Sunday, November 22, 2009

Franchising and Multi-Level Marketing

Self Employment blog #2

These are two quick ways to get into your own business.

Franchises: One option for starting your own business is to buy a franchise. This can be a great way to get a business going and, if you get the right one, it can be a great financial boon. The big benefit of a good franchise is that all the set up work and on the job training has been taken care of. A good franchise will give you great training in their proven system of doing things and then help and monitor you as things progress. They will help with a location and get you going. If you do it their way you are almost guaranteed to succeed. One problem is that the franchises you can afford are the ones who don’t do any of these things. They take your money, mail you a Xeroxed copy of their manual and say “Where’s my royalty check?” There are exceptions of course but generally you need the big bucks to get a good franchise.

Multi-Level Marketing: This type of business is also called Network Marketing. Here is Wikipedia’s definition of MLM:

The basics of MLM are fairly simple. MLMs are usually centered on a consumer product. The product is always top quality (according to the company) and more expensive than similar products you can buy at your local store. You are recruited to be a distributor of this product by someone who is already in the business. This might be a friend or colleague. You are encouraged to sell the product and to recruit distributors. You earn money on your own sales and a commission on the sales of the people you recruit and those that they recruit, ad infinitum. This organization is called your “downline”. The more people in your downline, the more you earn.

MLMS are generally inexpensive to enter. They also entail much more work than you are led to believe. The success rate in this type of business is no better than starting any other small business and is probably much smaller. You can be fabulously successful but that is a rarity. Most participants plod along and then drop out. My observation is that companies in MLM pop up, are very popular, and then settle into a maintenance mode. Then someone decides that you can MLM dog biscuits and folks jump on this bandwagon. I have had some clients who have generated some income from this business model but most have dropped out within a year of joining. For an MLM to work, everyone needs to sell product as well as recruit more people to sell. Setting up a wholesale club by recruiting distributors and using the products but not selling will not work.

Next time, I will discuss corporations, LLCs, and sole proprietorships.

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