I’m a pretty analytical person, and if you’ve read some of my posts, chances are you’ve heard me say how important it is to “do the math” in your business….
This post is for those in the network marketing or affiliate marketing business that have been taking action, making sales, adding team members, doing what you’ve been taught to do… but the income just does not seem to be growing the way you expected.
Understanding your business metrics is crucial to your success.
Here’s a real life example to drive this point home…
I just had a conversation with an individual that has been promoting the same well-known network marketing company for the last 9 years.
On the surface, that’s great to stick with something and not hop from thing to thing…. but only if it actually makes good business sense.
This guy has been consistently recruiting 5 people per month into his business for the last 4 of his 9 years in order to qualify for his company’s “vacation bonus” and other recognition.
He’s been doing exactly what his company, and upline have trained him to do… following their team “5 years to total freedom” plan.
Here’s the problem…
He’s not free… not even close… and he’s been doing this for 9 years… 9 years!!!
This guy only needs to make $5,700 per month in order to “get free” from his job… but after 9 years of doing exactly what’s been taught, getting what others in his company view as stellar results… getting recognized on stage as a top leader, etc.
….He’s having a hard time maintaining an income of $1,700 per month from his home business.
So in a 30 minute conversation… we got to the root of it.
When he gains a new customer, he earns a residual commission of around $12.50 per month as long as that customer maintains their autoship. He can also earn between $1.50 – $6.00/mo from team sales volume depending on several other factors.. and yes, he can earn a bit more from those that purchase one of a couple upgrade products, and there are a few additional spiffs in the pay plan that amount to pretty much nothing.
So…. by gaining 5 new customers per month he is creating approx 60 new customers per year. His 1-year retention rate is around 40%. That means that by the end of 1 year, 40% of those reps/customers are still active and paying.
Now some would say that the 40% is the problem… It’s not. In any business opportunity, most will quit… it’s just the way it is… so 40% after year 1 is not bad.
So, out of approx 60 new customers per year… 24 are still around after 1 year.
Let’s look at a simplified “5-year” model (assumes those that stick after 1 year stay):
24 reps (retained) per year X 5 years: 120 active reps after 5 years
120 reps/customers X $12.50 = $1,500 per month revenue
Plus some additional income from bonuses/team revenue = approx. $200 per month
That’s where he’s at… around $1,700 per month GROSS Revenue.
Now we have to subtract his expenses…
- $20/month to attend his weekly meetings
- Approx. $60/month for his autoship
- $19/mo for his business “replicated” website
- $249/mo for “phone verified” leads
- an unkown amount on gas, company events, travel, business cards, printed flyers, etc.
Let’s also take a look at what he’s been doing to get to this point…
- He spends approx. 4 hours daily on the phone in the evenings calling leads, following up, etc.
- He spends his weekends (instead of being with his family) driving around to appointments and prospecting.
- He even joined an early morning “leads group” to attend before he goes to work one day per week to network.
This guy is really working his business exactly how he’s been taught by his company and upline.
So my question is…
Using this business model… how is it possible to generate $5,000 to $10,000 per month as they promote in their “5 Years To Total Freedom” plan?
It would only work if people did not quit… if they never stopped their autoship… and if every new rep worked as hard and got the kind of results that he does…. and that’s NOT REALITY.
Given the real metrics of his business… In order to get to $5,000 per month on his current path it would take more than 16 years.
$5,000 per month / $12.50 = 400 Active Customers / .4 (retention rate) = 1000 (number of total customer/reps he must recruit.
If he must recruit a total of 1000 reps and he’s recruiting 5 each month, it will take him 200 months, or 16.6 years to accomplish his goal.
Now, yes… it is probable that some of the people that join him will get to work and produce. But, with the tiny override percentage his company pays on team volume… it will take a team of thousands for that to amount to much.
He could also pursue just selling the products en masse… but that basically amounts to a sales job, which completely contradicts his entire reason for entering the network marketing industry in the first place… Time Freedom… and the ability to work from home on his own terms.
Needless to say… this little exercise was a total eye-opener for him…
This guy was so absolutely sure that what he was doing was going to result in financial freedom, but it was entirely based on what he’d been told… what he’d been trained… what he believed… Not the actual metrics of his business.
You see… you can get to the bigger numbers… but not when you’re running with a business model that has you cut off at the knees… and especially using marketing strategies that have you on the phone or running all around town wasting your time with people that are not going to join.
I can completely relate to this guy’s pain because admittedly, I’ve been there…
In one prior network marketing business I worked like crazy to sell products and recruit new reps, but seemed to go further in the hole every month. When my wife and I sat down and really did the math, we discovered that we were giving away more in free product samples than we were making on an average sale… CRAZY!
So what are his options?…
He can stick with his current company and simply learn more effective marketing strategies… How to attract people that already want to buy what he is offering, and have people joining his business daily without prospecting. Yes.. that’s absolutely possible to do when you know how. Want proof?… see this recent post.
The problem with him sticking with this current company is that no matter how many people buy his product and join his business… there is still just not enough money in the pay plan to make it truly viable. Especially when you consider that there are much more attractive business models available… with incredible products, better marketing training, etc.
Important Disclaimer: Since we are talking extensively about income in this post, I want to be sure that it is clear that any legitimate business requires investment of both money and time. There are no free rides when it comes to success.
Although it is perfectly normal… and in most cases a necessity to operate your home business in the red for an initial period while you learn, develop skills, and develop yourself… It should not be normal to operate a home business in the red for years.
…That’s not a business… and should be a clue that something is wrong that YOU need to fix.
There are really only 2 causes for failure in business…
- YOU (Your knowledge, skills and mindset)
- Your Business Model (Pretty much everything else)
If you’re not making any sales and nobody is joining you… the reason is YOU.
No matter where you are in your business right now, your first step should be to make sure that your expectations and goals can be achieved with your current business model. No matter how “in love” you are with your product… your company… or your team… remember, you’re in business.
Know your business model…. DO THE MATH!!!
To Your Success!
~ Jon Ochs
P.S. Click here to see a business model that I know works (because I’m proving it daily)…. and read this blog post to see some specific home business metrics that may shock you. 🙂