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More about network marketing in a recession

I made a very long post in a forum, earlier this evening, most of which I'm about to repeat here. A recent member asked "What home business would still work from home, if the economy is so bad I am wondering if either business that I am thinking of doing would work no one has any extra money to buy anything extra. Please give me some insight as to what you think."

Good question, no?

One of the replies said "During times of recession or depression network marketing is very successful because people are looking for something different. Look for a low entry point to start and yes stay away from luxury items."

I could hardly disagree more!

I don't think it's quite right that "no one has any extra money to buy anything", in that I think there are recession-proof customers, as my friend Robin van der Merwe puts it. But obviously there's a recession, and one can hardly be unaware of it.

My own impressions are:-

(i) People in direct sales business (this group includes me, obviously) are mostly whistling in the dark a bit and saying how good a recession is for their business, because it increases the number of people looking for and looking at home-based business opportunities

(ii) While the second part of that is true, it has its downside, too: some of those looking are "looking in desperation" and that's no way, and no time, to be starting a new business and their attrition-rates are very high

(iii) Network marketing companies with expensive products, few genuine retail customers, and high "autoship" volumes are getting into trouble, and some are going out of business, because when people are short of money, distributors whose monthly earnings are lower than their monthly "autoship" commitment - and that's huge numbers of people - start cancelling their "autoship" and effectively dropping out (mostly, they don't call it "dropping out" - I do!), and this can have a colossal impact on companies' cashflows and even their survival

I think that now, if ever, is a time for people to be really careful what sort of home-based business they choose to pin their hopes and future financial prospects on. It's a time to take a long-term view. It's a time to do more "due diligence" than ever before. The last point, especially, because the sad reality is that there are all sorts of astonishing scams touting their "opportunities" at the moment, preying on the desperate, the gullible, the inexperienced and those who don't quite know how to do due diligence.

Many network marketing companies have slipped into insolvency over the last few months, leaving their distributors "high and dry"; and I don't doubt that some more will over the next 6 - 12 months, too. The history of "MLM in recessions" shows that this has often been the case, and it should surprise nobody, I think.

As an experienced network marketer, I can tell you that the number of people approaching us wanting information about our business is higher than it was at this time either last year or the year before. The number of "suitable applicants", however, is about the same. In other words, the proportion for whom "setting up a network marketing business" is an appropriate solution to their situation is lower. This creates more work for us, of course.

It's easy to imagine that this must be a good time for network marketing simply because there are so many "prospects" around. This is a very superficial and misleading view!

Respectfully, I also don't really quite agree with the point above about "luxury items". Some luxury items are actually among the ones only ever really appealing to "recession-proof customers", and can therefore be proportionately affected less by the recession than many others. Paradoxical but true!

Like many successful MLM-ers, I would actually advise people to look specifically for a high entry-point to start (and like all the really successful distributors in my company, I'm pleading with my company to increase it, because ours is too low and that's giving us problems). The great fallacy is to assume that it will be easier to sponsor people if the entry-cost is "more widely affordable", and that that's a good thing. It's true that it will be easier, but it's a huge mistake, in my opinion, and not a good thing at all, especially in a recession: people who are attracted primarily by "low entry cost" make up a very large proportion of the "attrition-rate", and this is exactly the kind of short-term, superficial thinking that sees so many people dropping out of home-based business opportunities after a few months. Those (fewer of them, which is a plus, as they're easier both to identify and to support!) who can still afford higher entry-cost do much better in the long run. It's not about how many people you can sponsor. It's about what proportion of the people you sponsor survive in the medium-term and long-term and build your business for you!

Network marketing in a recession

If network marketing forum posts on this subject are to believed, now’s the best time to be getting into network marketing (that’s the impression one gets there at any time, to be honest!), business is booming (which it probably is, for some) and network marketing as an “industry” always does particularly well in recessionary times (hey, let’s not have history or the facts get in the way of a positive attitude).

What’s the reality?

There are, indeed, more people around at the moment who are looking for a home-based business opportunity. And looking at it only very superficially, one could be forgiven for thinking that that must be a good thing. In reality, however, it’s not necessarily so clever. Let’s see why …

The reason there are more people looking for a home-based business opportunity at the moment is that there are more people looking for additional income-sources, and some of them, very reasonably, look at home-based businesses (usually among other things). So there are certainly more prospective business associates at whom one can target one’s advertising/promotion.

Unfortunately, however, the number of people for whom setting up, running and building their own business is really appropriate and beneficial, in the long term, hasn’t actually increased at all. This means that the “prospectors” are necessarily doing one of two things: either they’re doing more “sorting/qualifying work” for the same returns, in terms of pro rata growth-rate (as we are), or they’re sponsoring people they shouldn’t really be sponsoring (as many are). And the effect of the latter is alarming: not only is their time being taken up by recruiting many people who will end up not duplicating the business profitably, get disillusioned and drop out, but that’s also time they can’t use by spending it with the people they actually need, to grow their business in a lasting way, for the future.

There’s also the little matter that many home-based, network marketing, MLM and party-plan companies, just like many other businesses, inevitably go under in a recession. (We’re already seeing this now: there've been quite a few - the latest victim to close its doors, only the other day, was Body Shop At Home.)

People under great financial pressures may not, overall, make the most promising distributors for our businesses.

What can we learn from all this, and what can we do about it? I suggest two things for two different groups of people.

Those of us with already-secure, growing businesses should be going the extra mile to “qualify” our prospective associates, and make quite sure they really do have the necessary business-owner mindset as well as adequate start-up capital available (and however small the amount they need, it’s considerably more than the company’s “sign-up fee/distributor-kit cost”).

And anyone looking around for a company to join should quickly and firmly cross off their list (among others) any new companies, any “pre-launches”, any “ground-floor opportunities” and any companies without demonstrable and growing sales volumes. These companies, statistically, are a million miles away from being safe to join even in the healthiest of economies (the proportion of them that survive 3 years is frighteningly tiny, wherever you get your figures from!), and right now we’re far from dealing with that sort of financial climate.