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Busting MLM myths about recruiting and retention

Article by: Kenny Rawlins
November 18, 2010

When the show MythBusters first came out in 2003, I was instantly drawn to it. I loved the concept: prove whether or not commonly (or, sometimes, not-so-commonly) held beliefs are actually true or if they are merely urban legends. For those of you who may not be familiar with MythBusters, the hosts of the show use the scientific method to test the validity of myths, adages, rumors, etc.–things like:

  • Can a poppy-seed bagel tilt the results of a drug test?
  • Can a penny dropped from a skyscraper kill a person below?
  • Can chatting on a cell phone while pumping gas cause the pump to blow up?
  • Can you use dynamite to remove cement build-up from a mixer’s barrel?

One of the challenges of being a distributor or corporate executive in network marketing is busting the many myths that exist in the industry today. Building on true principles is key in building for success; few things undermine that like faulty assumptions of industry norms.

In fact, if companies do not understand the way their distributors are behaving and what is normal for the industry, they will introduce compensation plans and incentives that reward the wrong behavior; they will provide training that does not meet the needs of the distributors; and they will make promises they can’t keep. If leaders don’t understand how their downlines are built and what makes new recruits successful, they will set unreasonable expectations and will not reach their full potential.

Unfortunately, we don’t have a popular TV show to separate MLM fact from fiction. But, there is innovative, mythbusting technology out there in the network marketing industry that grounds a compensation plan in facts and figures. At InfoTrax, we call this “commission intelligence”—featuring commission principles, analysis, modeling, and comparisons. It is the foundation for network marketing success. It is a vehicle for a direct selling company to analyze, design, optimize, and execute a sound compensation plan that creates ultimate value for their organization and representatives. Commission intelligence empowers network marketing companies to turn data into profitable decisions, and in turn, target commission dollars to incentivize specific distributor behaviors.

Analyzing MLM Myths

There are many false, yet common beliefs about MLM sponsoring. Let’s look at a few:

1.  How many recruits does the average network marketing distributor sponsor?

Ask yourself the above question. When this question has been posed to groups in the past, answers have ranged from zero to three or four. Hopefully, you got the correct answer—which is “one.” If your answer was something else, don’t worry; you aren’t the first. The reason it’s one is because the total number of distributors sponsored and the total number of distributors eligible to sponsor are actually the same number—the total number of distributors. And, any number divided by itself is one.¹

Why does this matter? One of the questions asked by distributors and company executives alike is, “What is the average sponsor rate of company XYZ?” As you can see, that is an easy question to answer, but the answer doesn’t really help. So, what do they really want to know? The question they should be asking is:

 

2.  At what rate does a distributor need to sponsor to make more than $500 a month?

One of the phrases I have often heard since entering the MLM industry is, “three who sponsor three, who sponsor three.” The idea being, if I join a company and sponsor three people, and they each sponsor three—and so on—we will have built the ideal organization and we will all be successful. In some circles, it is still a commonly used phrase, but is this a valid building philosophy? In a perfect world, sure; but in the real world the answer is a resounding “No!” It is a myth. In general, for a distributor to make more than $500/month, that distributor must be sponsoring at a rate of 8-12 recruits a year initially and continue sponsoring at a rate of 3-4 recruits a year.

 

3.  What does it take to keep a distributor active?

It is natural to wonder what this means for retention. If a distributor needs to sponsor more than 10 recruits to make more than $500/month, but approximately 90% of distributors don’t sponsor more than 3 or 4 and 70% don’t sponsor anyone, does this mean the battle for retention is hopeless? Not necessarily.

What can a company or leader do to minimize attrition? One of the most useful indicators to look at when profiling a company is retention based on earnings. You may be surprised what a big difference a relatively small amount of money can make. Many companies can reach a retention rate of upwards of 90%² simply by helping distributors earn as little as $100–$200 per month. Many in this industry believe the myth that distributors join companies for one of two reasons—either: 1) they like the product and don’t care what they make, or 2) they are in it to make enough money to subsidize or replace their primary income—but, like I said, that is a myth. In reality there is a third group of people who will stay active for long periods of time if they make enough to cover the cost of their product and put a few dollars in their pocket each month. These distributors make up the foundation of a successful organization, yet they are often the distributors who are forgotten.

What Does This Mean?

In the quest to build a successful business model—whether as a distributor or a company executive—one of the keys is identifying what a new recruit’s goals are and then setting a reasonable expectation as to what effort is required to achieve those goals.

Through careful analysis of their own actual data, network marketing companies can gain a deeper understanding of their distributor base—gaining a wealth of knowledge that could be the key to unlocking success never dreamed possible.
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¹ This does not take into account customers and preferred customers, who are generally not eligible to sponsor.
² Distributors in that earnings class who place a 100PV order 11 or more times per year.

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All Articles, Direct Sales Distributor and Customer Retention, How to Compensate Distributors in Direct Sales, How to Run a Direct Sales Company

Kenny Rawlins

Kenny Rawlins has been fortunate enough to have been around the network marketing industry his entire life and has experienced its power...

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