SUCCESS Magazine

The Source Of Network Marketing

by Philip Stills

Network Marketing is software. Any conventional company that distributes products can increase volume and cut costs by using Network Marketing software. Network Marketing is a sophisticated way of paying commissions to salespeople who volunteer to work and create volume. That's it.

If you are an entrepreneur or a traditional business owner, you can start up a Network Marketing operation, or convert over to one, simply by using some sophisticated, but easy to use, software and by learning some subtle peculiarities associated with the concept of Network Marketing. Anybody can play; the business success principles are the same: training, duality, value, service, fairness, etc.

This may shatter the popular notion that Network Marketing is somehow its own special industry, which it isn't. A Network Marketing company is the same as any other conventional company. It must create profits by producing and distributing products or services. It must strive to get and keep customers through sales. The difference is the Network Marketing software which allows satisfied customers to profit by creating an endless stream of referrals for the company. Referrals are prized, gold plated assets. In a traditional business, a referral is a happy accident to be hoped for, to be sure, but still, an unpredictable accident which rarely can be created dependably.

Three software providers have written 95 percent of the Network Marketing compensation plans. They have been the source of Network Marketing. Pick virtually any Network Marketing success story or new start-up, and they are probably using Network Marketing software from one of these three leading firms, each of whom has their own phenomenal success story to tell, but they modestly downplay themselves and point out the spectacular successes of their clients

I listened carefully to Jerry York at Jenkon International, Bill Mott at 20/21 Software, and Ray Childs at Wildfire International. They say hordes of new entrepreneurs and established business owners are setting up Network Marketing software every week, both start-ups and conversions, droves of them. They say if you think Network Marketing has exploded, think again; real growth only began in the last twelve months, and you haven't even seen the explosion yet.

The Direct Selling Association (DSA) reports that the Direct Sales Industry has grown steadily during the last 5 years. US figures have increased from $12 billion in 1990 to $16 billion in 1994.

International growth figures are spectacular. Globally, in excess of 17 million Individuals are responsible for sales that topped $67 billion annually in 43 countries.

"Publicly traded stocks of Network Marketing companies are soaring, out-performing the Dow Jones Industrial Average and the Standard & Poors 500 Index by more than 27 percent," said Randolph Byrd, President of Upline in Charlottesville, VA, publishers of resources for Network Marketing and direct sales professionals.

"Further, our informal survey of some of the largest distributors in the business indicates that one in ten Americans is or has been involved in a Network Marketing opportunity," said Byrd.

The message from the leading three providers of Network Marketing software is clear: Use Network Marketing to create high volume and to cut costs in your present business or new start-up, and get on with it straight away. Intense competition for independent distributors and representatives is escalating into an all-out recruiting war. They say your timing is excellent if you move quickly, and all you really need in order to get moving is the software and some practical guidance by one of the experienced software providers.

One fast-moving new trend in Network Marketing compensation plans is to quickly reward productive behavior and eliminate any restrictive requirements which effectively and unfairly prevent distributors from qualifying for earned commissions on their volume. The most successful companies are making it easy for people to join, easy to stay in, and easy to earn commissions.

Shaklee in San Francisco, California recently escalated the intensity of the recruiting wars with a fifteen dollar lifetime wholesale membership with no renewal and no purchase requirements. Shaklee simply pays generous commissions on the volume distributors create by using the products and by referring others who buy products through the network.

Life Plus of Batesville, Arkansas went one step further and streamlined their growth. They have no sign-up fee, no starter kit, no meetings, no training, no retail requirements. It's a sleek referral system that pays distributors a commission on the volume they create in their network.

It is not possible to buy off-the-shelf, ready to install, packaged Network Marketing software, yet. Your software provider's commission analysts will examine your business and your compensation plan, and, depending on just about everything, you can expect to pay anywhere from about a thousand dollars to fifty thousand for a custom software package tailored to your specific business. Plan to invest 90 days or more from the software creation phase to being up and running.

One of the first issues to be decided is what type of Network Marketing compensation plan to use; the Matrix, the Australian plan, the Unilevel, the Binary, and the Break Away. The thing is, each of these compensation plans has infinite variations, and no two are the same. If you have ever tried to compare Network Marketing opportunities based on their compensation plans, you probably found it virtually impossible to comprehend the myriad differences and their subtle effects on potential income.

The two most popular plans today are the Binary and the Break Away. Explaining these compensation plans and identifying their differences is way beyond the scope of this article, even if I could do it. Which one is better? That depends. Your software provider will draw out your business and analyze its unique advantages in order to program it, and certain features of certain compensation plans will clearly prove to be more desirable and profitable. Of the new Network Marketing companies appearing daily, about half use the Binary and half use the Break Away. No consensus is possible as to which compensation plan is better. It just depends on so many variables, like what kind of products and services are being marketed and how often the products or services are purchased.

Some spectacularly successful, Network Marketing companies have chosen the Binary plan. Alliance, USANA, Longevity, Destiny Telecom, Travelmax, and Envirotech are just a few. Would they have been just as successful with a Break Away? Possibly. Numerous, impressive new successes are also built around the Break Away, like Nikken, New Visions, TPIV, Cell Tech, Excel Telecommunications and others.

The Break Away compensation plan is the dependable John Deere Tractor of Network Marketing. It is reliable and predictable with proven characteristics. Its traditional features have been tested by time, and it has survived serious legal attacks. The pioneers of Network Marketing, like Amway, Shaklee, Watkins, and others, have ventured far and wide, traveling many profitable miles with the Break Away.

The Binary, on the other hand, is a sporty new vehicle. Three years ago it didn't exist. It's reliability (and legality) has not been serious challenged, yet. From the distributor's point of view, the Binary is attractive because it appears to be simple and easy. It looks like your upline will place people in your downline. And it pays weekly instead of monthly. For the company, however mathematically intriguing the Binary may be, administering it can be a nightmare that complicates planning and budgeting. Its commission payout can be erratic and unpredictable, varying from 30 - 70 percent from one week to the next from the ideal 38 - 42 percent average commission payout. A profitable Network Marketing company should budget 40 percent for commissions, 20 percent for overhead expenses, 20 percent for cost of goods, and 20 percent for profit.

The Binary exhibits a game-like quality which brings out a contagious "lottery fever" in people. It. appears to have an element of luck, especially if a successful upline distributor promises to fill your downline for you, or if a star distributor promises to re-enter in your downline. The Binary develops "holes" in the network when people quit, and those holes need to be plugged. The newest recruit who is lucky enough to be placed in a hole could have an instant downline. However, most Binary plans pay out commissions based on the "leg" with the lowest volume in it, and many distributors feel that is unfair, claiming they should be paid on the total volume they create.

Whichever compensation plan you choose for your Network Marketing start-up or conversion, you'll need to decide whether to pay your software provider to manage the data for you off site or to hire someone onsite to run the software. Many successful companies started quickly by paying the provider per transaction to manage data, and then later brought the operation home after learning to operate the program.

Will you need an attorney or a consultant? That depends on who you talk to. Talk to the so-called "mlm attorneys" and "mlm consultants" last. Go straight to the software providers. They have the experience. Some of the "mlm consultants" and "mlm attorneys" are commissioned sales reps or software resellers for the leading Network Marketing software providers. In other words, middlemen.

My advice is to take full advantage of the vast experience and knowledge of the software providers whose compensation plans generate approximately 90 percent of the Network Marketing revenues. Obviously, there are many capable individuals and small companies with abundant talent, creativity and experience, and if you are lucky enough to find one, use them. Remember to be very careful when you pay for information and "consulting". Creating a profitable Network Marketing compensation plan is extremely complicated. Use a high level of care in choosing an specialized attorney or consultant.

You need an attorney to the degree that you would need sound legal advice in any new business venture. Certain legal statutes must be complied with in order for a compensation plan to be acceptable in the states and countries where the company will do business. For instance, distributors do not receive compensation for recruiting people. A generous return policy is necessary, like a 12 month 90 percent inventory buy-back policy. Realistic market pricing is crucial. Allow no promises of income and avoid setting unrealistic expectations. Having a specialized Network Marketing attorney review your finished marketing plan would be prudent. Ask the software company for three names.

Contrary to popular myth, Network Marketing companies don't need to worry about somehow registering in all 50 states to be legal. That's just one of the misconceptions. A few states may still request a statement on your letterhead if you sponsor people there, but only so they know who to contact if they get a complaint. Avoid complaints.

The best policy in any company is to deliver on promises, because otherwise people complain of fraud, and no attorney can save the company in that case, before or after. Small businesses comply with all kinds of laws; anti-lottery laws, securities laws, small business opportunity laws. Run an honest, ethical Network Marketing business, and don't worry.

New Network Marketing companies succeed wildly when they have a compensation plan that makes it easy for people to join, easy to stay in, and easy to get paid. They succeed because they have valuable products and services with competitive prices. They keep their distributors because they pay generous commissions on time and offer great training and excellent service all around. Just like any other business.

Two other common Network Marketing legal myths which are perpetuated but not substantiated go something like this: Distributors must sell 70 percent of all the products they purchase personally to retail customers, and each distributor must make at least 5 retail sales each month, regardless of dollar amount. These kinds of superfluous requirements appear in numerous distributor manuals but are not enforced by the companies. The newest distributor reads the rule, realizes it is not taken seriously, and the entire company manual is compromised.

Successful companies understand that the performance of their company is directly related to the individual success of each person who sells their products and services. To succeed, these individuals need the tools and information that only the company can provide. The sooner they get those tools and information, the sooner they succeed. Therein lies the need for the most useful and accessible Network Marketing software available.

With sophisticated Network Marketing software, delays, backorders, and wasted resources due to poor planning can be detected, corrected, and never repeated. Rapid, uncontrolled growth in a direct selling company can be just as detrimental as slow growth, but with competent Network Marketing software fast growth is easily managed.

Network Marketing has redefined sales. The company pays commissions to salespeople who volunteer to work and create sales volume. A sale can be defined as products or services purchased by the distributor for personal use. A sale is also those products and services purchased by people who were sponsored into that distributor's network. And a distributor does not need to physically take the order for the sale or handle the delivery of the products sold. Sales. Volume. Same thing. What a way to sell!

Use Network Marketing to create higher levels of (sales) volume and to reduce costs. Network Marketing is used to successfully market and sell travel packages, tools, legal services, jewelry, insurance, satellite programming, long distance telephone service, toys.

Network Marketing is not just for soap and vitamins anymore! What is next? That is up to you. It is completely possible that Network Marketing can be used to market and sell anything. What are some categories of products that are not being marketed using Network Marketing? There are plenty. How about business-to business products and services? Why not sponsor businesses who sponsor other businesses to create (sales) volume? How about entertainment? Is there any limit? If there is a limit, we're not anywhere near it.

Jenkon International
4601 NE 77th Avenue, Suite 300, Vancouver, WA 98662

20/21 Software
1815 South State Street, Suite 450, Orem, UT 84058

Wildfire International
220 Chesham Avenue, San Carlos, CA 94070

NETWORK MARKETING TERMINOLOGY

Active - In many compensation plans, only an active Distributor may earn commissions, and there may be any number of requirements to qualify as active, such as minimum monthly purchases, minimum sponsoring levels and annual renewal fees.

Binary - Each Distributor has two legs, and every new Distributor sponsored is placed in one of these legs. Some plans allow a Distributor to sponsor himself twice giving him four legs.

Breakaway - When Distributors are promoted to a certain title, they "break away" from their sponsor. Their group volume is no longer included in their sponsors group volume. Distributors are entitled to additional compensation.

Compression - Also called Roll-Up. If a commission cannot be paid to a Distributor due to that Distributor being inactive, unqualified or not eligible in a given time period, the commission "rolls up" to the next qualified, active and eligible Distributor upline. Generally, volume does not roll up but commissions do.

Downline - The Distributors personally sponsored by a Distributor, as well as all the Distributors they sponsor, etc.

Genealogy - The downline sales organization report of a company or Distributor.

Generation -The relationship between an upline breakaway and a downline breakaway, not including non-breakaways.

Group Volume (GV) - The total of all Personal Volume (PV) sold by a group for a commission period. This includes one's own Personal Volume.

Leg - Each personally sponsored Distributor and all his or her downline. Also referred to as a Line of Sponsorship.

Level - The position a Distributor has in a downline relative to an upline Distributor. Distributors personally sponsored are level one to the sponsor.

Distributor - A person who signs a Distributor Agreement who becomes an independent contractor of the company to avoid being considered an employee of the company.

Personal Volume (PV) - The value of commissionable products and services purchased in a commission period.

Retail Volume - The volume of commissionable products purchased based on the retail price. Retail volume is seldom used by compensation plans, most plans rely on wholesale values to determine the commissions.

Sponsor - The Distributor immediately upline of a Distributor. It is usually the person who originally recruited the Distributor but may be different if the Sponsor inherited one or more people through Compression due to termination of previously sponsored Distributors.

Stacking - A usually undesirable technique used by Distributors to manipulate the compensation plan. Stacking occurs when a Distributor recruits other Distributors placing them in a single downline leg.

Upline - A Distributor's sponsor, along with his or her sponsor, etc.

Philip Stills is the author of the new Network Marketing book, GET A LIFE: How to Leave That Dead-End Job Behind and Create Your Perfect Future -- Today! published in 1996 by Upline Press in Charlottesville, VA.

GET A LIFE is a book-of-the-month selection for Network Marketing organizations in Europe, Australia, and North America. It was recently selected by Barnes & Noble Inc. as a flagship title for their new business book category -- Network Marketing. Phil is a successful Network Marketer and Network Marketing consultant. He is working on his next business book, How to Use Network Marketing in Your Company to Quadruple Sales and Cut Costs due out in late 1996.