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!
Depending on what products they sell, direct sellers must monitor changing product taxability rules and regulations as well as track sales tax holidays, product-specific exemptions, and items sold for resale. Additionally, direct sellers must ensure that agents/distributors are collecting the right amount of sales tax from their customers. Errors along the way can cost MLMs dearly. Direct sellers must ensure that agents/distributors are collecting the right amount of sales tax from their customers.
Product taxability is treated differently in different states, particularly from a sales tax perspective. In many states, product taxability and the sales tax rate depend on the type of product, the date it was sold, how it will be used, and the location in which it was purchased.
States often base audits on inconsistent or erroneous payment processes, especially those that lack adequate calculations, formulas, and other documentation. State auditors are likely to red flag any reporting that fails to stand up to what the tax authority views as a consistent and verifiable process.
Mapping each product to the SKU level is next to impossible without access to the right technology. Avalara AvaTax maps the SKU and applies all the rules (including applicable exemptions and sales tax holidays) automatically, so the direct seller of a specific product can rest easy knowing that product taxability is handled consistently in a repeatable, reliable accurate manner. To learn more….http://bit.ly/1xF3yeh
A successful compensation plan drives the behaviors that make your sales force successful and helps to create sustainable growth for your business. While there are many factors that determine your business success, everybody knows that your compensation plan is one of the big ones. But there are many factors that can help or hinder your compensation plan. One of the big ones is your enrollment kit – the “business in a box” that all of your new recruits purchase when they sign up.
Guiding Principle: Align your business kit strategy with your compensation plan strategy so they work together in harmony.
Best Practice #1: If your people lead with product and follow with the opportunity, you are probably a customer driven business model. Your sales force hunts for customers to sell products to and they earn a commission or profit making it worth their time. We call this a “retail biased” business model. Your products will have a market acceptable retail price that customers are willing to spend for your products once they hear your unique selling proposition (USP). In this approach it is vital to avoid customers signing up as distributors only to get the distributor price discount. Doing so robs your distributors of their commission or profit they would otherwise earn. Instead of a 25% to 50% retail commission / profit, your distributors earn a much smaller commission on the purchases of their new enrollee who is actually their customer. The dollar-per-hour proposition for the sponsor drops like a rock from $25 or higher down to less than minimum wage. Next month they’ll find other things to do with their time. Bad for them. Bad for you. Last one out turn off the lights! When you charge a high enough price for your enrollment kit it will act as a filter so customers stay customers and people who want to earn money buy the kit to start a business. Usually this means a business kit price of $79 to $199. The higher the kit price the fewer the customers that enroll for a discount.
Best Practice #2: If your business is a “self-consumption” model where everybody who uses the product should sign up as a distributor, then your business enrollment kit should be low, often $29 or less. In this model your recruits don’t earn a retail profit or commission. They only earn on the purchases of their personal recruits and downline so the barrier to entry must be very low. To be competitive, however, you must design your compensation plan to provide a sufficient dollar-per-hour proposition to your people so it makes it worth it for them to enroll new customers as distributors. In the USA and similar markets this requires a minimum of $25 per hour for their time. Some companies pay a very high commission on the first order of a new recruit to make this happen.
Best Practice #3: Optional product kits are sometimes offered to new enrollees to give them sufficient product to sell to customers or personally use for a while. Legally you can pay a reasonable commission on these optional kits (never on a required kit to avoid violating pyramid laws). The commissions earned by the sponsor on selling a kit to a new customer or recruit can be sufficient to make it worth their time (dollar-per-hour of $25 or more). Warning: if your business depends heavily on a monthly Autoship model, selling a product kit to a new customer or recruit can greatly reduce the repeat sales for the following month and/or greatly undermine your Autoship retention rate when they don’t need any product for a while. Nobody stays on Autoship with a closet full of product.
Best Practice #4: If you sell to customers do not include huge amounts of discounted product in your enrollment kit. This defeats the entire purpose of a higher cost enrollment kit. A jewelry company, for example, should not offer $300 worth of jewelry in a $100 enrollment kit for new recruits (the kit would also contain business materials which is why the cost of the kit can be $100). Customers would buy the enrollment kit solely for the discounted value and learn that your products really aren’t worth the retail asking price anyway. The seller now becomes the sponsor and earns little or nothing on the sale instead of a full personal commission or profit. Bad news. High and/or regular discounts will destroy the perceived value of your products.
1) Determine what type of direct selling business model you want to be – customer biased or self-consumption.
2) Determine the price of your enrollment kit based on your business model. A higher price is necessary to keep customers from enrolling as distributors just to get the discount.
3) Be careful when offering discounted product kits that it doesn’t load up the garage to a point where they won’t buy any more product for a long time – especially if you have an Autoship business model.
4) Don’t harm the perceived value of your products by including a high value of products for a greatly reduced price in your enrollment kit.
By Dan Jensen, October, 2014
When considering an MLM Startup, you will be wise to also consider whether focus groups, market testing or pilot programs can help to save time and money in the long run.
We have found that two models for testing would include “propensity samplings” from both consumer as well as distributor panels that give important feedback on your company’s offerings and opportunity. When your budget permits, we recommend that you retain a qualified agency to assist you in the process.
An experienced agency will help to vet participants based on given parameters, and they will prepare and process the data they gather. They will also mediate the focus group and/or oversee the pilot programs to test a variety of assumptions and questions that your MLM startup may be struggling with.
In most cases, specific regions are chosen based on the desired consumer demographic and distributor profile. You should plan on 2 days of testing per site, including 4 to 6 groups per site. We recommend that the cycle be completed within 30 days, including the consumer testing firm’s summary report and observations.
Look for “behind-the-curtain” experience, a mediated approach with ability to tweak the delivery and content following each session, quantity of study by regions, and spend the energy on brand testing, name testing, price sensitivity, desired buying frequency, comfort in buying from a friend, conditions under which participants would consider becoming a distributor, etc. The outcomes may make the difference between ultimate success or failure, and will certainly shave months (and years) from the learning curves.
Here is a closer look at MLM startup research for both consumer groups (those who will use your products) and distributor groups (those who will recruit and sell for you):
- CONSUMER GROUP:
The assessment would be pre-designed for custom consumer groupings to help determine propensity levels in relation to the product mix, product pricing and access to that product through a direct to consumer model. Included as well would be a brief review of their exposure to network marketing, including a mediated review of their value system and buying habits.
- DISTRIBUTOR GROUP:
The assessment would be pre-designed for custom distributor groupings to help determine propensity levels in relation to the product mix, product pricing and the sale of that product through various compensation models. Scripted presentation models would be tested in this environment with a request refinements and suggestions. Included as well would be a brief review of their history working in the network marketing industry, including a mediated review of their value system and buying habits.
When your budget does not allow you to engage with professional market research firms, don’t be shy about giving your best effort to test locally and on a smaller scale. It’s a smart way for your MLM Startup to learn how to ask and listen, when it comes to what consumers and distributors will tell you.
Terrel Transtrum is Founder and CEO of ServiceQuest, a global consulting and training firm specializing in MLM and direct selling. email@example.com