You may have heard or experienced that most people "fail" in Network Marketing.
Fail is not the best word to describe what happens.
Most people who hear "fail" interpret that the participant lost money, hated the experience, would never try it again, or blames the system or the company for their failure.
People join a Network Marketing opportunity for one of three reasons:
1. To get the best possible price on the product
These are what we call Wholesale Customers. They are willing to call themselves a Distributor and purchase a "sales kit" in order to buy at the best price.
Networkers and companies often encourage this move because a Wholesale Customer is much more likely to convert to an Active Distributor than a Retail Customer, and they are more likely to stay a Customer at the deeper discount.
2. To make some extra money
In a company where the culture champions "some extra money" and the product is relatively easy to sell, these people can make their extra money.
A party plan focus is probably the best option here. People who join to make some extra money do not usually invest in the business beyond some product. They get their training locally, and for free, and they generate their own leads.
3. To build an Asset Income Empire
These are serious business builders who want to build a network of hundreds, preferably thousands, and if possible, tens of thousands earning them $5,000 - $50,000 a month in asset income and the ability to retire … meaning their income continues even if they do not.
Often times people will join hoping to build an empire, but soon realize it is not that easy and they drop down to one of the other levels of involvement.
Let's look at the failure rate for each option:
1. Wholesale Customer
First, the failure rate of a Wholesale Customer is really dependent on the value proposition of the product. How well does it work relative to the cost and competition? That is all over the board depending on the product.
What is insightful here is to look at what failure means to this customer. If they fail, that means they quit using the product. What are the consequences to them? What have they lost? How is this a bad experience for them?
The answers are obvious. There is no downside to being a customer and then not being a customer. There is no risk and no drama. Failure is not failure. It is a simple choice with no consequences to the participant.
2. Those that want to make some extra money
Those wanting to make a little bit of money have a moderate failure rate if the benchmark is … "did they make any money or not?" The equation is a simple one … how much did they spend in the effort vs. how much they earned. What is their net profit? As long as the Distributor can still see themselves actively pursuing the profit, the final answer is unknown.
What we do know is that participants do not actively engage pursuing "some extra money" for very long if they are not actually earning it. That would be like taking a part-time job and agreeing to show up even though you are not getting paid.
So, although the failure rate here is all over the map, the question to ask again is what are the consequences of failure? Did the participant lose money? Perhaps. But the safety nets are generous here. Every Direct Selling Association member company is required to repurchase any product or marketing materials that are unopened and current stock. Contrary to public perception, it is hard to actually lose money at this level.
3. Those that want to create an asset income empire
The third reason people join a Network Marketing company is to build an asset income empire. They understand the business model well enough to see how the geometric growth of their organization can lead to an income that survives, and even prospers, beyond their own individual efforts. This process requires 2-5 years of dedicated and successful efforts. It requires working capital for inventory, travel, entertainment, individual marketing, lead generation, and company events. A person might earn a net profit during their first year and they might not. Breaking even the first year is not a bad result in this effort.
The failure rate is certainly the highest for those people looking to build a fortune … as it should be. Freedom is not free and most people are not prepared to "enjoy" the price. Network Marketing is an open architecture business model; a concept Seth Godin so eloquently explains in the accompanying article (see link below).
Anyone can play. There are no qualifications, no interviews, no vetting. The investment reward ratio is often ridiculously out of kilter. For example, what one might be "hoping" for is to earn $5,000 a month in net profits and have it be residual … meaning the income has an asset value of $1,000,000. Yet, what that same person is willing to invest is less than $1,000 and less than 10 hours a week – and only for a few weeks until things don't appear to be panning out. Both parties are responsible for this equation – the person who sponsored them into the company for too often suggesting one does not have to do anything except join and come to our fantastic meetings … and the Business Builder for hoping the same is true.
For more on this, please refer to Seth Godin's article "Most people, most of the time (the perfect crowd fallacy)."
Here are some reasons why people fail at this level:
- They treat it like a game, the Lottery, or a social club vs. a business.
- They show up whenever they feel like it, whenever it is convenient, or whenever they get results vs. 10-20 hours a week no matter what.
- They invest only what is easy and comfortable vs. whatever it takes. Easy in, easy out.
- They do the business however they think it should be done vs. following the program the way it is working for others.
- They use the wrong motivational approaches like "hope" and "try" vs. a Vision, a commitment, and a business plan.
In the days of the Wild, Wild MLM East and West, when regulations were non-existent, the ratios of people succeeding were actually much higher. One reason was, there were so few companies and no internet to be distracted by the competition.
Distributors did not waste time marketing against each other and had few opportunities to switch companies. The other was, most "build it big" opportunities strongly influenced the Brand Rep to invest in $5,000-$25,000 worth of product. Therefore, people did not quit until they at least got their money back, and if they did quit … well, they lost a lot of money, as there were no buybacks in those days.
I personally purchased $10,000 worth of product in 1977, at the age of 22, when (at my full-time job) I earned $12,000 a year. I took out a 3rd mortgage on my home from my father. I then bought a brand new car, sold my home to pay off the product debt, and quit my job.
After two years, I was about $25,000 in the hole. Had I quit, that is what I would have lost, plus the four years seniority at my job. Instead, I doubled down and borrowed more to stay in the game.
My third year, I earned $100,000 (1979/80) and by 1983, I was earning $400,000 a year.
What do people lose when they fail at building their own empire? Perhaps a great deal. Perhaps they lose money, time, credibility, job seniority, and self-esteem. But what do they gain?
I learned more about business, sales, marketing, communication, people, and, most importantly, ME in that first two years than in all prior 24 years combined.
Sometimes, failure is a valuable part of our education.
It is not necessarily a bad thing. But it is most certainly, in Network Marketing, a choice thing.
I believe in you,
P.S. Comment below: Tell me what you thought as your read this blog? What questions do you have for me?
P.S.S. Lead with my book The Four Year Career®. It's a powerful book and is an excellent belief-building guide for anyone considering Network Marketing.