If your company doesn't drives the correct behavior in the field you will not be successful.
Let's just start with the compensation plan. First there's what you call 'Breakage' and what that means is money appears to go to distributors. But for whatever reasons reverts back to the company itself.
Here's an example:
We have Companies X,Y,Z.
Company X - Big company, publicly traded.
Company Y - not big as X, lot of years in business, but not publicly traded
Company Z - in business about 4 - 5 years, dollar volume not really big and not as many reps as X or Y.
Let's look at the different business models and the difference in behavior that these models drive in the field.
Companies X,Y, and Z sell an identical product.
Company X - $116 retail.
Company Y - $104 retail.
Company Z - $40 retail
What behavior is driven in the field with Company X or Y. Do you think distributors can sell product at that price? It would be hard, wouldn't you agree.
Why? Because it is too expensive. Result: Companies X and Y, has no retail activity going on because the product is too high.
So what behavior does it drive? Easy you guessed. Sign up to be a distributor.
Does Your Company's Business Model Stop Retailing?
Here's an example of a company's business model that stops retailing.
Company X and Y have sky high overhead. They hire order takers instead of ordering online, it's too complicated they say. Then company Y brags on the 300 or so people they got to answer telephones and take orders. How much are they paying out to these 300+ employees every month? Let's say $10 per hour plus social security, workman's comp, disability insurance, sick days, holidays, so it's really about $20 an hour.
Now if they are in a building, you add to their expenses - mortgage, electricity, phone, air conditioning and probably about 250 computers.
You have more problems when you have humans. So you need customers service reps. You need more employees to fix up the errors thats being made. What a business model!
That's why the overhead is so high. But they tell you the reason the product is $104 because it is the best.
Now do you understand why it's so hard for Company X or Y to sell that product. The business model is a recruit, recruit, recruit.
With company Z, they have the latest technology and doesn't have all the overhead. So they can sell the same product for half the price.
Company X or Y can't get customers so they do what, recruit distributors. You have to pay money to become a distribtor and buy it for $80, the wholesale price. Is that a fair shake for you? Heck no!
Recruit vs. Retail
When you sell a product to someone, some will love the product and become dedicated customers. Some will become reps, but if they just recruit there's no dedication. It's just not there. You might keep some recruits but many will move on and go elsewhere when they find something better. So retailing product gives a whole new dynamic to your business and MLMers don't have it.
The Lifeblood of any business is product movement to the end consumer.
Let's us take a look at Walmart's business model. Network marketers pay close attention here.
Sam Walton had a vision. He said "We will build the largest retailer in the world." He did achieve his goal because he found a way to move product to the end consumer at a cheaper price. How did he do it?
Let me demonstrate: People don't care when they buy their groceries or if there's acoustical tile on the ceiling. So his business model was to have shelves with case and cases and more case of soda pop.
Then in the evening, bring that stuff down and restock the shelves. They would stock the warehouses for all the manufacturing companies, saving those companies a whole lot of money. He built the warehouses all around the world. Then he talked to Scott tissues, Hershey's, Johnson & Johnson's, all these companies. He told them to ship your products to my warehouses, you don't have to build expensive warehouses, I'll store it. As we sell it, I'll pay you.
When they scan the product, the system will track it and Scott tissue knows Walmart sold 73 cases of paper towels today. The vendor receive a check.
Now isn't that a great business model. That's why everybody goes to Walmart or Sam's Club. Everybody wins and the result is product is being moved to the end consumer everyday.
Whoever figures out how to move product to the end consumer at the best price, wins. Sam Walton proved that point. How?
He cut overhead for those companies, his product suppliers.
You're probably thinking how does this apply in network marketing. Look at every company and every compensation plan. Let us take a look at this example:
A company pays 50% commission on a $80 product or 50% commission on the same product for $40. The $40 product makes it much easier to sell twice as much or 3 times as much. Cut the overhead and have a better chance to sell the product. After all you are competing with other network marketing products. You're competing against Sam's club and Walmart too.
So your business model has to let you make a good offer to the consumer, or you will never succeed.
These are only a few of the business models, if you want to learn more about business models driving the right behavior in the field.
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