfillment, supply chain, quality assurance, technology, purchasing, inventory, forecasting, supporting the distributor service group, root cause analysis, warehouse and logistics, bills of materials, receiving, invoicing, bar-coding, pick systems, working conditions in the warehouse, morale, and on and on and on.
My questions will follow an internal “compass” that I have learned to listen to when I interview. For instance, I might start by asking “what is your view of a distributor.” It’s a vague question, and they will fumble around to understand what I am asking. The nature of their questions back to me will reveal quite a bit about how important the distributor will be to them. Listen carefully and you will see what I mean.
Obviously a strong bias and views, that these create fast-growth, highly successful MLM and Home Party companies.
Take care, Terrel
Terrel Transtrum is an advisor, consultant, and training expert serving MLM and Home Party Companies worldwide. He is the CEO of ServiceQuest, a 25-year-old company that specializes in growth strategies for MLM and Home Party Companies. He is the author of “Hearts and Smarts” and “Launch Smart!” Contact Terrel at email@example.com or call him on his cell 208-520-3895.
Tips and tricks about specific social networks are useful, but the whole endeavor can seem overwhelming without an overall social media strategy.
It’s tempting to create your strategy based on your internal team’s bandwidth. Some networks are easier to engage with on a daily basis than others, and we all know how important it is to stay engaged once you’ve committed to a network.
Networks that have been around longer and have robust analytics and business tools may seem more desirable. Facebook and Twitter are going to be easier to sell to senior management than Instagram because you can access a huge number of well-documented case studies online. But that doesn’t mean those are the only places you could be posting that have potential to show results.
You Are Not Your Target Market
The most important thing to consider when setting up your social media strategy is your audience. Where is your target market engaging in social? Direct selling is unique because in the majority of cases, sales representatives start out as customers. They have a lot in common with their prospects and can easily speak their language.
But even with this advantage, it’s still important for direct selling organizations to do a detailed study of their customers’ and prospects’ demographic data before deciding which social channels to invest in. It’s usually a good rule of thumb to begin with the assumption that you are not your target market. Your social preferences may turn out to be exactly the same as the customers and prospects your trying to reach. But knowing for sure will help you make decisions based on real data.
Researching Social Networking Demographics
Each year, marketing analysts come out with reports and trends detailing the most recent demographic data for a wide variety of social networks. For instance, Business Insider’s BI Intelligence recently released a report, REVEALED: The Demographic Trends For Every Social Network. It’s important to regularly check in on the latest trends. Things change fast when it comes to the social media landscape. For instance, you can already find some early demographics for Ello, a social network that’s less than a year old, but making a splash. It could flop, but it could be worth paying attention to in the coming years.
Implementing Your Plan – Keeping Up
It’s no small achievement to plan and execute a great social media marketing strategy with consistency. As we’ve explored, each network is different. Simple syndication of the same message to each network doesn’t work. As Jonathan Gilliam says in Blastoff! Creating Growth in the Modern Direct Selling Company:
If you need to advertise, buy ads.
In order to make sure you see results from your investment in social, it’s incredibly important to pay attention to how each network is different, who you’re talking to and how they communicate. Getting it wrong can result in penalties that will make it harder and harder to reach your audiences. For instance, on Facebook, you have a brief window of time during which you can either enchant or lose a new fan or friend. If what they see isn’t interesting, they will ignore it. Facebook’s algorithms will take note of this and it’s not likely that they’ll see many more of your posts in their feed going forward.
Social media is about excitement – and so is this business! If the things you’re posting will not foster an interesting discussion, reconsider posting them.”
– Jonathan Gilliam
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Empower your reps with great content. Be sure your syndication tool allows your reps to be creative – to put their own spin on your marketing messages to share with their own personal accounts.
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Coach your teams to become truly engaged on social networks by listening to and interacting with their followers and friends.
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