MLM Analyst

Lately I’ve been looking at how MLM companies balance three critical types of costs:

• Distributor commissions
• Product & development costs
• Company operations & profit

Here’s basically how these three types of costs interact.

If an MLM company is generous with its distributor/sales commissions (paying, let’s say 40-45% of its total gross revenue) that leaves less money for paying for a quality product (along with investing in new product development) or maintaining the company’s overall viability.

Likewise, if a company pays too much to produce its current and future products, it won’t have enough to profitably run the company or incentivize its marketing & sales organization (distributors).

And finally, if it costs a company too much to run itself and pay its owners, the other two critical areas suffer: distributors are not motivated and the product isn’t good enough to keep people buying.

So, history has shown that MLM companies that thrive over the long haul are those that carefully balance all three critical costs. From my observations a company can flare and grow dramatically by over emphasizing one of the three critical costs, but they end up paying for it later.

If you are involved with a network marketing company, I would suggest you carefully examine how your organization balances these costs. Here are some external clues to look at:

• You may be excited that they claim to pay more than any other MLM opportunity. If they don’t put enough into maintaining the company and product, will it still be around in a year?
• Does the organization spend extravagantly for almost everything it does, including owner profit? If so, could you be making more elsewhere? Are the products really superior or just marketed to you that way?

Taking a page from some of the most successful non-MLM companies in the world, you want to be sure your company is managed by world-class executives who understand how to run an extremely tight ship. That typically means the company will be able to operate and grow effectively while requiring less of the overall revenue. That leaves more for distributors and product development.

It can be difficult to get to the bottom of how well a network marketing company is being run or how truly beneficial their product is or how generous their compensation structure is. But ask a lot of questions anyway and be sure to compare companies and products.

Look, I was hoping I could generally avoid singling out individual companies when doing my analysis. But lately I’ve received so many confused comments & emails from apparent MonaVie distributors regarding the Inc. 500 list that I’ve got to clear up some things for them. I’ll try not to be unkind…

Within this site’s comments you’ll find the following,

Do you also think the INC magazine top 500 companies (in the September issue) list is also bologna because MonaVie is the only mlm that made the list. Should we also be calling that publication a bogus, bias, poorly researched and invalid lie?

And you’ll also find this gem,

When was this research taken?? Because the September addition of the Inc. 500 magazine (The annual report of the fastest growing private companies in America) states the ONLY nutritional beverage to rank was MONAVIE! Placing #1 in the Food & Beverage category, #3 in Revenue and #18 OVERALL!!  GO TAKE A CLOSER LOOK AT YOUR STATS.

If I were a MonaVie distributor, when I first heard about the Inc. 500 list placement I’d tell all my prospects about it. But after that I’d probably:

1. actually go read about it
2. figure out that it only includes private companies that proactively submitted their own annual revenue numbers
3. think to myself, “Oh, well. I guess it’s better to be on it than not on it.”
4. just keep it to myself because I didn’t want to be dishonest and manipulative by ever implying that MonaVie somehow “beat out” any other MLM companies since it appears that MonaVie was the only one who submitted their info

Just about the same process would apply to leveraging my company’s placement on a MLM Top Earners List: A) get excited, B) ignorantly tell others, C) finally learn the facts, D) and then keep it to myself because I want to be able to live with myself.

I just thought of another motivation for keeping it to yourself. What if you attracted an intelligent team member/distributor/customer who likes to read and learn facts for themselves? What if they actually read Inc. Magazine’s methodology (<- notice that link) and figured out you were either deceitful or ignorant? Either one is bad, right?

And can you image an intelligent new recruit actually looking at, and then analyzing, the methodology behind the creation of a Top Earners List? Their trust in you would be pretty well shot. You don’t want that.

See, I’ve not only avoided being unkind, I’ve actually been very nice to MonaVie people; helping them retain their recruits. You’re welcome.

I’ve really enjoyed some recent comments posted on the site. Some of my favorites are those riddled with stories of how the author knows a guy who knows a guy who makes a billion dollars a month, etc. etc. They are usually provided as evidence that one network marketing company or another outperforms all the rest. Take this one for example,

“…i have a personal friend named [deleted] who makes 13k a week and i know this because i saw it and his dad is a black diamond that makes 1.5million a year and i also saw that so i know its not fake…”

Many of you know that if you’ve exposed yourself to enough companies & products, you hear the same basic stories from them all – people were healed, the most unlikely people became crazy rich, and so on. I suppose the storytellers can’t be faulted. If you want someone to take action, you typically want to appeal to their emotions. Emotions motivate. And stories touch our emotions.

In fact a few years ago I read an article in the Harvard Business Review by a famous screenwriter, Robert McKee. In it, McKee argues that, “executives can engage people in a much deeper–and ultimately more convincing–way if they toss out their PowerPoint slides and memos and learn to tell good stories.” I agree. In fact, since reading the article I find myself telling more stories to illustrate points when I deal with clients and business partners.

But you can pry on someone’s emotions to persuade them to do something stupid just as easily as to persuade them to do something good, right? I’ve become a bit jaded by anecdotes of people becoming unbelievably wealthy or suddenly healthy. Of course those people exist. I know many. But is it wise to base important personal and business decisions on someone else’s stories? Do those stories necessarily relate to you and your future?

I’m going to say “no” – with a caveat. Let me start by defining the term, “Anecdotal Evidence,” which is, “non-scientific observations or studies, which do not provide proof but may assist research efforts.” Stories are anecdotal evidence. They are nice and can serve a valuable purpose, but only when they reflect more scientifically valid evidence.

Successful businesses do not make decisions based on anecdotal evidence. If they do, their success will be short-lived. A long time ago I was part of a technology start-up that had an owner who told us he had spoken to dozens of potential customers and that they all wanted a certain type of billing system. As evidence of this conclusion, he would tell a single convincing story to the other owners about a conversation he had with a potential customer.

We were all supposed to take that as evidence enough of what all of our future customers would want. When a few of us asked to see his data he became very defensive and threatening. So we trusted him and designed and built the system. It took 6 months and cost us a bit more than $1 million to build. It was a complete bust. Our sales peaked at around $10k/month.

So those of us more interested in reality (and surviving as a company) went out and interviewed a number of potential customers and found that they preferred something completely different. It was simpler and much less sexy than what our outspoken storyteller insisted on. It took us a month to build and we did it entirely with existing resources. Within a short while, monthly sales passed $200k.

Now, what will you do with my little story? You could dismiss it as not representative of typical successful businesses. Or you could use it to start your own research, reading articles and studies that show how successful businesses make successful decisions. After that you’ll conclude that my story is realistic and useful and you’ll try to make important decisions in the same way.

So here’s “the moral of the story” for those working in, or looking into, the network marketing industry. The next time someone tells you a great story, or two, about their product or opportunity consider using some of these statements and questions in your responses:

• Wow, that’s a good story. Now show me all the data you have.
• What percentage of your company’s distributors make at least $1,000 per month?
• What percentage make at least $10,000 per month?
• What scientific studies have been performed on your product?
• What about independent tests performed on your company’s specific product formulation and processing methods?
• What percentage of revenue does your company spend on ongoing research and development to ensure the quality and viability of current & future products?
• What percentage of revenue does your company spend on distributor support and in what form do they offer that support: mass advertising, sales materials, etc.?
• What percentage of product sales are due to retail sales as opposed to distributor purchases?
• What does your company do to regulate fraud and other inappropriate distributor behavior?
• I’m certain you could (and should) think of dozens of other important questions.

Stories are fun, and they might sometimes reflect reality. But smart business people ask a lot of smart questions and legitimate companies with long-term prospects have solid answers. The more smart questions you ask, the more MLM companies will have to disclose valid information.

The less fair MLM companies may also finally be persuaded to invest more in making their products and business practices more legitimate instead of plowing extra millions into the pockets of a few chosen elite. But if things continue as they are with certain companies, we’ll only be sure to hear more and more stories and less and less useful facts.

I’ve recently suggested there might be better ways of measuring the appeal of a network marketing company & their opportunity. Most new network marketing members I know make the decision to join a particular company based on emotion, typically fueled by questionable information. But when a distributor is looking for a new opportunity, shouldn’t they be most interested in a company’s momentum – their recent and ongoing growth?

Why Growth & Momentum?

If a distributor joins with a company whose market share is shrinking, they’ll find it increasingly difficult to win team members, make sales and otherwise succeed.

So, I decided to look at growth & momentum. Since no network marketing companies regularly publish audited revenue numbers, we can’t use those. Plus, revenue lags momentum in this industry so it would be a late indicator.

How to Measure MLM Growth & Momentum

I think the best indicators of most trends today are found in online data. Here’s why:

1. Most people use the internet to research products & companies they are interested in.
2. There are very reliable 3rd-party services that monitor website and search traffic over time.

Every online data source has some flaws, but intelligently combining reliable sources provided me with some interesting findings. I wanted to see which MLM companies are experiencing momentum built on long-term growth.

The Results

The results might surprise you. First the chart with companies in alphabetical order:

MLM Company Momentum Comparison

And here are the results sorted by rank:

Methodology

First, to ensure I was comparing apples to apples, I had to focus my scope of companies to the largest segment in network marketing-namely those companies marketing primarily nutritional products. So I didn’t include those focused on technology or broad consumer product lines. I’ll try to find a good way to tackle those segments later. I chose 15 popular nutritional product MLMs.

I looked at website and search traffic growth over the past 3 months. You wouldn’t want to measure just 1 month since a lot can happen online to cause only a momentarily spike in a site’s traffic. But 3 months gives a good view of immediate trends = momentum.

Besides just immediate trends, it’s important to look at what companies are growing overall. A few companies I looked at were actually decreasing over the past year so their short-term growth looked more like an element of recovery than momentum building on long-term growth.

Reaching back to my past statistics training, I combined the 3 month and 1 year website traffic & search data for each of the 15 companies by standardizing their growth percentages and then giving a slightly higher weight to the 3 month score. I used data from the following services: Alexa, Compete Inc, and Google Trends.

Conclusion

I’ll admit, I was fairly surprised at the results. At the top you have some more established companies like Xango and Shaklee generating buzz and building momentum, next to, and sometimes above, newer companies like Vemma, Zrii and Agel. I wonder why.

Could it be new product launches, company marketing & support, the elusive “critical mass?” What do you think? Like any research, there is more to dig into here. Maybe I can expose the drivers if I look at search engine keywords, traffic patterns, product launch activity, etc.

Whatever the drivers happen to be, this seems to be the type of data I’d be relying on if I was considering joining an MLM company and building a successful network marketing business – partly because it’s the sort of market growth data that successful traditional businesses rely on when they launch into new markets.

FYI: Here is the full article on MLM Companies with Momentum with some revisions.