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. email@example.com
Chargebacks and the direct selling industry often seem to go hand in hand, and at a minimum, they can lead to fines, higher rates and/or higher and longer term reserves which negatively impact profitability; or, if deemed excessive, they can lead to shut down of your merchant account. However, in many cases chargebacks are completely avoidable or at least manageable if you do a little show and tell.
Show Your Pricing
One tactic that is prevalent today is the large, brightly colored “Sign-Up” or “Buy Now” button and the tiny, light gray text at the bottom of the web page that outlines the pricing terms. While this approach may increase initial sales, (one school of thought is that many people use online bill pay and don’t regularly check their credit card bills anyway) be aware that it will likely also increase chargebacks because customers aren’t aware that they are entering a subscription agreement with ongoing monthly billing.
Once customers discover what has transpired, they feel deceived and are usually furious. While some may attempt to contact you first, others will immediately seek restitution via the credit card company.
One of the best ways to avoid chargebacks in this instance is to clearly display the total amount the customer will pay throughout the checkout process and if you have an option for a subscription service with automatic billing, be sure customers know which billing option they are choosing.
Show Your Terms
Any major terms and policies should be readily visible on your website. Such terms are typically a requirement of establishing a merchant account for a reason – the level of consumer complaints. Some common terms and policies that should be readily visible are:
– Shipping and handling fees
– Return policy (return window, restocking fees, product buy back, etc.)
– Order cancellation policy
– Exchange policy
Although it can take time to develop policies that make sense for your business model, and these policies may evolve with experience, a good way to minimize chargebacks is to have clear, readily accessible policies on your website. At the very least, they can help in your dispute of chargebacks when they occur.
If you receive repeated chargebacks for the same issue, you should review your policies and their visibility.
Tell Your Customers What’s Happening
If you don’t have the inventory you thought you would, if you couldn’t ship when you thought you could or even if a problem arises that you didn’t anticipate and have no set policy for, it’s important to talk to your customers. Few things anger customers more than unanswered phone calls and emails – no one likes to be ignored.
So, if there is a problem or misunderstanding, when customers contact you be sure to respond promptly (and instruct your distributors to do the same), and remember that it’s often not that a problem occurred, but how the business responds to the problem that ultimately defines the customer’s experience.
President & CEO, Metrics Global, Inc.
Every year we interview hundreds of field leaders representing a broad range of companies, products, and approaches. There are some consistent best-practices that emerge that cause field reps to excel at retaining those they recruit. Here are the first five best-practices that field retention leaders live by:
Ask, Listen & Act
A pre-requisite to really knowing and serving a field team is the desire and skills to ask, listen and act. The results consistently astound those who effectively apply these practices.
o Get to know your customers and business recruits at a personal level.
o Ask for feedback, input and insights.
o Become an expert listener.
o Seek understanding.
o Act on what you hear, perceive and promise.
Practice #7: Recover when necessary and possible, be proactive about retention
Recovery’s a great way to keep team members and customers. Recovery is necessary when you have blown it. Recovery must be a very strong part of your retention effort, meaning, you can’t leave recovery to chance.
o Be prepared to recover.
o When things go wrong, and they often do, follow the basic steps of recovery: sincere apology, involve your team member or customer in how to handle the problem, quickly fix the problem, do something extra, follow up, and ask for repeat business and the opportunity to rebuild.
o Always take responsibility for goofs and become a sturdy, reliable bridge between the company, disappointments and failures on the one side and your customers and recruits on the other side.
o Learn the economics of the lifetime value of a faithful customer and resolve to invest in each individual customer.
o Perfect the ability to turn problems into strong relationship building blocks.
Practice #8: Regularly and meaningfully recognize
Once we learn to credit the people who are actually our customers and faithful workers in the field, the entire organization can achieve greatness. The key is to figure out how to convey to them our honest appreciation for their contributions and to realize the success of an organization depends less on motivating the top 10 percent and far more on motivating the other 90 percent.
o Recognize your customers and business builders from the heart.
o Remember that the right awards, recognition and celebration represent victory of will over doubt.
o Be consistent, be genuine and be accurate.
o Develop spontaneity and magic.
o Remember that it all comes down to motivation, and the heart of motivation is recognition and encouragement.
o Use recognition and rewards that are valued by the recipient – remembering that money is an important (but not the only) motivator.
Practice #9: Train and develop your team; constantly learn from retention leaders
Successful retention leaders take responsibility for training and developing their teams; and they, themselves, are lifelong students of the best practices.
o Always be learning and stay on higher ground.
o Share what you learn, don’t hold back; remember that each individual in your organization is at a different level, has different needs and responds in different ways.
o Use and contribute to the company’s training systems and materials.
Practice #10: Generously Give Warm Fuzzies
“Warm Fuzzies” refers to those special extras that provide the glue in a business relationship. Retention leaders understand what they are and how to use them. They are different for each leader and each recipient, but they all have in common a single vital element: a warm fuzzie creates and strengthens relationship ties. TLC (Tender Loving Care) comes naturally to some, has to be created by others. Either way, develop the feeling and give the nurturing care.
o Keep it simple and from the heart
o Develop your own style, techniques and flavor of TLC
o Give generously
Terrel Transtrum is the CEO and Founder of ServiceQuest, The Direct Selling Experts. firstname.lastname@example.org
Ken related any buying experience to purchasing a Flat Screen TV. If you go into Best Buy, you will find a wall FULL of flat screens that you can buy, most of them have very similar features, price points are comparable for a lot of them, and the overall choice is usually not a very clear one.
He said if we get to the end of the wall you will be looking at a SONY for $2000 and a Samsung for $500. Both are the same size, both have similar features, and as you are standing there looking and deciding, a young man in khakis and a blue shirt jogs up and mentions he noticed you eying the SONY.
From there, this highly trained young man proceeds to give you all of the amazing capabilities of the SONY:
|Warranty Terms – Parts||1 year limited|
|Warranty Terms – Labor||1 year limited|
|Weight||11.1 lbs. with stand (10.6 lbs. without)|
|TV Type||LED Flat-Panel|
|Screen Size Class||32"|
|Screen Size (Measured Diagonally)||31-1/2"||Size of the screen, in inches, measured diagonally from corner to corner.|
|Vertical Resolution||720p||Maximum number of horizontal lines (or pixels) that can be displayed from the top of the TV screen to the bottom. The greater the number of lines, the better the picture.|
|Screen Refresh Rate||60Hz||This refers to how many times per second a TV screen image is completely reconstructed. A TV with a 60Hz refresh rate means that the picture will be completely rebuilt 60 times in one second. Why is this important? Generally, the more the screen is refreshed, the smoother the images will appear.|
|Product Height (with stand)||18-1/4"|
|Product Height (without stand)||17-3/8"|
|Product Depth (with stand)||6-1/2"|
|Product Depth (without stand)||3"|
|HDMI Inputs||2||HDMI carries both digital video and audio (at resolutions up to 1080p) in a single cable. It provides the highest-quality connection between your TV and Blu-ray players, personal computers, video game consoles and more. The more inputs your TV has, the more devices you can connect directly.|
I’m willing to bet that all of you scrolled right past all of the specs that I listed, and not because you are not in the market for a TV, but because specs and details are not sexy. They don’t connect anything to us. Sure HDMI capabilities are important, but I’d like to see you go out and purchase a new TV today that doesn’t have that.
Here is the point: Humans have NEVER made a purchasing decision using our BRAIN, instead we use our GUT, and what makes us feel good, important, validated, powerful, awesome, welcome etc… When someone asks you to make a final decision we don’t say “I’ve evaluated the facts and decided that I will choose the SONY. Instead we say “I FEEL good about the SONY”… Why? Because we all know that when our friends come over to watch the game they will say “WOW… Nice, and it’s a SONY.”
Ken went on to explain how Harley creates disciples, not customers. Brand Ambassadors are not just owners. This is done through something he called "Visible Passion and Enthusiasm." He explains how contagious this is and that people become Visibly Passionate and Enthusiastic by having their own chance to share their story (Which is really your story that becomes part of them through their own personal experience). And here is the kicker in all of this: People love to talk about their favorite person in the world… Themselves!
People want to say “Look at me!” “Notice me!” This is why Facebook and all social networking works. People say look at me, and even more exciting, people validate it and say “I like that”. The result is dopamine, and people are addicted to it. So where all of this is leading to is that in order to differentiate your company from all the other companies out there, the story has to resonate with people in their gut. As you get to the heart, and don’t worry about the head, you will unlock success for your company.
Ken closed with this: “What is the message that you want them to share, and how are you going to get them to share it?”