Network Marketing article - Getting the finances right.

This Network Marketing article is a very brief overview of how money works in business.

A Network Marketing business is like any other business.  There's no magic and there’s no suspension of the laws of money.  But I do find that too many networkers leave their brains in bed when it comes to thinking about money and their businesses.

A traditional business buys goods at one price and sells them at a higher price.  Sometimes this is referred to as ‘retail profits’.  These profits, however, are not all kept by the owner, because there are also overheads to be paid.  Depending on the business, these overheads could include labour, heating, phones, rent and so on - and for manufacturing companies there’s even more.

If you’re with one of the Network Marketing companies where you buy stock from them to sell on to customers, usually both the buying price and the selling price are fixed.  Quite often you can buy cheaper when you’re at a higher status level within the company.  Sometimes this situation is abused to encourage people to buy large volumes up-front, well before they know whether they’ll be able to sell them.  Most of the modern companies sell products directly to customers and just send you the retail profit directly.

So, realistically, with nearly all Network Marketing companies you have no control over the retail profit.  If you want more profit you have to sell more goods.  It’s in this area of overheads that I see many network marketers getting it very wrong.  Included in these costs will be everything from phones and travel through attending regular meetings.  However this is not where it ends.

Many networkers, in an endeavour to build their businesses bigger or quicker, undertake some form of advertising or buying of leads.  This is quite often done in order to acquire both customers and distributors.

Firstly let's look at customers.  Does your retail profit actually cover your advertising campaign or leads-buying programme?  This will depend on a number of things:

- the profit on the sale of the products or services
- the length of time somebody will stay with you
- the cost of acquisition of that person. 

In my experience, it’s quite rare that paying to get customers is financially viable.  People usually do it for reasons such as trying to earn enough volume to qualify for bonuses.  But just think about it for a minute - if using advertising or buying leads were profitable, then why would the companies need you?  They could do it themselves and wouldn’t have to pay people in the network.  (See my article on developing this skill of gathering customers.)

So let’s turn our attention to the use of advertising and lead programs to gather distributors.  This is an area where people really do leave their brains in bed.

What’s the cost to you of gathering one more distributor, and what is that distributor worth to you?  For the moment, just ignore the hype about the possibility of signing a superstar who will take over the entire universe! If you look at your existing business, in reality, how long do people stay with you and typically, how much money does that generate for you?