Here is an excerpt from our recent Q & A with a valued friend who serves in an MLM consulting role.  As a result of our work in and around hundreds of active, high-growth MLM and Party Plan companies, we have been fortunate to learn about MLM distributor retention, which is very much at the core of our MLM consulting work.

Question: As the recipient of the DSA 2009 Partnership Award for your work in distributor service and retention, what information do you have about distributor drop-off rates or retention in their first 90-100 days?

Answer: We have done a lot of research over the years, and have been very fortunate to work on the inside with some great companies.  In the journey, we have gained both our own insights based on some thorough studies, some funded by our clients and two that we did independently.  In addition, I have studied some of the work by the Wirthlin Group, and I am a big fan of a book called “The Loyalty Effect” by Frederick Reicheld.  In it, he established that a 5% increase in retention can yield from 25% to 100% increase in profits.  His thesis and proof has provided a substantial basis for my own work.

The simple conclusion that we have reached, working with just over 300 companies since 1988, is that there is a very reliable trend and algorithm of retention patterns.  They are distinctly different for MLM companies as opposed to Party Plan companies.  MLM companies experience, in general, an 80% annual attrition.  We have learned a distinct outcome in our MLM consulting work that this means that if 100 people join in January, 20% remain in December.  Of course, there are deviations from this norm, where we have seen as much as 80% annual retention, just the inverse; but the deviations are quite rare.

Party Plan companies experience, in general, a 60% annual attrition, with 40% remaining in the end of the first year.

At ServiceQuest we have employed a simple metric that we call an “Entering Class Report,” named for the idea that we track a group of new distributors or consultants in a given period (usually a calendar month) and track their behaviors in each of the subsequent months.  The behaviors are basically reordering, remaining on autoship, and/or enrolling at least one new person.  The most popular is the reordering metric.  In this process, we learned that of those who drop out in the first year, 50% are gone in the first 13 weeks.  We have called this the “13-week rule,” and learned that John Fleming (formerly VP North American Sales for AVON, now editor at the Direct Selling News) had worked with this concept for many years.  He taught that they (at AVON) knew they had 13 weeks to get a new representative ready for the period that followed their arrival.  The basic idea was that a new rep would work through her entire warm list in that short period, and if she hadn’t been trained how to prospect business beyond her warm market, she would fizzle out at about 13 weeks.  That was one interpretation of the reason behind, and a significant solution to, their 13-week rule.

In graphing the retention trends for companies, the shape is typically a hockey stick on its back.  The early drop comes in the first 90 days, then it really levels off after the first year; regardless of where it lands at the end of the first year, it only drops a few points in subsequent years.  Thus, if a company figures out how to impact the declines that occur in the first 13 weeks, the resulting gap is significant over time (in favor of the company’s profits) and proves out the 5% rule introduced above.

Let LaunchSmart provide you with MLM consulting that will make a dramatic difference in your speed to market.  Contact us for information and free support.

As MLM Consultants over the years, we have interviewed tens of thousands of field reps and their customers, and we have served hundreds of thousands in a variety of ways in order to improve their growth experiences. We add our observations to those of the researchers and studies performed over the years. The reasons that people join as customers and field reps are summarized below:

Why people join as customers and field reps

Income
•    Seeking job / income security
•    Extra income
•    Pay off debts
•    Fund college / school
•    Financial freedom
•    Residual cash stream
•    Retirement cash stream

Own Business

• To own their own business
• Reasons that some have given for not being able to start their own business previously or without your company’s opportunity, training, and duplicatable system

“I don’t have the money”

“I don’t have a college degree”

“I don’t have any knowledge in a special area or field”

“I don’t have any experience”

“I don’t know what kind of business to go into”

“I can’t give up my guaranteed income”

“I have 15 years invested in my current position”

“I’m scared and lack confidence”

“I don’t like sales”

“I can’t talk to people”

Social
•    Sense of belonging / camaraderie
•    Recognition
•    To feel important & needed
•    To be empowered
•    Social interaction / associate with adults
•    For “the cause”
•    To have something of their own
•    Self-improvement / personal development

We have learned as MLM Consultants that knowing in general why people join should help you to lead your field reps to an understanding of why people join your company and to help discover each individual’s “why.” By nature, each individual has his/her own unique worries and needs, and when recruiters will take time to understand those, they will be taking the first step toward formulating a plan that will result in long-term value for the new recruit.

If someone wishes to join your company in order to get products at the best price— and nothing else—make it happen in a grand way. Give them the same attention to help get started as you give to those who join your company to build a business.  Both groups are essential to long-term success. As difficult as it can be, recruiting is a one-time deliverable. On the other hand, retention is the long-term objective that demands your full attention, your best skills and rigorous endurance.

If someone joins in order to earn extra income, help them to understand the path to achieving their objectives. Shorten their learning curves and train them to use the proven tools and systems for your company’s products and services.

Career-level builders are special and rare. Finding the right leaders who fit your culture and align with your company’s vision must be carefully nurtured. This presents the ultimate test of your ability to recruit to retain. Once you embrace this philosophy and allow it to become a cultural cornerstone, you will experience an increase in short-term and long-term retention.

In summary, three categories characterize most new field reps:
1. Get the product at the best possible price
2. Earn product for free by sharing the products with friends and family
3. Earn an income

Let LaunchSmart and its powerful team of MLM consultants help you to build a new MLM company that attracts and keeps MLM distributors for long-term success.

How to Increase MLM Distributor Retention by 20% or More

MLM has a dirty secret.  The secret is that on average, network marketing companies experience 80% annual attrition of customers and distributors.   That means if 100 new recruits join in January, only 20 will be active in December.  We’ll explain the major causes and some of the best solutions, beginning with how distributors recruit.

For more than 20 years, we have studied why people join network marketing companies, why they stay, and why they leave.  Understandably, the reasons for joining are different from the reasons for staying, which are all different from the reasons for leaving.

In a 3-year study, we tracked the reasons that MLM distributors gave for leaving.  Here are the reasons, in order:

1.    Poor Communication
2.    Lack of Training
3.    Unmet Expectations
4.    Inferior Support
5.    Life Changes

Of these five, Life Changes accounted for only 15% of all the reasons distributors quit.  The remaining four reasons can be influenced, often significantly, by the company working together with its field leaders.

At the same time, we also observed the traits and characteristics of the “Retention Leaders,” those distributors that had remarkably high retention rates.  They faithfully follow 4 key principles and apply a variety of effective practices that drive retention.  Here, we will touch on the following:

• How even a small increase in retention greatly leverages growth and momentum
• That Retention is one of the key opportunities for high Return on Investment (ROI)
• That increasing distributor retention by 5% can increase net profits by as much as 100%
• The four principles around which the Retention Leaders are succeeding

Leverage Growth Through Retention

Not only can a company measure and impact retention, but retention levels drive recruiting requirements, growth, and profitability.  Let’s illustrate the impact of even a small move of the retention dial.

Suppose an MLM company sets the goal to achieve 1,000 active accounts in its business.  As a simple illustration, say the company’s annual retention rate is 20%, the industry norm.  That company will need 5,000 recruits to meet the goal of 1,000 active.  Now here’s the point, as outlined in illustration 1: by increasing the retention rate only 5% the company will need only 4,000 recruits, instead of 5,000, to meet its goal of 1,000 active – that’s 20% fewer recruits needed to meet your goal because it increased retention 5%.

If the goal is 1,000 active, and the retention rate is increased to 25% (5% above the industry norm), a company will need 20% fewer enrollments (4,000 instead of 5,000) in order to attain the goal of 1,000 active.  Thus, the effect of a 5% increase in retention is a 20% reduction in the number of new recruits needed to meet and sustain your goal.

Return on Investment (ROI)

A study published by the Boston-based firm of Bain & Company concludes that a 5% improvement in retention can result in as much as 25% to 100% increase in profits.   Moreover, a mere 2% improvement in retention is the equivalent of a 10% decrease in expenses.

In addition to Return on Investment (ROI), we have also come to learn that the costs associated with Risk of Inaction (also ROI) can be enormous.  Not only does a company become entrenched in cultures, processes, and systems that are difficult to change, but those MLM companies that wait until they feel they have enough of a base of customers and reps to begin focusing on retention always lament that they did not begin to focus on retention when they first launched their business.

The Four Principles of Retention

Principle 1 – Value

Creating value for distributors and their customers is the foundation of a successful MLM business system.  Creating value for customers and business builders produces loyalty, and loyalty in turn drives retention and builds growth, profit, and more value.  Value must be created and adequately communicated at all levels of the corporation and in the field.

Let me give you a sample practice that falls under this key principle, that you can sink your teeth into what I am saying.  The practice is CONVEY VALUE.  Does your staff clearly understand the value elements that you offer?  Do they know the nifty elements of your pay plan?  Product features?  All the things that make your company special?  Are these value elements organized and presented in a way, from the time that each new employee joins you, that you are confident that they are consistently conveyed to the world?  Are the features and benefits of those unique value elements clearly identified and trained so that sales and upsells and service efforts are enhanced?  You must methodically build this practice into your infrastructure, and over time you’ll experience the rewards of your preparation.  Of course, I’ll shamelessly say that you can build this practice by yourself, or we can guide you through its fast, effective implementation.

Principle 2 – Expectations

Know, Manage, and Exceed Expectations.  From the very beginning of the life cycle of a customer or business builder, you must know their expectations, do all you can to manage those expectations, and deploy all your resources to exceed expectations.

Here is a sample “best practice” under the principle of expectations.  Business builders come with a high degree of energy and drive when they first join you.  Do you have in place the absolute, fool-proof, stepped-out methods for assuring that they experience immediate success and short-term success experiences that meet their expectations and help to fund their progress?  Are you applying the important disciplines for managing expectations when a person first signs up with you, having been promised the world by their sponsor?

Principle 3 – Service

The Golden Rule still rules.  Service begins with a true desire to enhance the customer experience.  It can be an overwhelming task, with so many tools available in the world of service, but with help you can break it down into a manageable and worthwhile undertaking.

Here’s a sample best practice in the area of service.  Retention leaders provide the training and encouragement and support for their front-line employees to find a way to say “yes” to requests.  This can be a complex and daunting practice to implement unless you have a couple of key elements in place, which include an effective system for contact tracking, clear guidelines for employees to follow, skills for making judgment calls, and accountability for decisions rendered and money spent to build goodwill.  This is all attainable with careful planning and implementation.  And the benefit can be enormous as the company gains consistency while it earns the highest marks in service.

Principle 4 – Leadership

Shape the vision, provide the passion, lead the way.  Every corporate staff member must lead by example.  Identify leaders, build leaders and make them successful.

One of the practices that we insist upon that falls under the leadership principle is the design of an organizational structure that is uniquely built for delivering the highest levels of service and responsiveness to business builders.  For instance, your customer service manager should have unrestrained access to the CEO.  The organization structure, when designed a certain way, can make the difference between a half billion dollar company with an astounding service reputation, and a struggling enterprise that is trying to figure it out.  It can be as simple as removing the barriers and restrictions that always occur when a customer service manager reports to the operations, finance, or administrative executive rather than to the CEO.

Let LaunchSmart help you to build a new MLM company that attracts and keeps MLM distributors for long-term success.