RPF0450-Network_Marketing
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00:00:29.800 | About once a week or so I get an email from a listener that goes something like this.
00:00:36.240 | "Joshua, what do you think about net work marketing, aka multi-level marketing?
00:00:42.840 | Is it a great business opportunity or should I be careful?"
00:00:48.440 | Today let's tackle this minefield.
00:01:07.000 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,
00:01:10.600 | skills, insight and encouragement you need to live a rich and meaningful life now while
00:01:16.640 | building a plan for financial freedom in 10 years or less.
00:01:19.600 | Today let's tackle this very important question because done right, network marketing could
00:01:25.560 | be very profitable.
00:01:27.040 | Done wrong, it could cause major problems.
00:01:39.280 | Network marketing is one of those things where it's increasingly hard for me to believe that
00:01:43.640 | we haven't, all of us, had at least some exposure to it.
00:01:47.560 | What I have found is that many people that I've interacted with, usually if we look back
00:01:51.400 | and start counting, we can find a couple of network marketing experiences in our history.
00:01:56.120 | I know for me, I've been involved in at least three of them that I can, maybe two or three
00:02:01.920 | of them that I can think of.
00:02:03.620 | In high school I got involved with one that featured selling discounted plans for dental
00:02:09.680 | expenses.
00:02:11.000 | This was a little bit of an ironic exposure, early exposure to the world of health expenses,
00:02:16.840 | which I later went into the health insurance business with.
00:02:19.840 | I was involved in a nutritional supplement company that many members of my family were
00:02:25.460 | involved in.
00:02:26.460 | I had a family member that was involved in a company that made air purifiers.
00:02:31.840 | My grandmother was involved with the granddaddy of all network marketing companies, the one
00:02:36.480 | that sells – my mom always used SA8 as her laundry soap for years and years.
00:02:43.360 | What else?
00:02:44.360 | If I went back through, I had a family member that was involved in a decorating network
00:02:49.040 | marketing company, involved in demonstrating or putting up decorating materials for home
00:02:53.800 | decorations.
00:02:54.800 | I've been to parties for the home goods suppliers that sell that.
00:03:01.360 | My wife recently went to a party for the company that does – manufactures silver-infused
00:03:07.480 | cleaning materials.
00:03:09.000 | What else?
00:03:11.000 | There are so many interesting oddball little companies.
00:03:14.140 | So I've got a good amount of experience with network marketing, but I've also done
00:03:17.480 | a lot of research on the subject.
00:03:22.120 | I was heavily recruited by a company that uses the network marketing approach to sell
00:03:26.920 | insurance products and investment products.
00:03:29.640 | In fact, I even maintain a short mental list of a couple of companies that are kind of
00:03:36.120 | backups of backups.
00:03:37.360 | If all of my business ideas failed, if all my plans failed and I needed to create money,
00:03:41.080 | if I didn't have a job, I have a couple of short companies that I've come across
00:03:44.800 | that I would keep on my list of – that are on my list of opportunities that I would personally
00:03:52.200 | consider pursuing as a way to provide for my financial needs and the financial needs
00:03:56.160 | of my family.
00:03:57.420 | So I have a deep appreciation for network marketing companies.
00:04:02.160 | I also have a deep suspicion of that network marketing arrangement.
00:04:08.600 | So let's explain, starting with a discussion of what is network marketing.
00:04:12.880 | I'll usually use this term.
00:04:14.640 | Network marketing could also be used multi-level marketing.
00:04:17.520 | Both of those words are charitable and I think accurate.
00:04:22.040 | However, there are other terms.
00:04:24.540 | For example, people often allege that network marketing companies and organizations are
00:04:29.860 | pyramid schemes.
00:04:31.660 | Or of course, if you get to the word of pyramid scheme, quickly people will get to the question
00:04:35.940 | of a Ponzi scheme.
00:04:37.220 | So what are these things?
00:04:38.420 | Well, a network marketing company is relatively simple.
00:04:41.100 | You sign up with a company as a distributor.
00:04:46.100 | Names of course will vary with the company.
00:04:48.420 | But in essence, a distributor license gives you a dealership license, gives you the ability
00:04:54.940 | to represent that company's products to other people.
00:04:59.540 | Usually you're going to be representing that company's products to people that you
00:05:02.740 | know, people within your network.
00:05:04.980 | That's why it's called network marketing.
00:05:08.900 | The idea is if you find a product or service that you love, then why wouldn't you want
00:05:14.020 | to tell your friends about it?
00:05:15.180 | If they love it and they buy some products or services from you, then why should you
00:05:20.020 | not earn a commission on it?
00:05:22.580 | That's the basic idea of network marketing.
00:05:25.540 | Now network marketing would be very simple if it were kept purely in the realm of marketing
00:05:33.460 | products or services to your network.
00:05:36.340 | However, let's move into the term multi-level marketing.
00:05:40.920 | This term connotes the idea that you can bring other people in underneath you as a level
00:05:47.860 | under you.
00:05:49.700 | And if you are selling products to your friends and you're earning a commission on that,
00:05:55.420 | what about the idea of getting your friends to sell products to their friends, to the
00:06:00.060 | second level of the network?
00:06:02.780 | Why not sign them up to represent the products?
00:06:07.180 | And if you've gotten them to sell the products to their friends, then wouldn't it be cool
00:06:12.300 | if you could also get a commission on their sales activity?
00:06:16.580 | And so that's where we start to get into levels of marketing, the idea here of a multi-level
00:06:23.060 | marketing organization.
00:06:25.180 | Picture in your mind a pyramid and you at the very top of the pyramid are the first
00:06:30.500 | – you're the first person.
00:06:33.100 | Can you underneath you recruit a couple of other people to sell this company's products
00:06:38.700 | or services?
00:06:40.200 | And then what if you can help and encourage them to recruit some other people to also
00:06:43.840 | sell this company's products or services?
00:06:46.580 | Well why not share in the commissions from the levels below you?
00:06:51.260 | Nothing wrong with that.
00:06:53.620 | So this is where we get the term multi-level marketing.
00:06:57.460 | However, notice I've brought in the word pyramid.
00:07:01.200 | What is a pyramid scheme?
00:07:02.860 | The idea here in a pyramid scheme – and this is where we start to get from accurate
00:07:08.000 | to possibly accurate but probably uncharitable at the very least.
00:07:12.420 | An uncharitable term to use, a pyramid scheme or a pyramid scam if some people would call
00:07:17.140 | it is where you are involved in getting other people to sign up under you and they're
00:07:22.900 | involved in getting other people to sign up under them and they're involved in getting
00:07:26.180 | other people to sign up under them and everybody is making all down the road – money all
00:07:30.260 | down the line from all the people that are under them.
00:07:34.960 | So where does it become a scam?
00:07:38.020 | The answer is very simple.
00:07:40.300 | It becomes a scam when products aren't being sold, just distributorships.
00:07:47.140 | And this cutting right to the chase is I believe the most important thing that you should keep
00:07:51.040 | in mind when you are looking at a business opportunity that is functioning according
00:07:56.220 | to this network marketing or multilevel marketing approach.
00:08:00.740 | Are products being sold or are business opportunities being sold?
00:08:07.180 | If business opportunities are being sold, we start to get into the – primarily, we
00:08:12.100 | start to get into the questionable area where it's questionably ethical, which brings
00:08:18.560 | me to the final term I brought in which is a Ponzi scheme.
00:08:21.580 | The Ponzi scheme is an investment scheme where somebody comes in and recruits investors to
00:08:28.340 | chip in a little bit of money for a great return.
00:08:30.260 | Then they use that money and they go and recruit other investors and then they use the money
00:08:33.920 | from the second line of investors to recompensate the first line of investors and they keep
00:08:38.740 | on doing this down the line, down the line, down the line.
00:08:41.620 | But the problem is there's never an investment actually being made.
00:08:45.460 | And so ultimately, the Ponzi scheme collapses and there have been many network marketing
00:08:49.780 | organizations over the years that have collapsed because at the end of the day, very few products
00:08:56.300 | were ever actually being sold and consumed and seemingly the only people that really
00:09:01.380 | got rich were the people who were in at the beginning, who had the biggest networks underneath
00:09:06.620 | them.
00:09:09.220 | So now that you understand these terms, I think you should look at opportunities that
00:09:13.980 | you see and ask yourself the question, "What type of opportunity is this?
00:09:22.020 | Is this a network marketing/multilevel marketing opportunity or is this going over in the direction
00:09:27.940 | of a pyramid scheme?"
00:09:29.760 | Now in a moment, I'll talk about the benefits and drawbacks of multilevel marketing opportunities.
00:09:33.660 | But I want to lead with the most important factor which is this.
00:09:37.540 | You have to ask the question, "Are products being sold?"
00:09:44.260 | And is the bulk of the emphasis that you are hearing in the sales presentation, in the
00:09:52.900 | training, etc. on the sale of products or on the recruitment of salespeople?
00:10:01.740 | I believe that both are legitimate activities.
00:10:06.380 | The whole concept of a pyramid structure of a company wherein people at the top earn income
00:10:13.340 | from those who are underneath them and reporting to them is the way that most companies work
00:10:20.060 | including any company that I've ever been involved in.
00:10:22.860 | If I'm the owner and founder of a company, I go and I have a product or service that
00:10:27.740 | I'm trying to get to the marketplace.
00:10:29.380 | I hire employees underneath me and those employees earn wages for their own activities and then
00:10:37.420 | I take the excess profit that I get from the sale of the product or service minus the wages
00:10:42.540 | that they get and I get to keep that as profit.
00:10:45.420 | Now it's a little bit more – it's a little bit not as direct as it is in a sales organization
00:10:51.780 | as it is in most companies.
00:10:53.620 | But this is traditionally the way that sales organizations work.
00:10:56.560 | For example, the life insurance industry from where I came professionally, the life insurance
00:11:01.580 | industry has worked on this principle for a very long time.
00:11:05.940 | Generally a life insurance company will grant to an employee or an agent something that's
00:11:13.500 | called a general agency contract.
00:11:15.420 | They'll grant a geographic – an exclusive geographic contract to a person called the
00:11:21.580 | general agent.
00:11:23.260 | This general agent contract stipulates that the person who's signing up as a general
00:11:28.060 | agent has the exclusive right to market this company's products or services within a
00:11:32.540 | geographic area.
00:11:34.160 | They also have a duty to actually effectively market that company's products or services
00:11:38.680 | or the contract will be canceled.
00:11:40.700 | The general agent can then go out and recruit – excuse me, and the general agent, the
00:11:46.540 | first person, the general agent will, based upon the amount of products sold within their
00:11:52.180 | geographic area, they will receive their compensation on a commission rate, a generalized commission
00:11:58.460 | rate for all of the products that are sold in the general area.
00:12:01.460 | But the general agent doesn't go out and do all the selling themselves.
00:12:05.540 | What they do is they recruit people who are called district agents.
00:12:10.300 | So a district agent is also somebody who usually has a geographic – an exclusive geographic
00:12:16.100 | contract.
00:12:17.100 | I'm just speaking here specifically to the life insurance business.
00:12:19.780 | That district agent is given a smaller geographic agent.
00:12:23.260 | The district agent has a duty to develop a sales force of life insurance agents within
00:12:29.940 | that geographic area and to report back up to the general agent.
00:12:35.060 | And then the district agent goes and they will recruit life insurance agents and they'll
00:12:41.220 | also put in place a management structure of some kind over those life insurance agents.
00:12:46.180 | The names for the contracts will vary.
00:12:48.580 | But usually, you'll have a sales manager structure of some kind and you'll have a
00:12:53.260 | producer structure.
00:12:55.140 | Ultimately, most of the production will fall on the actual producer, the life insurance
00:13:01.820 | agent, individual life insurance agent out in the field selling something like a life
00:13:05.740 | insurance contract.
00:13:07.440 | But all up the way, as they are productive, the life insurance agent will earn a commission.
00:13:12.580 | Their sales manager will earn a commission.
00:13:15.020 | The district agent will earn a commission and the general agent will earn a commission.
00:13:19.680 | But all along the way, each of those people, the general agent, the district agent, and
00:13:23.260 | the sales manager all produce service or facilities of some kind to help the life insurance agent
00:13:30.740 | do their job.
00:13:32.100 | All they provide is an opportunity, an opportunity for the agent to go out and make a living.
00:13:37.880 | But they simply provide training and support of various kinds.
00:13:42.740 | And it's up to them to figure out what's the best way to do it.
00:13:45.260 | So this structure has been around for a very long time.
00:13:48.300 | And I don't see anything wrong with that structure from an ethical or moral basis.
00:13:53.860 | I see nothing wrong with that structure.
00:13:55.780 | It's a voluntary association between free people who are voluntarily entering into this
00:14:02.040 | contractual arrangement with one another.
00:14:04.460 | Nobody is being forced to do anything.
00:14:06.720 | And at any point in time, the marketplace will offer competitive opportunities for them
00:14:11.100 | to go and do other types of work, for them to go and work with other people, other companies,
00:14:15.900 | et cetera.
00:14:16.900 | So I see nothing morally and ethically wrong with this pyramid approach.
00:14:21.780 | This is one of the standard complaints that's lodged against network marketing companies.
00:14:26.660 | I don't see anything wrong with it.
00:14:28.260 | That said, there are a couple of problems that need to be looked out for.
00:14:33.760 | Number one, is the management and leadership structure actually providing value for the
00:14:41.660 | individual agent at the bottom?
00:14:45.740 | And that's one thing that's unique about the life insurance industry is that those general
00:14:48.940 | agents and district agents and sales managers, they have to provide value.
00:14:53.720 | If they don't, number one, they're going to lose the agent because the agent is going
00:14:57.240 | to fail.
00:14:58.800 | And if they're not providing value, then ultimately the company, the life insurance
00:15:05.800 | company whose products are being represented is going to say, "This is a very inefficient
00:15:09.440 | form of sales.
00:15:11.000 | Let's go and find another sales structure.
00:15:13.120 | Let's go direct to the consumer."
00:15:15.160 | And many insurance companies have done this and have tried it.
00:15:18.440 | The most unique area is where direct to consumer hasn't generally worked has been life insurance.
00:15:25.200 | You could compare here something like automobile insurance, Geico.
00:15:29.840 | When Geico is marketing with their cheesy little commercials all over the place, they're
00:15:34.600 | not telling you to call a Geico insurance agent even though that's what you're actually
00:15:39.560 | doing when you call Geico.
00:15:41.360 | They're telling you to call Geico.
00:15:43.160 | What they've done is they've built a direct to consumer pipeline where if you want car
00:15:48.200 | insurance you go right to Geico.
00:15:50.840 | That's different than another company that has a local agency right there in your town,
00:15:55.360 | maybe a company like a state farm where they have a local insurance office.
00:15:59.800 | And generally you expect to go into the local insurance office to work with the insurance
00:16:03.320 | agent to work out the things that you need.
00:16:06.680 | What companies have found in the areas of life insurance is that although direct to
00:16:09.760 | consumer marketing is possible, you see ads on cable TV, et cetera, for life insurance
00:16:15.720 | sales, generally most people don't on their own decide, "I'm going to go out and buy life
00:16:20.200 | insurance."
00:16:21.200 | Life insurance is not required by law and it generally will involve the salesmanship
00:16:25.680 | of an insurance agent to convince people of the value of life insurance that they'll buy.
00:16:30.280 | So life insurance companies continually find that this agency system provides enough value
00:16:36.140 | for them to sell their products at an acceptable rate.
00:16:39.000 | So the system has to bring value.
00:16:42.240 | But if there's too much taking and not enough producing, then it will collapse.
00:16:46.880 | And this unfortunately is what has happened and is happening and will happen with many
00:16:52.280 | multi-level and network marketing companies.
00:16:54.160 | And I think you should steer clear of a company or organization that is built primarily on
00:17:00.400 | recruitment and not on the sale of product.
00:17:04.300 | Because fundamentally the company that's offering the distributorship has to be selling product.
00:17:12.120 | Nothing is happening until product is being sold.
00:17:15.680 | If all that is being sold is business opportunity and no product is actually moving, then we've
00:17:21.240 | got a problem.
00:17:22.660 | That company will in time collapse because there's no value being brought.
00:17:27.000 | Now, the couple of things you want to be careful of, some network marketing companies will
00:17:30.680 | sell product packaged up with the business opportunity and they'll do it either in an
00:17:36.700 | ethical way or in an unethical way.
00:17:39.860 | For example, I have a family member who's involved in a company where their distributorship
00:17:45.100 | license is based around the sale of a small kit of the company's products.
00:17:50.960 | Well, in that situation, if you buy that complete kit, you have an opportunity to go ahead and
00:17:55.820 | order at a wholesale level.
00:17:58.200 | Nothing wrong with that.
00:18:00.960 | And you have to be careful with the nothing wrong with that.
00:18:04.120 | It's a reasonable enough cost to mean that it's not a huge problem.
00:18:08.280 | However, some companies have had such massive amounts of minimum product orders that they
00:18:13.280 | expected that it's really caused significant problems and it's gone into a very shady gray
00:18:18.040 | area where – can you make the argument?
00:18:21.160 | Well, it was done openly and ethically, volunteer exchange between two people.
00:18:24.760 | I think you can make that argument.
00:18:26.560 | But with all the information fully understood, it just feels pretty slimy.
00:18:31.200 | You wouldn't want to be involved in it.
00:18:32.520 | So this is where the reputation of people having thousands of dollars worth of product
00:18:35.560 | in their garage has come from.
00:18:38.760 | So be careful.
00:18:40.280 | My litmus test for whether you should pursue an opportunity or not is based around product
00:18:49.240 | sales.
00:18:51.000 | Is the product being sold?
00:18:54.440 | Now, product can be sold and people can also work on a recruitment.
00:19:01.500 | But you have to recognize that recruitment is in many ways much more difficult and requires
00:19:06.920 | much more work than the sale of the product.
00:19:10.040 | There's a very small subset of people who are going to be very good at recruitment and
00:19:15.000 | very good at training a sales organization.
00:19:18.280 | This is where a lot of the network marketing companies break down because everybody is
00:19:21.760 | recruited.
00:19:23.720 | Then it leads to very sloppy, very difficult sales organizations.
00:19:29.800 | Another white line test that you want to look for is how far down does the compensation
00:19:33.880 | go?
00:19:34.880 | In the example that I illustrated from the venerable life insurance profession, you notice
00:19:39.600 | that you had a few structures, a few levels of compensation.
00:19:43.440 | But ultimately, that level of compensation in my example was capped out at about four
00:19:47.960 | – general agent, district agent, sales manager, and company.
00:19:52.600 | So actually three levels there – sales manager, district agent, and general agent.
00:19:57.040 | That is a supportable structure where you have a few layers of incentive compensation
00:20:03.920 | built.
00:20:05.040 | But if you were to go much beyond that number – and I don't know the specific number,
00:20:09.120 | maybe three, four, five, six, I don't know.
00:20:12.400 | But if I came across a company that was offering compensation on an unlimited number of people
00:20:20.520 | underneath me, there's just no way to support that much money.
00:20:24.240 | There's no way that you can earn all down the road, down the line.
00:20:28.520 | So if I came across a company like that, I would turn and run for the hills just because
00:20:33.300 | there's no way for it to continue.
00:20:36.800 | If you get to a point where you have an excessive number of levels, this should also be a major
00:20:40.720 | red flag.
00:20:41.880 | What number is excessive?
00:20:42.880 | I don't know.
00:20:43.880 | I didn't research prior to this show to see if even there are regulation in this industry
00:20:46.960 | now as far as how many levels.
00:20:48.320 | But I mean to me, ten feels excessive.
00:20:51.360 | Five feels – okay, I could see that supported.
00:20:53.940 | But much beyond five, I would start getting a little bit nervous.
00:20:58.360 | The fundamental trouble with a lot of network marketing companies is because you're often
00:21:02.260 | selling such niche products, there's just not a lot of business that's going to be
00:21:06.960 | done with the average normal person.
00:21:08.800 | If you're selling a health supplement, are most people going to buy a health supplement
00:21:13.600 | that's in excess of – under $50 a month?
00:21:16.920 | Well, your commission rate on $50 a month is going to be pretty small.
00:21:21.760 | Now if you set it up on an ongoing basis and they order every month and let's say that
00:21:25.840 | you're paid a $10 commission out of their $50 order, you get enough of those people
00:21:30.120 | signed up and you can have a really nice residual income, which is the big attraction of network
00:21:35.440 | marketing, that can work.
00:21:37.680 | But that's going to be a lot of work.
00:21:39.940 | The big thing to watch out for also is those big packages though because what can happen
00:21:44.720 | is if you are incentivized with a commission rate that is – let's be conservative.
00:21:50.800 | Let's say it's 10 percent of the product sale.
00:21:53.480 | If you can get somebody to buy a $500 distributorship package versus a $50 initial monthly order,
00:22:02.060 | you're going to be much more incentivized to sell that $500 distributorship package
00:22:06.000 | with the initial purchase of all the products.
00:22:09.000 | Now you've got a problem where you are incentivized to try to recruit the wrong people to sell
00:22:17.040 | product.
00:22:18.600 | Sales is really, really tough.
00:22:21.620 | It requires a lot of training, a lot of practice and/or a unique personality.
00:22:29.160 | Most people are not cut out for direct sales.
00:22:31.880 | Most people are not emotionally wired to be able to exist in that world of constant rejection
00:22:37.580 | without it flustering them.
00:22:39.920 | So my biggest concern about many of these companies is the recruitment of people who
00:22:44.360 | are ill-suited to the industry.
00:22:46.960 | Let me use life insurance as an example.
00:22:50.480 | When I was in the life insurance business, I could recruit people to the company that
00:22:53.960 | I was working with and I would get a bird dog fee if I recruited somebody in that ultimately
00:22:58.560 | wound up signing a contract.
00:23:00.540 | But during the process of recruiting the agents, we interviewed dozens and dozens of people
00:23:07.760 | for every person that signed a contract.
00:23:10.440 | Those people were put through rigorous tests to make sure that they were a good fit.
00:23:15.120 | Even under those circumstances, personality profiles, multiple interviews, homework assignments
00:23:19.680 | to weed them out, background checks, et cetera, even under those circumstances, many people
00:23:24.000 | would allege that we still hired way too many people, way too many people who were not suited
00:23:28.160 | well for the industry.
00:23:29.840 | That gave the industry that I was in a little bit of a bad rap because of the over-recruitment
00:23:33.860 | of people who were poorly suited for it.
00:23:35.960 | We still had a massive failure rate.
00:23:39.680 | Now I had experience with a network marketing company who was also involved in a similar
00:23:44.700 | business that I was in.
00:23:46.320 | When I watched their recruiting policies, I was dumbfounded.
00:23:50.960 | I was shocked and appalled at the type of person that they were interested in recruiting.
00:23:56.360 | I actually take great pride in the fact that I talked a few of my friends who were being
00:24:01.600 | recruited by a company in the financial business out of the industry by giving them a little
00:24:08.160 | bit of knowledge, a little bit of inside experience because I saved them a significant amount
00:24:14.980 | of pain and suffering and problems.
00:24:18.860 | I'm proud of that because I believe it was in their best interest, which brings me, as
00:24:22.640 | we continue on to the benefits of network marketing and more of the drawbacks of it.
00:24:28.880 | One of the things I love about network marketing is the equality of the opportunity because
00:24:37.720 | there are very few screens.
00:24:42.320 | If you want to find a distributor of any company that you got your eye on locally, you just
00:24:46.820 | start looking around.
00:24:47.820 | You'll find them and they'll sign you up.
00:24:49.820 | There are a few things.
00:24:50.820 | You probably have to, in some cases, pass a background check.
00:24:53.780 | There are certain things, but in general, you can get a distributorship with a network
00:24:57.220 | marketing company if you want one.
00:24:59.540 | So there are very few screens.
00:25:00.540 | So there's tremendous opportunity.
00:25:03.500 | For somebody who is blocked out of other industries, let's say that you don't have a college degree
00:25:10.740 | and the industry that you'd like to be in is going to require you to have a college
00:25:14.420 | degree.
00:25:15.420 | Well, in that situation, go and find a network marketing company.
00:25:17.980 | They're not going to require a college degree.
00:25:20.140 | There are many other things.
00:25:21.560 | If you have certain things in your history or your past or in your way of living and
00:25:26.640 | your lifestyle that make you objectionable to be getting hired by some sales organizations,
00:25:31.420 | you can get a sales job in a network marketing company pretty simply and pretty easily.
00:25:38.500 | That is very doable.
00:25:39.500 | I love that.
00:25:40.500 | I love that.
00:25:41.500 | A quality of opportunity for any person.
00:25:44.900 | And if you are coachable and if you can find somebody who can give you a plan, you can
00:25:51.540 | use the law of large numbers to your good effect, you can hustle and you can build a
00:25:59.540 | massive, hugely lucrative business with just a very simple opportunity.
00:26:06.220 | There are so many network marketing companies who have minted so many millionaires, people
00:26:11.820 | who came from disadvantaged backgrounds without a lot of knowledge or education, but they
00:26:16.220 | came in and they saw the business opportunity and they buckled down and worked.
00:26:25.220 | That can work.
00:26:26.220 | In the process, you can transform your life from where you are to where you want to be.
00:26:33.580 | I love that.
00:26:34.580 | I said earlier that I have a short list of companies that have products or services that
00:26:39.180 | I think are unique, that are useful, and that fit well into the direct sales marketplace.
00:26:45.620 | So I have those there.
00:26:48.900 | But this also brings to the downside.
00:26:53.420 | Because recruitment is so easy, it's easy to recruit the wrong people.
00:26:59.100 | And because there can be a financial incentive off of those recruitment packages, it can
00:27:04.900 | be very lucrative to recruit the wrong people.
00:27:10.800 | In general, it's my opinion that it's possible to do ethically.
00:27:14.500 | But over time, this has led to a consistently bad reputation for many large network marketing
00:27:23.700 | companies.
00:27:27.140 | That's why today you often hear somebody who is representing a network marketing or multi-level
00:27:31.720 | marketing opportunity, you often hear them saying, "Well, this is not multi-level marketing.
00:27:36.260 | It's not network marketing.
00:27:37.460 | I've been in these presentations or in these conversations."
00:27:39.980 | I look at them and say, "Yes, it is.
00:27:42.380 | You're just trying to avoid the bad reputation."
00:27:44.580 | Now, is there a way out of that?
00:27:49.060 | I don't know.
00:27:50.060 | I think the people who are successful just simply ignore that and go after it.
00:27:53.180 | And they ignore all of that stuff and they just go and try to bring on more people.
00:27:58.980 | Oftentimes great advantages and disadvantages work as the inverse of each other.
00:28:06.300 | Network marketing is a great opportunity for anybody because there are no barriers to entry.
00:28:12.820 | But because there are no barriers to entry, the industry is rife with problems.
00:28:18.980 | The greatest benefit is also, in my opinion, one of the greatest flaws.
00:28:23.220 | If you are going to succeed in network marketing – let me pause just a moment and I'll
00:28:28.060 | close with that little encouragement.
00:28:31.180 | You need to be careful when you choose the company that you're choosing them and they
00:28:35.140 | have a legitimate competitive advantage in the product space that you're interested
00:28:39.740 | in.
00:28:40.740 | Many network marketing companies sell expensive products that are overhyped and oversold.
00:28:52.060 | Often this is due to the structure of the compensation.
00:28:55.620 | If a company has a similar or equivalent product, that company might be able to sell it through
00:29:01.700 | a mass direct-to-consumer distribution system.
00:29:05.340 | If they can cut out the whole expense of paying all those commissions to all the levels, they
00:29:09.340 | can sell it cheaper.
00:29:11.180 | You can buy vitamins at Costco for pretty cheap.
00:29:15.020 | You don't have to buy your vitamins from a specific fancy company that sells them to
00:29:20.320 | you through an individual person.
00:29:22.500 | So you've got to make sure that you're choosing a company that has competitively
00:29:27.180 | priced products.
00:29:29.420 | The other problem with the products is because companies often know that their products are
00:29:34.260 | going to be premium products, very expensive, then they run the risk of having those products
00:29:42.700 | commoditized.
00:29:44.460 | And this has happened and is happening more and more.
00:29:48.020 | And in order to try to avoid the trap of commoditization, the company can oversell the product.
00:29:55.220 | I think there are possibly products that are legitimately unique and fantastic that are
00:30:00.100 | sold in this way.
00:30:02.180 | So if you're going to join a company, it's my opinion, you had better be a believer,
00:30:08.420 | a true, hardcore, committed believer in the product and the mission of that company.
00:30:15.860 | Because as one sales trainer I used to listen to would say, "Sales, successful, effective
00:30:21.220 | sales is simply the transference of emotion, the transference of enthusiasm.
00:30:28.140 | If you feel the way about my product that I feel about my product, you're definitely
00:30:31.740 | going to buy.
00:30:32.740 | There's no reason why you wouldn't buy."
00:30:34.300 | So the first person to be sold has to be the salesperson.
00:30:38.660 | So you better make sure that you're choosing a product or service that you can sell without
00:30:43.860 | any reservation in order for you to be successful.
00:30:50.540 | That is crucial.
00:30:54.340 | You've got to choose that.
00:30:57.020 | I think network marketing opportunities will become increasingly difficult as a larger
00:31:03.580 | and larger percentage of the population becomes digitally and internet literate.
00:31:11.300 | Think about this.
00:31:13.020 | When you use my Amazon link for radical personal finance and you click on something that I
00:31:18.820 | link to in the show, whenever I talk about a book or a product or something that I'm
00:31:23.020 | talking about, I'm telling you about something and I put that link in there to Amazon and
00:31:28.420 | I put an affiliate link.
00:31:30.060 | I've signed up for an affiliate account with Amazon and when you click on that, your browser
00:31:36.180 | puts a little cookie in your browser and whatever you buy after clicking on that link for a
00:31:41.140 | period of time, I think it's 30 days, something like that, I will receive a small commission
00:31:46.280 | on the sale of the product.
00:31:48.100 | You don't pay any more.
00:31:49.340 | I just receive a small commission.
00:31:51.300 | It's a few percent.
00:31:53.380 | Depends on the product.
00:31:54.380 | I don't remember the exact percentages.
00:31:55.820 | I make about $15 a month from Amazon commissions in the present circumstances.
00:32:02.020 | In essence, what I have simply done there is replicated and what Amazon has done is
00:32:06.620 | replicated network marketing.
00:32:09.580 | I signed up for a distributorship with Amazon and then I'm advertising products and services
00:32:16.980 | that they have for sale to you, my network.
00:32:21.860 | Well, more and more companies can do that going direct through digital means and many
00:32:28.460 | network marketing companies don't permit that.
00:32:31.780 | My biggest beef, remember I said that I have a few companies that I think I could work
00:32:38.940 | effectively in and make a fortune with?
00:32:42.860 | I don't think I'll ever pursue them because the power of being able to do it digitally
00:32:47.420 | is so much stronger than doing it one on one that I can't see pursuing them.
00:32:55.540 | Many of the network marketing companies, a few of them don't, but many of them refuse
00:32:59.020 | to allow their representatives to have any kind of external independent digital marketing
00:33:07.060 | presence.
00:33:08.060 | You can have a generic, stupid, corporatized website on that company's website, networkmarketingcompany.joshuasheets.com
00:33:19.860 | and if people sign up through that link then you'll get a commission, but you can't do
00:33:25.740 | any kind of juicy, really good, powerful marketing with that because they got to protect their
00:33:30.260 | brand.
00:33:31.260 | That's what they're worried about.
00:33:32.860 | Because of that, it's a huge cost for someone like me who is functional and competent in
00:33:38.540 | the world of the internet.
00:33:41.100 | Huge cost.
00:33:42.980 | I wouldn't give up the leverage of the internet to go after a one on one sales opportunity,
00:33:50.180 | but there are many people who are not functional on the internet or who don't have any interest
00:33:56.200 | in digital marketing like I do.
00:33:58.700 | For those people, the opportunity to sit down with somebody and do a presentation over a
00:34:02.140 | cup of coffee is powerful and can lead to a huge opportunity.
00:34:09.740 | One more caution and I'll give you my closing advice.
00:34:12.800 | Be careful when you sign up with a network marketing or multi-level marketing company.
00:34:18.520 | Be careful about the products and resources that are dedicated to your business opportunity
00:34:25.340 | that you are encouraged to buy or to sign up for.
00:34:29.480 | On the one hand, education is incredibly valuable.
00:34:34.040 | Buying books, buying audio courses, attending seminars and conferences to help you become
00:34:39.580 | a better salesperson, this is hugely valuable.
00:34:43.860 | Hugely valuable.
00:34:46.240 | But on the other hand, it's easy to let your investment in this education and information
00:34:55.940 | far outstrip your earnings and profit.
00:35:02.540 | Many people have made poor decisions.
00:35:06.660 | They filled the garage full of stuff, either physically or metaphorically, by making massive
00:35:13.100 | initial orders of products and services they didn't need but simply signed up for because
00:35:19.020 | of the business opportunity.
00:35:21.980 | They bought mountains of training products at a very high price that they didn't implement
00:35:30.400 | into their own life.
00:35:32.860 | Now a very small subset of the people who did that pushed through in the face of every
00:35:39.100 | obstacle and came out the other side with a massive booming business grateful for their
00:35:46.460 | success.
00:35:48.060 | But many people faced those same circumstances and came out the other side with a big hairy
00:35:52.500 | credit card bill and a failed business.
00:35:55.100 | And I don't want that to happen to you.
00:35:58.820 | I think there's a real balance between optimism and prudence.
00:36:05.140 | Always be optimistic.
00:36:07.900 | Dream big.
00:36:09.140 | Look for the huge opportunity.
00:36:11.320 | But be prudent and careful and let your optimism be borne out by careful investigation, careful
00:36:18.820 | research and a careful approach to the investment of your hard-earned money.
00:36:26.860 | I want you to have access to business opportunities that can help you to make your fortune.
00:36:33.280 | But I don't want the only person who wins to be the person who signed you up for a big
00:36:40.660 | hairy distributorship contract that was accompanied with a lot of expensive overpriced products
00:36:48.540 | and the person who sold you a bunch of educational materials and got rich off of the sale of
00:36:53.420 | the info product and didn't effectively show you how to do the business without just marketing
00:37:01.560 | the info.
00:37:03.240 | I would be remiss if I didn't point out the value of having something like a network marketing
00:37:09.420 | company as a part-time business.
00:37:14.080 | I consistently recommend to you that you have some sort of part-time side business in your
00:37:20.560 | family.
00:37:22.400 | This opens up many opportunities to you to transfer some of your expenses from the personal
00:37:29.420 | side of the expenditures, expenses that are made after tax, over to your business where
00:37:37.840 | you can pay for those expenses on a pre-tax basis.
00:37:42.680 | Very simple example here would be health insurance.
00:37:44.960 | If you have a $500 a month health insurance bill which is not being paid for by your employer
00:37:50.200 | and is just simply being paid out of your personal checking account, unless it exceeds
00:37:54.980 | the limitation for health insurance expenses, which is about 7.5% or 10% of adjusted gross
00:37:59.800 | income now.
00:38:00.800 | Anyway, most people are not going to exceed the health-related expenses of health insurance.
00:38:05.920 | You're going to be paying that $500 a month on a post-tax basis, which means that you
00:38:12.560 | had to earn money, pay your employment taxes, and your income taxes to pay for your health
00:38:18.880 | insurance.
00:38:19.880 | Now, if you had a side business such as a network marketing business that was bringing
00:38:27.020 | in money that could account for that bill, then that would allow you to pay for that
00:38:31.960 | health insurance bill with deductible dollars so that you could save the money that you
00:38:38.520 | were spending on the employment and the income taxes, which could be substantial, could be
00:38:44.320 | minimal or could be substantial depending on your tax rate.
00:38:47.640 | So there are plenty of legitimate reasons why you should always want to have a business
00:38:52.400 | in your family.
00:38:53.840 | Without playing games and getting into the shenanigans, be careful.
00:38:56.480 | There's a lot of bad advice given in the world of taxes, especially as it relates to
00:39:01.800 | businesses.
00:39:03.080 | You cannot go on vacation and call it a business trip and expect it to pass muster with the
00:39:08.880 | IRS.
00:39:10.340 | Business expenses are those that are ordinary and necessary for the conduct of your business.
00:39:16.040 | But you can go to the industry convention that happens to be in a nice place and deduct
00:39:21.960 | those expenses.
00:39:23.560 | You just can't go on vacation and call it a business trip.
00:39:26.680 | So be careful.
00:39:28.480 | Obviously, the rule is not that you can't enjoy yourself on a trip.
00:39:33.400 | If your company, your network marketing company is having their seminar in Honolulu, Hawaii,
00:39:39.160 | you can go and you can have a good time.
00:39:41.320 | You've just got to be there for business purposes.
00:39:43.640 | And if you haven't arranged business purposes that are before or after the conference, you
00:39:49.000 | can't hang out in Hawaii for a week on the taxpayer dime and list that as a deductible
00:39:56.400 | expense.
00:39:57.400 | Of course, you could use some, at least some or all of your airfare would be, even if you
00:40:01.240 | did hang out for a week.
00:40:03.040 | The point is to emphasize that, yes, there are benefits to having a business and a multilevel
00:40:07.680 | marketing company can help in that space.
00:40:12.560 | But make sure you're getting good advice there and make sure that you're not being foolish.
00:40:22.120 | You have to actually conduct the business in a business-like manner.
00:40:25.600 | If you're just, "Hey, once a year I do a presentation," not going to work, not going to happen.
00:40:31.060 | You've got to actually be pursuing it.
00:40:33.360 | So as with most things, these things are pretty straightforward.
00:40:35.640 | Just make sure that you're going to pursue it.
00:40:38.240 | So here's my advice for you if you're interested in something like a network marketing business.
00:40:42.100 | Number one, recognize that it's probably not going to make you financially independent
00:40:46.360 | where you're going to have $10,000 a month coming in without your having to lift your
00:40:50.260 | finger and work.
00:40:52.220 | Network marketing opportunities are not passive income opportunities.
00:40:56.900 | They are residual income opportunities if you're using a company that offers a residual
00:41:04.320 | payment structure.
00:41:05.760 | For example, if you're selling something like books, a company that sells books or a company
00:41:10.800 | that sells physical products, your sale is going to be based upon the initial sale of
00:41:17.960 | what's actually sold.
00:41:18.960 | There might not be repeat sales.
00:41:20.520 | However, there are companies where the structure is built around repeat sales, either repeat
00:41:25.640 | sales where as long as they keep the product in force, such as an insurance product or
00:41:29.820 | such as a discount product of some kind, then you receive an ongoing commission, or there
00:41:34.760 | are companies that the actual product is a consumable item.
00:41:39.120 | If they order $50 a month worth of product out of the company's catalog, then in that
00:41:43.520 | circumstance you'll continue to receive your commission for as long as things happen.
00:41:48.600 | But this is residual income.
00:41:49.760 | It's not passive income.
00:41:51.320 | Over time, if you're not actively building and growing your network, it will atrophy.
00:41:55.480 | People will find alternatives for the products that they used to think were fantastic, but
00:41:59.520 | now they think another product is fantastic.
00:42:01.960 | Some distributors that you signed up as representatives underneath you will fail.
00:42:07.960 | Some of them will go on and join other companies that they're more excited about, etc.
00:42:12.980 | So if you don't care and feed your network and your business, it will atrophy and eventually
00:42:17.640 | diminish significantly.
00:42:20.480 | Be realistic and optimistic in what you're looking for.
00:42:25.620 | Recognize that before you start dreaming of $20,000 a month, you'll first need to get
00:42:29.400 | to $200 a month.
00:42:31.800 | It's okay to dream of $20,000 a month.
00:42:33.760 | I worked with a couple of clients who had multi-six-figure incomes as leaders in network
00:42:38.280 | marketing organizations.
00:42:39.280 | I'll get to that in a moment.
00:42:41.080 | It's possible, just not probable.
00:42:45.200 | It's probably not you.
00:42:47.280 | It's very possible to build a business that gives you a few hundred dollars a month on
00:42:53.000 | a part-time basis individually.
00:42:55.120 | I've known many, many people who've built successful, effective businesses that either
00:42:59.640 | allow them to get their products for free, just like I can do with Amazon if my Amazon
00:43:05.800 | bill were only $15 a month, so it allows them to get their products for free, or that gives
00:43:12.280 | them a few hundred dollars a month because of their efforts.
00:43:15.640 | This is eminently doable with many companies.
00:43:19.600 | Start with that.
00:43:20.600 | The people who move on to make the tens of thousands of dollars a month are those who
00:43:24.800 | are going to pursue this vigorously on a full-time basis.
00:43:29.920 | That full-time might come in the future, but maybe you're working part-time now and you
00:43:32.840 | want to transition over on a full-time basis, and who have developed significant sales and
00:43:38.720 | sales management skills.
00:43:41.520 | That could be you if you apply yourself.
00:43:46.840 | Without a doubt in my mind, if I were left without other options that I were more excited
00:43:50.880 | about, I could go, I could join a network marketing company, and I could build a massive
00:43:55.840 | sales organization that would give me ongoing residual income, control over my time, flexibility
00:44:02.840 | of schedule, and a significant amount of money.
00:44:06.800 | I could do that, and you probably could too if you want it bad enough and you're willing
00:44:12.640 | to work at it, but don't think it's going to come easy.
00:44:16.840 | I listened to a great presentation a couple years ago from a guy who was involved in a
00:44:20.560 | nutritional supplement company that was famous for their shakes, and he talked about his
00:44:25.960 | work schedule.
00:44:27.880 | This man was making hundreds of thousands of dollars per year, living an excellent lifestyle,
00:44:34.580 | and he worked 85 hours a week for many years, 70 or 80 hours a week.
00:44:41.480 | He worked early in the morning, all day long, at night, and he used every possible method
00:44:49.280 | of getting involved with people.
00:44:50.920 | He didn't get there just by talking to people that were his friends and selling them a few
00:44:54.960 | products at a sales presentation.
00:44:57.000 | He got there by talking to people who were his friends and then going out and systematically
00:45:03.360 | soliciting other people to work in a sales organization, and it worked.
00:45:09.240 | So I don't see anything inherently wrong with network marketing or multilevel marketing,
00:45:14.720 | at least nothing inherently wrong with the structure.
00:45:18.000 | I see problems in the application, and I see companies that you should stay away from.
00:45:21.800 | If you follow the guidelines that I've given you, then there are companies that you will
00:45:26.160 | come across and you'll say, "Wait a second.
00:45:27.880 | This is a major problem.
00:45:29.960 | Move on."
00:45:32.000 | But I do see a lot of opportunity.
00:45:34.040 | So if you're excited by that—and by the way, you need to be excited by the prospect
00:45:37.640 | of person-to-person meetings, person-to-person marketing.
00:45:41.920 | If you get excited by that, then a network marketing company might be good for you.
00:45:48.400 | In many ways, I think they're best served for the person who's going to do it on a part-time
00:45:52.000 | basis without trying to make it into a huge, huge business.
00:45:56.760 | Why do I say that?
00:45:58.280 | Because I think if you were to apply that same work ethic and the same knowledge and
00:46:02.240 | the same level of focus to other areas that are not network marketing, I think you could
00:46:11.800 | do far better.
00:46:12.800 | Depending on your skills and your interests, I think that you could do far better.
00:46:17.400 | In that network marketing example I said, where I said I'm confident I could go and
00:46:20.800 | I've seen other people who've built legitimately—I've done their financial planning for them—legitimately
00:46:26.600 | a couple hundred thousand dollars a year of income, well, why would I not go do that?
00:46:32.080 | Because I could take those same skills and I can go to the life insurance business or
00:46:35.760 | the financial planning business and I could become a general agent and I can make a few
00:46:39.240 | million dollars a year.
00:46:41.280 | So why would I not go and become a general agent of a life insurance company, make a
00:46:44.880 | million or a couple or three million dollars a year instead of making a few hundred thousand
00:46:49.160 | dollars a year with a network marketing company?
00:46:51.080 | That would be my perspective.
00:46:53.140 | But other people might not have that approach.
00:46:55.680 | Many people don't have any interest or knowledge of finance, et cetera, and you've got to weigh
00:47:00.200 | your options.
00:47:01.880 | So I hope this show has been useful to give you some ideas about some of the opportunities
00:47:06.040 | that are really available to you.
00:47:07.760 | I hope that you can take this information and implement it in your own life.
00:47:11.600 | Don't run from network marketing opportunities.
00:47:14.560 | I like to go to the presentations.
00:47:16.120 | I like to learn about the opportunities.
00:47:17.560 | It's been a while since I've reviewed one.
00:47:21.520 | So I think they're useful.
00:47:24.240 | My biggest beef is oftentimes it's going to be restricted to person-to-person sales.
00:47:27.520 | At this point, that's a no-go for me.
00:47:31.400 | I can do better with Amazon just because I can sell it more broadly and many people agree.
00:47:37.000 | But for you, network marketing could be really, really good.
00:47:39.320 | I hope this arms you with the information you need to be an educated consumer.
00:47:45.360 | Be optimistic and prudent in all things.
00:47:49.080 | That's it for today's show.
00:47:50.440 | I hope you've enjoyed this.
00:47:51.440 | This show, I hope, has been helpful to you.
00:47:53.360 | If you have additional questions about network marketing, if you think there's something
00:47:56.520 | I missed, if you think I was wrong about something, then come on by the show page at RadicalPersonalFinance.com
00:48:01.280 | and comment on today's show.
00:48:03.280 | Let me know.
00:48:04.280 | If I didn't correctly correct anything I got wrong or if you spotted something, I'd be
00:48:07.640 | happy to know about it.
00:48:09.000 | Thank you for listening.
00:48:10.000 | If you would like to support the show, you can just send me money directly.
00:48:12.560 | You don't have to buy a package of products or anything from me.
00:48:15.040 | You don't have to sign up for a business opportunity.
00:48:16.760 | You can just send me money.
00:48:17.760 | You can do that at RadicalPersonalFinance.com/patron.
00:48:21.280 | Thank you to the about 260, 265, 270 of you who do that every month.
00:48:27.800 | Thank you very, very much for that.
00:48:29.440 | Go to RadicalPersonalFinance.com/patron and sign up for that.
00:48:32.880 | A couple of products.
00:48:33.880 | Let's see.
00:48:34.880 | I couldn't remember who's on my advertising list for today.
00:48:45.280 | Now I'm stammering flat-footed and not knowing what to say.
00:48:50.360 | Tell you what, just send me the money directly.
00:48:52.160 | Joshua Radical.
00:48:53.160 | I mean, Patreon, whatever.
00:48:54.160 | I'm out.
00:48:55.160 | It's been a long day.
00:48:56.160 | Up too early and not thinking straight.
00:49:00.400 | I'll be back with you tomorrow.
00:49:19.320 | This show is part of the Radical Life Media network of podcasts and resources.
00:49:24.940 | Find out more at RadicalLifeMedia.com.