Network based sales is a lucrative opportunity that any entrepreneur would want to explore. You have a gem of an idea in your head for your MLM business and a few hands on the deck, all ready to push forward to the big start. But no matter how good your idea is, starting from scratch is always a tough nut to crack.
You’ve already got the ‘what’, now, let’s take a look at the ‘how’. In this blog, we will explore the 10 most important steps for starting an MLM company.
Table of Contents
Step 1: What’s the plan?
What is the unique product or service that you would like to offer? Is it skincare, healthcare, wellness or any services that you have on your mind? What is the unique element that makes the product stand out from the rest? What is your target market? Who would be your competitors? What is the current demand for the product or service in the market?
The further clarity you obtain for these questions, the better. Invest a good amount of time in understanding these aspects of the business. In case you don’t have a solid niche in your mind yet, explore various successful MLM products and services. If you feel creative enough, brainstorm some never before ideas for the network marketing structure to build upon.
Here are some steps to find out a niche that best fits your interests and capabilities:
- Identify your area of interest and expertise: Which among the various topics from health and beauty to lifestyle would you be able to spend your efforts without losing interest? Which is the area where you know a thing or two more than a tom, dick or harry?
- Find the challenge: What challenge related to this area would you like to provide a solution to? What change are you expecting to make? Researching customer pain points can be helpful in understanding the challenges that customers face in that specific area.
- How different are you: What makes your product or service stand out? What additional value can you offer? Explore and examine your potential within the resources
In addition to finding the area of interest, you should also do thorough research for the following:
- Market Research: Do a thorough study of your target market. Their age, gender, income, location, interests, values, lifestyles. The more specific you are, the easier to plan the business.
- Know your competition: It is important to know your direct and indirect competitors. Do a thorough assessment of their strengths, weaknesses and market positioning.
- Brand Identity: What is your Unique Selling Point (USP) and articulate the customer benefits. Develop your brand identity based on this.
- Creating a business plan: Define your vision and mission. Vision is the long term goal of the company and mission is your purpose and how you will achieve the vision.
A detailed business plan would contain following elements that are carefully crafted.
- Executive Summary: It would contain a brief overview of the business.
- Company Description: This contains further information regarding the organizational and legal structuring of the company and its management.
- Market Analysis: This document has analysis and data regarding the market, competition and industry standards.
- Organizational Structure: Define your organization based on its structure, roles and responsibilities.
- Product Line: Give a detailed description of products and services that the company offers.
- Marketing and Sales Strategy: Information regarding various marketing and sales channels, strategies, branding information and communication channels.
- Financial Projections: This document would include the revenue forecast based on expected sales and pricing. It would have cost analysis, profit and loss statements and cash flow statements.
- Risk Assessment: Identify and document any potential risks associated with the business and how they can be overcome.
Step 2: Research the regulatory environment
Since you are starting an MLM company, it is important to understand the legal and regulatory requirements that you need to fulfil beforehand. This sets the right expectations that your business environment demands from you as an entrepreneur. Understanding the necessary licenses, distributor agreements, refund terms, code of conducts and various other regulations would help you understand the boundaries that enable your business functioning. For that,
- Research the legal and regulatory requirements in your region. Check how these laws would be altered in case you want to expand beyond a certain jurisdiction.
- Learn about the primary requirements of business registration and licenses.
- Draft the important company policies by which you determine to abide by once the ball starts rolling.
Step 3: The Compensation Plan
After you have done enough industry research on the product or services you would like to offer, it would be pretty easy to estimate the product cost. Break down the cost into its factors such as manufacturing, packaging, shipping and more.
Now research the current pricing for similar products in the market, take into account the value added in your offering and determine an optimal profit margin. From the gross profit, determine what percentage would go into payouts for the distributors so that a healthy balance is maintained for rewarding both personal efforts and organizational growth.
Once the profit margin and a sustainable payout percentage is determined, choose a compensation plan that can accommodate this incentivization. Additionally, you can also determine how often and how much your team members are incentivized for direct sales and downline efforts.
Incentivization.
The biggest motivator in the network marketing industry is consistent rewarding of appreciable efforts. Determine what all bonuses and incentives you would like to provide. Determine their percentage and frequency and ensure they are sustainable with your organizational goals.
Step 4: Develop or Source High-Quality Products
Once you have a strong blueprint regarding your product, business environment and the compensation plan for the MLM company in your mind, you are on the right foot to start developing the product. Invest in research and man power to zero in on your unique, high-quality offering. Here are some factors to keep in mind:
- If it involves manufacturing of a product, keep in mind the quality control requirements and regulatory environment.
- If it involves sourcing a product, keep in mind the availability, ethical concerns and consistency.
- Plan and delineate the entire product chain from demand to supply and vice versa.
Step 5: Be tech savvy
Despite all your efforts, my friend, you might not go anywhere until you embrace the key ingredient, ‘technology’. Incorporate software solutions, devices and all technological enablers to streamline your business. For a network marketing company that is starting from scratch, building a foundation using an MLM software can be the right start. The customizable templates offered by an MLM software enables your direct selling company to set off on the right foot while you transition to business as usual. Some virtual platforms that can help your business are
- MLM Software: Streamline your MLM company with specially designed MLM software for your unique product and compensation structure. Book a demo to experience the magic of highly customizable network marketing software today.
- E-commerce platform: Incorporate a seamless shopping experience for your customers and distributors through a dedicated e-commerce platform.
- Mobile Compatibility: Make use of mobile application to manage your MLM company through smaller and more accessible screens.
Step 6: Plan Training and Marketing
How would you pick the most important element of your MLM company, the distributors? Some MLM companies build their team with a specific social message in mind. For example, Mary Kay empowers women through providing them entrepreneurial opportunities. Additionally, how do you plan to market your products?
What are the tried and tested strategies followed in your niche and what more would you like to add in order to capture a strong and stable market attention? Also plan what your marketing collateral would be. Would you offer free samples or try-it-kits? What would be their cost?
Step 7: Get the Funds
One of the toughest steps in starting your own venture is none other than obtaining the funds. After careful calibration you arrive at an amount to start the smooth sail of your MLM company. However, you might find that convincing the investors about how an idea will perform in reality is only possible if you have utmost clarity in the blueprint and return of investments expected for the MLM company. For that, you must open a merchant account:
- Merchant account is a bank account allowing business transactions and electronic payments, acting as an intermediary between customers bank and the business bank account.
- Based on your business risk profile, expected transaction volume and payment methods, submit your application and set up payment processing tools. These tools and payment gateways such as Stripe, Paypal or Square can be integrated with your MLM software for seamless payment.
You can look for various sources of investors from angel investors and banks to government programs. Statistically, around 10% of startups fail in their first year. Only 50% of startups survive their 5th year. Hence sound planning and economic strategies are required to face the rough tides that come for a networking marketing company.
Step 8: Launch and Scale Gradually
Once the groundwork is laid and strategy is honed, start small but start strong. As Calvin Coolidge once said, “Nothing in this world can take the place of good old persistence”. Begin with a soft launch of your tested systems to test the waters and make necessary changes before fully opening up to the market.
- Track your key performance indicators to maintain healthy proportions.
- Keep track of the newly signed up recruits, their sales and recruitment efforts.
- Keep close eyes on sales goals such as revenue generated, order values and customer retention rate.
- Generate brand awareness and maintain consistent communication with the target market through social media, websites, targeted email marketing and more.
- Gather feedback from clients, distributors and stakeholders to understand insights that would otherwise have gone unnoticed.
- Keep a low profile until you are confident about stepping up the operations.
Once you are all set, recruit more members and target new markets. To financially support your growth and scaling of operations choose an efficient MLM software.
Choosing Your Direct Selling Software:
Selecting the right MLM software is a pivotal step in ensuring smooth and efficient running of your business.Here are a few things to keep in mind while choosing your software:
- Have a clear understanding about your business requirements. Where are you expecting help with the MLM software?
- What would be your compensation plan and is your software compatible with the selected compensation plan?
- Does the software offer security and compliance features? Check for their data protection policy and compliance with global and local regulation standards like GDPR. Also check for legal compliance with MLM specific standards and transaction security.
- Compare the cost and value offered by the software product by checking their pricing models such as subscriptions, asking about any hidden fees and the value for money.
- Attend software demos and trials before committing to a product.
- In the end, check for feedback from the users of the software. Learn from them about the frequency of updates, speed of resolution of any software disruptions or any other concerns or opinions about the service that they might have.
Step 9: Stay Compliant
The one thing that we must not compromise in the initial stages of an MLM company is none other than legal and regulatory compliance. Network marketing companies are always under scrutiny due to their undue likening towards pyramid schemes. However, during the initial days, their operations are under close watch of regulatory bodies to ensure the companies stick to guidelines.
Hence, stay on top of your audits, record and document each and every transaction and obtain legal advice from practitioners working in the MLM niche. An MLM attorney can be a great addition to your team who can provide guidance through these legal rough patches.
Moreover, an MLM software can take care of your regulatory compliance by ensuring all the business activities are tracked, documented and maintained by the legal standards.
Step 10: Build a community
Direct selling is a game of aggressive networking. The more connections you have, the better. It is possible to build a network of like-minded people. However, it is a task to make a community out of them. Maintain a transparent relationship with your clients and within your organization.
The more reliable, trustworthy and transparent the MLM company is, the better the sense of community that develops around it. This loyal base of customers and employees will act as the sponge that absorbs the market shocks and prevents toppling of your business even at uncertain times.
Conclusion
The tone of starting an MLM company gives an adrenaline rush. But now you know that the devil is in the details. With thorough market research, a good business blueprint, and a little persistence you can achieve rewarding MLM success without a doubt.
Frequently Asked Questions
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Is Starting an MLM Company Legal?
Yes, starting an MLM company is completely legal. There are many common misconceptions about the similarities between shady pyramid schemes and MLM companies.
Unlike pyramid schemes that follow an aggressive recruitment strategy to earn, MLM companies adopt a healthy sales to recruitment ratio, making them just as legitimate as any other marketing venture.
For detailed comparison, check out our MLM vs Pyramid scheme blog.
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How Much Initial Investment Is Required to Start an MLM Company?
The initial investment required to start an MLM company varies greatly based on the type of products or services delivered. Factors such as product development, technology infrastructure, legal and licensing fees, branding fees, training fees and various other operational costs are considered to arrive at this number.
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How Long Does It Take for an MLM Company to Become Profitable?
The timeline of an MLM company depends on various factors such as market demand, effectiveness of the compensation and overall operational efficiency. Consistent efforts are required to ensure fast success.
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What Are the Common Challenges When Starting an MLM Company?
Once an MLM company is launched, it can come across various hurdles like any other venture. From recruitment challenges, legal tightropes, market saturation and cut throat competition to distributor turnover, product quality and balancing a healthy sales-to-recruitment ratio are some among them.
