Why Did _______ MLM Fail?
Posted by naxumadmin / May 7, 2015
This week a client of mine, who is a first time MLM owner, asked me a question as we were preparing the marketing systems and commission engine for his company.
He said: “Ben, why do MLM’s fail?”
As a person coming from being a distributor first and then transitioning to the service end of the industry, my own answer intrigued even me. Because it isn’t a simple answer. There are many factors for MLM’s that cause them to fail, just as traditional small business’s fail today.
This article is not to dispute if MLM’s companies fail more then traditional businesses. The reason I am sharing this information today is to talk about some of the major pitfalls I have noticed that are factors effecting MLM’s and Direct Sales companies across the globe.
I have outlined 4 main factors and have small examples of other pitfalls to watch out for as examples in each.
Cash Management
Merchant Accounts
The first factor that comes to mind when thinking about why MLM’s fail is merchant accounts. Merchant processing challenges are the #1 reason great companies fail in this industry. The merchant account is your ability to process payments. If a company gets too many chargebacks, grows to fast and exceeds their limits, or has hold’s put on it’s accounts for any reason, major challenges can occur for the company as a whole. Many of the other challenges a MLM faces in cash management occur because the merchant account had challenges.
Late Commission Payments
Trust is easily broken and hard to rebuild. In this industry, your distributors plan to get paid their commissions on the schedule you have created. If you are late in paying commissions even ONCE in this industry, that is enough to break the trust of the entire salesforce and cease any sales momentum your teams have created. Make your commissions paydays a holy ritual for your company and honor it as one. Keep trust and always pay on time.
Compensation Plan Changes
Trust is also created by your companies perceived stability. It is indeed powerful for companies to create a compensation plan ONE TIME and to keep that plan for their companies entire career. This way your culture can truly learn the pay plan and build their business accordingly. Constant compensation plan changes brew uncertainty in your salesforce.
Understanding Breakage
Breakage is the funds that are allotted to be paid out in your compensation plan on each product sale, but are retained by the company because a distributor was not qualified to receive them. An example would be your companies money set aside each month for check match and pools that none of the distributors are qualified for. When can calculate the breakage on your compensation plan, you will discover your TRUE payout percentage. Many compensation plans that claim to pay out 55%+ percent on paper may pay out less then 40% with breakage.
Understanding breakage allows you to manage your cash and grow your company. Always know your TRUE payout percentage. There are a number of case studies in the history of network marketing where the company executives did not truly understand the TRUE payout percentage and through incentive programs and compensation plan changes paid out too much money and drove their company into the ground. Remember to check your true paying every pay period.
Product Runs
As late commissions break trust, late product shipments and autoship shipments break trust as well. Late product is usually due to companies stretching out their product runs as far as possible for cash management reasons. Remember that you must ship product on time to keep trust with your customers and distributors. Budget resources to be able to fund product runs properly.
Focus
Corporate Focus
In a networking marketing company, it is corporates job to create a stable, profitable, unique game for the distributors to play. The game must have rules, equipment, and a strategy guide! If the game is constantly changing and the rules are shifting the distributor force will always be catching up in a disorganized fashion.
Corporate can create focus by:
– Having solid rules: compensation plan, distributor policies, and processes in place for entering orders to run the business
– Equipment: Tools in place to share the story, expose the business, and follow up with prospects. Online marketing systems, capture pages, auto responders, video tour sites, sms text alerts, video email, webinars, conference calls, autodialers, leads, custom wordpress blogs, live chat, advertising coops, and virtual offices all create the fabric of the distributors equipment.
– Strategy Guide: This is the game plan training. This is where corporate and the field can layout the exact step-by-step process to share your story and products. Outline this game plan and train the field. If the game plan is constantly changing or always under review, the distributors become confused. Confused distributors do not take action. Define your game plan, train the plan, live it, and grow!
Distributor Focus
With the fast paced world we live in today it is extremely important that the distributors have a focused daily approach to the business to create results. Create a path for your distributors to grow in your companies culture. The culprits of distracting a distributors focus are:
– Rapid Corporate Change: instability caused by late commission payment, late product runs, changing the rules of the game over and over again.
– Cross Recruiting In The Field: distributors getting distracted with other “business opportunities” being shared amongst the community. Remember to keep the field engaged in your business as their primary MLM. Serving two masters rarely if ever works, show your distributors how they can accomplish their wildest dreams working your company full-time!
– Excessive Training Activities VS Selling Activities: In some companies we have found that corporate has outbalanced the ratio of training time to income producing time for their distributors. Remember to keep your people focused on the income generating actives 90% of the time and training 10% of the time.
Culture
Running a MLM has been compared in the past to creating a religion. When it comes to culture, there are definitely some similarities. So what is your religion all about? This is the story of you company, it’s culture, the dream. It is why your distributors are involved. It is the cause and how you and the community will solve this cause! The first part of culture is the Story. Why does your company exist what is the story, the cause, and the dream?
Once defining the story, culture become about the experience. How do people share the business? Is it face-to-face? Do they use online systems and tools to share the story? Do you have local in person training events or webinars? All of these pieces outline the relationship and experience that the distributors have with each other and with corporate. Where companies fail is the creation of a real experience. It is up to corporate to define this culture and to locate the distributors who align with it. When this is set up properly from the begin, massive momentum becomes available to your salesforce. When culture is ignored, when it goes undefined, confusion creeps in.
Timing
Is your product relevant for today? How relevant? Is the market already saturated? What makes you different right NOW? These are all questions of timing. Now that the majority of homes in America enjoy high-speed internet, it would probably be safe to say that it is poor timing to launch a MLM marketing dial-up speed internet services. Other cyclical industries come and go as niches within industries. Is your company going to launch a nutritional juice beverage? The battle of the juices was 2005-2007, are you ready to launch a new product in this highly contested space? All questions to ask yourself. Missing the timing, being too late, or last years news, can all cause challenges to a networking company.
The Corporate Team
When building your company corporately, remember to surround yourself with people better then yourself. It is key to surround yourself with people who are truly experienced in this field and have a track record of results. Too many great concepts never come to fruition because well meaning people hired their cousin or brother-in-law to be the Chief Marketing Officer, instead of an experienced executive who has a track record in this space. MLM is a unique space and it requires a specialized set of skills. Results and history leave clues. Surround yourself with champions!
Overcomplicating Your Technology
Wether it is your shopping cart or enrollment process, making the right decisions on the proper packages to offer makes all the difference. From time to time I have seen clients ask to put too many different styles of offerings on the distributor enrollment. This has ended up confusing the exact people that want to buy from them. When it comes to implementing your technology for shopping and enrollment I like to ask myself, “would someone who did not grow up on a computer be able to easily go through a buying experience and make a purchase?”
Product Results
And of course the elephant in the room: “Does your product really have value?” Our industry has been criticized by outsiders claiming that our products are overly expensive or not real because from time-to-time there have been people who have abused this channel of promotion. So for you to test yourself and your company, it is time to ask the question that solves this dilemma: “Are there people who buy this product or service, for the use of it regardless of any financial gain?” If the question is yes, then you have a real product with real retail customers. And best of all, you have something that is ready to be shared with the world.
Summary
I know there was a lot to share here and I am excited to hear your thoughts, comment below, what do you feel is the main reason MLM companies fail today?
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