Why Most People Lose Money in MLM by:Wayne Wu
An important attribute of every successful business is that of cash flow management
. Cash is the oxygen, or the life giving blood of every business. Without it, a business cannot survive. Unfortunately, a lot of network marketers don't make money simply because they don't understand the concept of cash flow management.Let's look at a very bad example of cash flow management. General Motors. General Motors has been very poorly managed for quite some time. Right now, as I write this, it is on the verge of bankruptcy, despite receiving about $20 billion in Federal assistance. Without going into too much detail, GM's problems stem from its complacency and the continued payment of wages and benefits to people who are no longer employed.
This auto giant has been basking too long in its past successes, it has failed to embrace and adapt to change and failed to give buyers the cars they want. GM's cars are simply not good enough. As a result, in the recent years, it has been literally hemorrhaging money. In November 2007, GM reported the second largest quarterly loss in US history of $39 billion, or roughly $427 million a day. When you're losing money that fast, you are going out of business!
I've learned from reading Robert Kiyosaki's books that when he purchases investments or businesses, he must make money from those investments from day one. In other words, he invests for cash flow, by his own definition of an asset and a liability. That is, assets feeds you (gives you money, whether you like it or not) and liabilities eat you (takes your money, whether you like it or not).
This has to be same philosophy that network marketers apply to their businesses. To get into profit as soon as possible. Afterall, you're trying to build a cash flow asset that feeds you right?
As an entrepreneur you must evaluate every activity your are doing, the money you are spending and what returns they are producing on your business. This is called understanding your business metrics.
Let's say you're a traditional network marketer, building your business like most other network marketers. You're on the monthly autoship program for your company's products, which is costing you money. You're on the monthly educational program, which includes motivational CDs and books. That's costing you money. You diligently go to meetings every week, which cost you money. And you attend a major function every month, which costs you money.
Now let's say that you've secured a one-on-one appointment with a prospect to show him your business plan. Now this prospect, like most MLM prospects is just a business opportunity seeker. In other words, he's just kickin' tyres. He's not a serious entrepreneur.
So you meeting him for an appointment. You whip out your trusty MLM prospecting system, your business support materials which might include CDs, books and a DVD of people taking nice holidays. These materials have of course, cost you money. But nonetheless, they've worked. After reviewing the material, your prospect is excited and joins up.
In the first few weeks, he tries some of the products and likes them. He shares the business opportunity with his friends, using the same MLM prospecting system you did. None of them want to join him. Like the typical business opportunity seeker, when he gets no results for the first several months, he quits.
Now, think about the return on investment you've gotten from this prospect. Obviously you've lost money. What's worse than that, think about all the time and energy you've spent recruiting this prospect. Time that you'll never get back.
This is why it is so important show your business to the right people. Prospects who you have qualified. People who seriously want to make a change for a better life.
Now, I'm not saying that autoship, your monthly educational program, meetings, business support materials and the like are not important. They are. But you must objectively stand back and evaluate your returns on your expenditure.
Here's where network marketers should take a leaf from the books of direct response marketing. Successful direct response marketers first find the right market for whatever they have to sell. That's a big hint. Then track the costs of every bit of advertising they do and then evaluate how much they've spent on advertising per customer acquired.
They have also learned to evaluate the lifetime value of a customer. That is, the return on their advertising investment of each customer. They are always testing in order to try to reduce the cost to acquire a customer.
I'm not saying that you have to go to the nth degree in evaluating your costs, but doing some objective analysis into the costs of running your business can really provide you with some insights into the long-term profitability of your efforts.
About the author
After 12 months of struggle with no results, no downline and no income, Wayne Wu discovered the Complete Business Model, a method of business used by the world's most successful entrepreneurs and companies. He is the creator of The Complete MLM Business which aims to help network marketers understand the principles of success in the business world and how they can apply in MLM. Click here for The Complete MLM Business. Employment Background Check: Recommended on Declining Job Market by:Teena C. Nesbit Real Estate Investing Via Web 2.0 by:Dan Auito Investing During A Recession--The Collectibles Market by:Greg M. Nelson Get Your First Flip Faster with a Mentor by:Karen Roberts Todays Women at Work have Unique Opportunities - A New Call To Action For Womenand Employers by:Kathy Caprino How to Lead in Tough Times by:Kevin Eikenberry The Case for Customer Partnerships by:Kevin Eikenberry Detroit Michigan: The Best And Worst Place To Invest In Real Estate by:Maximillion Richman List Building - Why Is It So Important? by:Michael Smith Sell Your Property in 28 days by:Steve McCall How To Use Greed, Corruption And Stupidity As A Super Thief by:Wendy Stenberg-Tendys Your True Worth by:Zepht Chen Merchant Account Consultant: A Wolf In Sheep's Clothing Or A Merchant's Best Friend by:Ben Dwyer