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Due Diligence
Here is a brief overview of five basic things you need to investigate when choosing a network marketing business:
First determine whether it really is business about selling a product/service or if it is about recruiting new business investors; if it is the later, you may
want to determine whether the business is one that is legal or not
(http://www.ic.gc.ca/epic/site/oca-bc.nsf/en/ca01498e.html)
How long has the company been in operations? The answer to this question should be at least 5 years; less than this means that you are taking a bigger risk
that the company is unable to help you reach your financial goals as 90% of Network Marketing companies fail within the first two years.
(source: http://entrepreneurs.about.com/od/networkmarketingmlm/a/10tipstopicknwm.htm)
What are you being asked to invest in the company and what for?
Determine the level of risk you are comfortable with. Are you willing to risk paying a lot of money to "train" yourself on how to run the business,
or are you willing to carry a high price for uploading your inventory?
Have you tried the product, and can you rave about it?
Network Marketing is based on word of mouth business, if you can truly get genuinely excited about the product because you use it yourself,
then you are investing in a business that at the very least you will be passionate about and at the very best that you will be successful at.
Is the product a trend or fad?
If you are a risk taker, and the start-up costs are not too high, perhaps this might be a good "get in get out" type of business; otherwise, be
wary of any product that does not have longevity in the marketplace.
What is the rate of product reorder?
You need to think about your cash flow in relation to the time invested in making the initial sale. If you spend most of your time finding and
closing one stand alone sale, then your return on investment may not be a great as a product that will continue to bring you passive income through
re-orders. This is the reason why many Network Marketing companies deal with products that consumers use on a regular basis (ie cosmetics, vitamins, etc.).
What support is provided to you and what do you need to pay for?
First ask yourself how committed the person who recruited to you is to your success, then find out what is expected of you, and what you will need to purchase from
the company in order to operate your business. If after the initial investment, you are pretty much left on your own and must buy sales tools from the company in
order to support your own success in the business, then I would question the integrity of the recruiter and the company. If, however, you see that there is
truly a team of support and that there are opportunities for skills development that are free as well as those you need to pay for, then maybe this is something
you can feel comfortable going into.
What experience do the executives and managers of the business have?
Can you truly trust the person who recruited you, and the people who are leading the organization that they know how to operate an efficient, financially-sound,
service-oriented business? What education and skills to they have that will facilitate the development of a solid and successful organization?
Often times, in "get rich quick" type companies, people who do not have the education or the time and resources to get one, will think that a Network Marketing company
is a way to short cut their way to success; however, NM requires a whole range of skills to be successful. The marketplace is very competitive, and with the access
to information through the internet, it is easy for the consumer to get themselves informed - you need to be one step ahead of your consumer to instill a sense of
credibility and trust.
How motivated is the company to provide efficient service and maintain their products quality control?
Is the company well capitalized so that they have the money to ensure that their customers are well taken care of? How are the products made, and does the quality
of the products match the product claims? Do they have the capital to invest in ongoing product research and development? Do they have the money to reimburse
distributors for inventory should they find a product to be unsatisfactory or should they wish to leave the business?
What do the average distributors earn? How long did it take for them to reach this level?
Your return on investment and the viability of entering into this business on a full-time basis depends on the answer to these two questions. Many people who invest
in a NM business do so first on a part-time basis; then, as their sales grows to a certain point, they may quit their full-time job to devote all their time to the
business.
When starting a new NM venture, it is wise to have an alternate source of income - why; when the amount of time spent selling the products, following-up with customers and
recruiting new members is considered, the resulting "hourly wage" can be quite low. Most participants in MLMs actually make less than $2,000 per year
(source: Industry Canada: Canadian Consumer Handbook 2007)
Due to the residual income structure of NM companies, yes, the top distributors in the company will tend to make the kind of income that drew you to the business in the
first place - just know how "typical" this level of income is. With a 90 - 95% failure rate within the first two years, you need to ensure that you do research all aspects
of a NM company before allowing yourself to be swept up in visions of financial grandeur.
For more information about the legitimacy of particular Network Marketing companies, contact the Competition Bureau at 1-800-348-5358.
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