Business Models

Everything You Wanted To Know About

Business Opportunity Models

(this page makes most sense if you’ve read the home page)

This will save you from wasting your time with all the useless ideas, scams and weak "opportunities" out there -a complete survival guide to the truth about business opportunities. This is the most concise info you will find on this. It took me decades to learn, working with top mentors, business coaches, and many good & bad experiences.

This chart is a visual summary of the business models used to market products and services...

 

Here is Melaleuca's breakdown of the difference between Multi-Level Marketing (MLM) and their Consumer Direct Marketing...

If you want to further understand how to compare one company to another, here are more specific details about the terminology, compensation plans and business models. 
The first chart and much of this content was written by Harvey Hess, one of the leaders in our team. He is the former President of the Circle K Grocery group, one of the largest retail chains in the world. Watch his testimonial here.

BUSINESS OPPORTUNITY

Could be a business for sale but it's usually Network Marketing, MLM or Direct Sales (terms explained below). 

HOME BASED BUSINESS (HBB)

Usually Network Marketing, MLM or Direct Sales, even if paired with "Business Opportunity."

WORK FROM HOME, WORK AT HOME (WAH)

Any job or business you do from home, but if you see it in an ad that isn't for a regular job (often data entry), it's usually MLM or Direct Sales. 

FRANCHISE

This is when you pay an established company $10K to $100K+ to open another location that you run with their brand name on everything. It could be a hot dog stand or a McDonald's. Most of the time, you are just buying yourself a job, with lots of overtime, bookkeeping, and managing & scheduling unreliable staff. Walk through a mall food court and you will usually see the franchise owners there (& often spouses) most of the time because they can't afford to step away from the business. These can be good if it's at a location where customer volume is booming, but the monthly lease can be really high in those hot spots. It can cost a lot of money and be high risk.

BUSINESS FOR SALE 

This is when someone is selling any kind of business or franchise. They always disclose monthly or annual sales and lease costs. If the purchase price is low, then the business is usually not doing too well. It could be good if you find out the owner just isn't running it properly or doing the right advertising & marketing, but it's risky unless you really know what you're doing and you've done your research. It could also be a real lemon or a deadbeat business at that location. 

PARTNERSHIP

This is often when a new business needs your money, skill or effort to get up and running, or an existing business has had a previous partner leave –which you'd better find out why. There can be two or more partners. There is always a legal Partnership Agreement document that needs everyone's signature: read the fine print and have a lawyer or notary look at it. 

NETWORK MARKETING (NM)

Unfortunately, the term Network Marketing and Multi-Level Marketing are used interchangeably, even though they have very different meanings. Wikipedia uses them interchangeably, but that is not a surprise since Wikipedia is an 'open source' dictionary, anyone can add their thoughts or reasoning’s there. It does say this at Wikipedia: “Direct selling and network marketing refer to the distribution system, while the term "multi-level marketing" describes the compensation plan”. MLM is a compensation system based upon multiple levels of distribution and higher commissions on volume produced. Network Marketing however, is a way to create a database or book of business on sales generated by you and others in your database. Network Marketing is based upon a proven method of creating a distribution system: referral based and /or word of mouth marketing. Network Marketing is a 'Profession', and you will find many very successful Network Marketing Professionals today, the only difference is the way a Network Marketing Company compensates the Network Marketing Professional.

From about.com: Network Marketing is a business model, and it really amounts to "microfranchising". Its upside is that it has a very low cost of entry, with the potential for exceptional revenue, and there are those who achieve that. But those same things that make it attractive to many attract some who are NOT really qualified or prepared to become business owners. Network Marketing is a great opportunity for people to have their first business, their first sales role, etc. —recognize it for what it is: it's a business, and you are a business owner. And if you've never owned a business before, if you've never done sales before, if you've never networked before, you need to learn about how to do so, not just from the network marketing experts, but from established experts in those fields.

Network Marketers who are serious about building a business should be reading and learning about business fundamentals, the latest sales and marketing techniques, strategies for networking and business development, etc., not just swapping tips at your team's weekly or monthly meeting. Act like a small business owner, and people will treat you like one.
There are three distinct compensation systems within Network Marketing Companies: MLM, Direct Sales and Revenue Share / Profit Share. Examples: Avon is a Network Marketing Company in the Skin Care & Cosmetic Industry with a Direct Sales commission structure; Keller Williams is a Network Marketing Company in the Real Estate Industry, Melaleuca is a Network Marketing Company in the Consumer Goods industry they have a revenue share / profit share commission structure; Amway, Herbalife, Shaklee and hundreds of others are in various industries, consumer goods, health and nutritional supplements, weight loss, cell phone, etc. and operate as a MLM commission structure.

The first thing to understand is the 'Law of Consumerism', which is not a law you will find in Wikipedia, but one that is identified as product perception based upon need, value, convenience and price. With inflation, and the Wal*martizing of the world, price has become a higher weighted measure than the other three measures. 

MULTI-LEVEL MARKETING (MLM)

Multi-Level Marketing (MLM) is to be paid on multiple levels of distribution with a compensation system that rewards those with higher commissions who have built a larger volume of business. Network Marketing Companies with MLM compensation structures come in all kinds of sizes and shapes, from the unilevel plan, to binaries, Australian 2-ups, hybrid unilevels / binaries and so on.

These MLM compensation Companies many times operate as an inauthentic business model because of the way they must price their product and /or services to provide the money for the compensation plan, and much of the money is 'promotional volume' (more below). In addition, typical MLM's have a high monthly cost to be in 'commission status', that is, the person must spend more than a typical monthly need of the particular product and/or service in order to be paid a commission, this is called 'forced consumption'. The test is to take the opportunity away from the product or service, would you still buy the amount needed to 'qualify' if there was no check attached? Many times, the commissions paid are higher if that person's group volume (GV), the size and purchases of their organization, is larger than the person below them, and below them, and so on. That's why Multi Level Marketing Compensation structure actually means being paid increasing commissions on levels of distribution, depending upon the size of your organization. One of the obvious problems with this way of compensation is that only the top people, who 'got in' early, earn the largest commissions, or those placed on the 'power leg' of a binary, or other 'placement activity'. As a newbie, you are told that you can earn the 'big money' when you advance to those levels but the majority never do, and then quit. This, plus the higher than normal retail price of the product / service, is why these Companies must revert to exaggeration, hype, big checks on stage, and so on, to keep the recruitment going. The attrition is enormous. In the meantime, those who 'tried a MLM home based business' say it doesn't work. This 'perception' is something we frequently run into and can make it more difficult for us to show how Melaleuca provides a different way to receive compensation and provide 'real' value to the consumer.

Network Marketing Companies with an MLM compensation structure, many times, have a solid product that is usually manufactured by a third party manufacturing facility, but the normal retail and/or wholesale price of the product / service does not match the price of a similar product in the grocery stores; it has to 'fit' the compensation plan. There's another old saying that 'If you want to dine with the classes, then you must deal with the masses'.

Examples of Network Marketing Companies with an MLM compensation structure would be Amway, Herbalife, NuSkin, Shaklee, Monavie, Xango, Vemma, Visalis, Nerium, USANA, AdvoCare, Isogenics, Lyoness, ACN and literally hundreds more.

Numerous times, MLM Companies look successful because of the 'community' they build, people want to belong to something bigger than themselves, they want to be part of a team, and many MLM Companies provide the energy, the engine, and the resemblance of 'community'. That is the reason people flock to these types of Companies, and stay quite a while, without ever making any real income, they become emotionally involved with the product(s) or the Company itself. 
The reason MLM compensation structured companies sometimes get a bad name for themselves, is that people overpay for products or services, with the hype that they can achieve wealth by getting others to overpay for a product or service. Another test is simply to take the product or service to Wal*Mart or Amazon, place it in the category with similar products, and can it hold its own for need, price, value and convenience? You will hear that its 'unique' or a 'one of a kind', hyped up marketing or the real deal, that is what you must separate. Many times the Companies product or service just doesn't meet the Law of Consumerism. It is an inauthentic Business Model.

DIRECT SALES (Retail Sales)

There are many companies such as Stella & Dot, Arbonne, Avon, Mary Kay, Scentsy Candles, CAbi Cloths and Pampered Chief who operated as a Direct Sales / Distributor Based Business Model, sometimes also known as 'party plan'. They do not operate as a MLM commission structure; it is a retail sales commission structure. Anyone becoming a distributor with these Companies becomes an independent distributor who must purchase inventory (at wholesale), catalogs, sales tools, must take all the orders, handle all the money from sales, place all the orders with the Company, deliver orders, handle all returns, and heaven forbid, handle any bad checks, credit cards or charge backs. The money earned by these distributors is the difference between the wholesale price (that they pay) and retail of the products being sold (That the customer pays). If you have generated higher sales, then your wholesale price decreases, allowing you to make more 'margin' from sales.
In some cases, distributors are compensated to help others also become distributors, and can build a residual style income helping others succeed, but sometimes only until the point that a new distributors' business is at par or above with their monthly volume, then they 'break away' and are on their own. Not much of an incentive to really help others succeed.

The 'burn out' rate, or attrition from these types of businesses can be quite high. As an example, the average Avon Distributor works their business for six (6) months. On the other hand, they all do an incredible job building 'Community' and being part of the mission of that Company. Mary Kay Cosmetics has probably been 'best in class' with their distributors being emotionally all in with the Mary Kay Company, and very committed to the mission of helping women be independent business owners. 

REVENUE or PROFIT SHARING MODELS

Some Companies, such as Melaleuca in the Consumer Goods industry and Keller Williams in the Real Estate industry, operate a Revenue or Profit Sharing Model. And yes, they are Network Marketing Companies, but no, they do not have a MLM Compensation system. The difference in this model is the method of marketing and compensation. Using Melaleuca as the example, a key difference is how the customer and the person who refers customers are differentiated, which, they are not. There is no difference between someone earning a residual income at Melaleuca and a non-earning customer shopping monthly, other than the fact that one person told another, and the other did not. Both pay the exact same wholesale price for the products and both are asked to do one thing; redirect a small amount of their spending from the traditional stores. In addition, the way Melaleuca shares their revenues with their customer database, or book of business, allows for customers who may not ever refer customers to actually receive a monthly revenue sharing check. We know of no other Company that shares their revenues even if you are just a customer of the Company, and not doing a 'business'.

Other differences with this way of marketing and compensation include...

• Products that are manufactured by the Company in the USA with a Just-In-Time (JIT) process.
• No additional purchase requirements to earn a commission, just a little monthly shopping (redirected spending).
• Exceptional products, made with the best of science & nature, at reasonable prices. In other words, pricing that is consistent with the average price consumers are paying today at the grocery stores for consumer goods.
• Revenue sharing based upon how many personal customers a person has referred, and how many you have helped others to refer, not based upon the overall size of your organization, or when you started.
• No one earns more commission on your referrals than you do (Huge point!).
• No higher commission percentages for someone who has a larger group of customers.
• KW pays a 'profit share' to any agent who sponsored another KW sales agent who sells a property, and this profit share structure has propelled KW to be the largest RE Firm in North America.

 PROMOTIONAL VOLUME?

This is one of the most critical aspects of delineating the various types of Business Models / Compensation systems; where does the money come from & how does it flow into the compensation structure. Does the Compensation system make money “off of people” or does it “recover” money that would normally be allocated as an expense? If the business model is promotionally driven, meaning that the majority of sales come from the front loading of inventory, or the back loading through having to buy more than you can use monthly (forced consumption), or in spending new money on fad type products you have lived without all your life to this point, or the “topping up” to achieve volume requirements to advance in status…then it is very easy to see that the money is not coming from the purchase of real products, by real people, because they really need them, ie. simple redirected spending. It is coming from the false economy of promotion. This is why the vast majority of participants in Melaleuca are just customers and 96% shop month after month, and why the vast majority of participants in everything else quit buying after a while, usually if they haven’t made any money.

The money Melaleuca pays to those building a business does not come off the backs of others via “promotional volume,” but from the distribution and advertising dollars they save via Just-in-Time manufacturing and referral / affiliate marketing, as does its customers, by shopping Consumer Direct. It comes from the advertising dollars that are “built in” to the retail price of products we buy at the store, that Melaleuca simply “redirects” to their customers if they simply refer other customers.

Put a different way, is it a fair and equitable system for all or does the person getting in early, or at the top, always make the majority of the income…ergo the “pyramid” concern? In most, if not all, MLM’s, there is always the ability for the person preceding you to earn more on your efforts than you. Either because they were in earlier, or they have higher “group volume” so they make higher bonuses, or they have “balanced legs” (as used in a Binary Compensation Plan), etc. Melaleuca operates like the tried and proven compensation systems of other respected industries like Real Estate, Insurance or Auto sales. The person who brings in the business always makes the majority of the commission, but there is a Team that earns an equal or smaller override to support, train and encourage others. Bring in a new customer and you earn the Introduction Commission, not those above you. You earn up to 20% residual on your personal customers, those in your Support Team only earn 7%. This is structured exactly like the industries mentioned and totally opposite of MLM and distributor based compensation plans. 

Follow where the money comes from & how it flows and you will have either an Authentic Business Model, or an Inauthentic Business Model!

REFERRAL BASED and/or WORD OF MOUTH MARKETING (WOMM)

Referral Marketing, or Word of Mouth Marketing, is one of the fastest growing ways to market in North America and beyond today. Over the years, Advertising has seen a decrease in effectiveness, while WOMM has seen such an increase that there is now an Association, the Word of Mouth Marketing Association (www.womma.org). This organization is targeted towards traditional businesses wanting to increase their exposure, utilizing WOMM. Other Companies, such as BzzAgent (www.bzzagent.com) started over the past 10 years to utilize WOMM and Social Marketing to 'Buzz' a Companies product and /or service. These traditional ways of trying to utilize WOMM always miss one key ingredient: Being compensated for your efforts, not just one time via an affiliate program or a free product / service, but over and over again for the delivery of a customer (as long as the customer continues to be a customer).

That is the reason Network Marketing is growing faster, as a business model, than any other Marketing approach today. According to the Direct Selling Association (www.dsa.org), in 2013, the most recent figures available, over $36 billion in sales occurred via Network Marketing in the USA, an almost 5% increase in sales over the previous year, and that's in the midst of a fairly poor economic climate. At Melaleuca, for instance, the sales increases over the past three years (2011/12/13) have tripled the sales increases over the prior three years (2008/9/10). There is more and more acceptance in the Marketplace of the legitimacy of well run, proven Network Marketing Companies and those who have become Network Marketing Professionals.

Another analogy on the ongoing acceptance of Network Marketing would be to look at the history of Franchising. In the late 50's / early 60's, the franchise business model was under extreme pressure for being an illegal model. Franchising came within a few votes in Congress of being outlawed as a way to Market. It was felt that the franchisee and the customers would be unfairly treated if a Company could 'sell' their system, then hold each owner under contract to do it exactly the same way. Do you think that over time Franchising was readily accepted by the masses & today is a proven business model? Absolutely. The same will go for well run, above board, authentic Network Marketing Companies, and Melaleuca, as well as Keller Williams Realty, are heads and shoulders above the rest.

WOMM Case Study: Do you have a Costco card? Do you know someone who does? Someone who shops at Costco? Do you know that Costco created a $50 billion a year Business Model and never, not once, did they utilize traditional forms of advertising to build their business? Have you ever seen a Costco commercial? Never. Costco created an enormous Company, all on WOMM. Just think about when you discovered Costco, did you tell anyone about it?

So many of us did, and it just kept spreading and spreading that everyone either knows of, or shops at Costco today, without the Company ever spending a dime on advertising, just selling memberships. Amazing.

What do you think your life would look like today if, when Costco came to your neighborhood, they said: Every time you refer a customer our way, and every time they shop at our store, we will pay you a small commission for that referral. Think about that one for a minute. That's the power of word of mouth Network Marketing where you are paid an ongoing commission just to switch customers to a different store, an online store: Melaleuca.com