Wednesday, June 13, 2012

Doing Your Due Diligence

Its time (ok, past time) to wrap up the discussion of network marketing and why it makes sense for pretty much everyone to at least take an informed look at the business model before deciding if it has a place in your financial future. Like any other business opportunity that you are seriously considering, you need to carefully research, examine and verify that this is legitimate, sustainable and a good fit for you. Here are some of the things I looked for before becoming involved with my direct selling business.

  • A product or service that you love, believe in and want to use yourself, regardless of whether or not you enter the business. Because network marketing is based on personal relationships and trust, the odds of being successful with a company who's products you are not genuinely excited about are very low.
  • A company that has been in business continuously for at least 5 years. The idea that you have to be an early entrant to make any money in a network marketing business is a variation of the pyramid scheme mentality. A track record indicates stability and attractive products. Network marketing companies are easy to start, and a good many of them never see their second birthday. Also, a company that has been in business for a few years has done the hard work of figuring out how to be successful selling its products, which means you don;t need to figure that out through trial and error.
  • A compensation plan based upon sales, not on recruiting. If you are being paid each time you recruit a new distributor into your network, for recruiting them, be suspicious. In many (maybe most) companies, salespeople are paid commissions for the sales they make. Not for hiring more salespeople. Network marketing is no different. Of course you make more money as your distribution network grows. But it should be because a larger network produces more sales. If you are being paid simply for signing people up, regardless of whether or not they ever sell anything, ask yourself how long that can continue.
  • A low initial fee to enter the business (under $100). It is perfectly reasonable for a company to charge a "license fee" to become and remain a distributor. They will be providing you a basket of services (tax reporting and collection, company web sites, product distribution, distribution network record management tools, etc) that will have definite value to you and your business. But charging a fee of hundreds of dollars should raise eyebrows.
  • Minimal or no monthly purchase requirement. If the product or service offered is a good one, people will want it and buy it. There should be no reason to require distributors to make minimum monthly purchases. The company should be selling its products or services to consumers, not distributors. The cost of supporting a distributor should be covered in the license fee. Walk away.
  • Minimal inventory requirement and direct distribution from the company. You want to be selling products, not delivering them. A modest inventory, enough to get new customers started, is reasonable. But look for a company that provides an online and/or phone ordering service for your customers and that ships directly.
  • A money-back guarantee on the products AND on the business. You should have an escape hatch if for any reason you decide after starting that the company or the business is not for you. Rather than leave you with a garage full of inventory, companies should have a clear buy-back policy.
  • And active, ongoing system of training, support and selling resources. Reliv likes to say that its distributors are in business for themselves, but not by themselves. Any company you join should have a local, active program to train you, support you and connect you with other distributors.
  • Direct Selling Association membership. There are no guarantees in life, but membership in the invitation only DSA is a strong indication that the company has and follows ethical business practices. Require it.
Starting your own business always involves some level of risk. This is why most people never do it.  A network marketing may not be right for you, but its unique combination of low start-up costs, flexible hours and long term residual income potential makes it a business model that you owe it to yourself to consider.