Hidden Costs in Network Marketing
| Category: Home Based Business - Marketing | Date: 2003-06-19 |
Network marketing is a viable home business option for hundreds of thousands of people around the world today, and the numbers are growing exponentially. The low start-up costs, marketing and business support, residual income and mentorship from your upline are all attractive reasons to begin a network marketing organization. iBut your initial outlay of money doesnt end when you pay your sign-up fee./i There are some very real "hidden" costs that you will need to plan and budget for in order to experience success.
The first and most obvious cost is the product you will be using personally. Every network marketing organization expects its distributors to use the products they sell. After all, if you dont use the product, how can you feel good about organizing your life around selling them? Depending on the type of organization you are building, your costs could range anywhere from a few dollars to over an hundred dollars a month in personal product costs alone. When you investigate a network marketing opportunity, ask yourself how much it will cost for you and your family to use the products each month. Then, budget for that expense. Unlike some of the other costs you will incur, this one is not tax deductible, so try to keep these costs as low as possible.
Depending on the type of organization you join, you will also want to consider the cost of the inventory you will need to carry. Retail and direct sales are the heart of any successful network marketing organization. Retail product sales are boon because they give you instant cash flow to use in meeting your immediate business expenses. Some companies encourage you to join at a higher level in the organization by purchasing large amounts of inventory for direct sale (up to $3000 worth!). Seriously consider how much inventory you can keep on hand without putting yourself out of business. You will want to have enough on hand to cover orders, but not so much that you are sitting on a lot of inventory that you cant move quickly. If you cut these costs as much as possible and put the money you save into advertising, you will move your product faster and move up within the organization quickly because of the increase in the number of orders you will receive.
iNot all companies require that you carry an inventory./i If you join an organization where inventory is not necessary, you can save a lot in initial start up costs and overhead.
In order to grow your organization and present a professional face to the public, you will need a business telephone line- preferably with a toll free number. Many network marketing companies work with telecommunications companies to offer their distributors "virtual offices" and toll free telephone services. These communications systems allow you to offer information to your prospects through a toll free call. You can also use these systems to receive support and information from your upline through the internal communications networks that are often part of the service. This allows you to ask questions of your upline and to commmunicate with your downline effectively and inexpensively. These systems generally run between $7 and $15 per month, plus the costs of the calls that you receive on your toll free line.
One thing to remember about many of these systems is that they cover your incoming calls only. You will still need to make many outgoing calls in order to speak personally with prospects and others in your organization. You can make these calls from your home phone line and the cost of the calls will be tax deductible if they can be proven to be business related. If you have a second phone line installed that is only used for business, it will assist you in keeping track of business related calls for tax purposes. Both the cost of these calls, the installation fees for the phone line, and the monthly service fees on business account phones are tax deductable.
The largest cost to consider is also the one that is most "hidden" and undefined. This is the cost of marketing and advertising in order to sell product and connect with new prospects. Whether you are advertising online, in print or through direct mail, your advertising is the key to your successful business. Your advertising will be the driving force behind picking up new product customers and locating new prospects for your downline.
There are free ways to advertise your product, and many of them can be effective. However, you should also count on placing advertisements that you will be paying for. Newspaper and magazine ads, online banner advertising and click-through affiliate programs can be effective ways to get your message out, but they all cost money. The more you advertise, the more business you will receive. Your advertising budget should be the heart of your work-at-home start-up budget. The more you can initially put toward advertising, the faster your company will grow.
Large, expensive ads are not necessary. In fact, you will find that many small ads placed in a variety of mediums will get you just as much (or more) business than one large ad, and your costs will often be much less.
Decide how much you can afford to spend on advertising each month, then decide on an advertising medium that is within your budget.
Some companies will require you to use their advertising materials in order to ensure that advertising is in-line with their corporate image and philosophy. This also helps to prevent unscrupulous people from using false or mis-leading advertising to promote their business. If your network marketing company requires you to use only their marketing materials (such as brochures, business cards, pamphlets, etc.), then be sure to include the cost of these in your advertising budget.
When your first fat check comes in, dont make the mistake of spending it! Consider that only 10% of that money is yours, 30% is the governments and the rest goes back into your business to purchase more advertising and to help pay the bills. The 30% to the government is a good rule of thumb number to use when calculating what you will need to pay out in taxes at the end of the year. You dont want to spend all of your income only to discover that you owe a good portion of it to Uncle Sam at tax time. Network Marketing organizations do not pay you like an employee. They do not take out your taxes before sending your check. You will need to plan and save for the taxes that you will owe the following April.
The good news is that most of these expenses are tax deductable, and will actually help you in the long run by cutting down on the amount of your profits that you will need to send to the government.
You will also need to consider your "floating money". This is the money you will need to have on hand to continue to pay bills as you "float" your business. Chances are, you will not see big returns from your business for the first six months or so, and hopefully you will have spent any returns during those first months on re-investing in advertising and saving for taxes. Your "floating money" is the money that you budget to cover your regular bills until you begin to see the payoffs that will come with a good business strategy.
By planning for these expenses, you will ensure that you have the resources to make your new business thrive. There is nothing worse than putting a lot of time and money into growing an organization and then having to drop it because you didnt plan for all of the expenses that are associated with it.
And remember, hard work and persistence are the keys in this business- as in every other business. Dont go into a network marketing opportunity expecting huge pay-offs fast. Any reputable network marketing organization will not make "get-rich-quick" claims! You will need to grow your business in a responsible manner in order to see the big payoffs in the end!
About the Author
Naisha Ahsian left a VPMarketing position in the corporate world to pursue her dream of a successful home business. After failing in three businesses, she finally found the right opportunity and is now enjoying a successful career at home!
:To contact see details below.
nahsian@prepaidlegal.com
http://www.EthicalHomeBusiness.com
The first and most obvious cost is the product you will be using personally. Every network marketing organization expects its distributors to use the products they sell. After all, if you dont use the product, how can you feel good about organizing your life around selling them? Depending on the type of organization you are building, your costs could range anywhere from a few dollars to over an hundred dollars a month in personal product costs alone. When you investigate a network marketing opportunity, ask yourself how much it will cost for you and your family to use the products each month. Then, budget for that expense. Unlike some of the other costs you will incur, this one is not tax deductible, so try to keep these costs as low as possible.
Depending on the type of organization you join, you will also want to consider the cost of the inventory you will need to carry. Retail and direct sales are the heart of any successful network marketing organization. Retail product sales are boon because they give you instant cash flow to use in meeting your immediate business expenses. Some companies encourage you to join at a higher level in the organization by purchasing large amounts of inventory for direct sale (up to $3000 worth!). Seriously consider how much inventory you can keep on hand without putting yourself out of business. You will want to have enough on hand to cover orders, but not so much that you are sitting on a lot of inventory that you cant move quickly. If you cut these costs as much as possible and put the money you save into advertising, you will move your product faster and move up within the organization quickly because of the increase in the number of orders you will receive.
iNot all companies require that you carry an inventory./i If you join an organization where inventory is not necessary, you can save a lot in initial start up costs and overhead.
In order to grow your organization and present a professional face to the public, you will need a business telephone line- preferably with a toll free number. Many network marketing companies work with telecommunications companies to offer their distributors "virtual offices" and toll free telephone services. These communications systems allow you to offer information to your prospects through a toll free call. You can also use these systems to receive support and information from your upline through the internal communications networks that are often part of the service. This allows you to ask questions of your upline and to commmunicate with your downline effectively and inexpensively. These systems generally run between $7 and $15 per month, plus the costs of the calls that you receive on your toll free line.
One thing to remember about many of these systems is that they cover your incoming calls only. You will still need to make many outgoing calls in order to speak personally with prospects and others in your organization. You can make these calls from your home phone line and the cost of the calls will be tax deductible if they can be proven to be business related. If you have a second phone line installed that is only used for business, it will assist you in keeping track of business related calls for tax purposes. Both the cost of these calls, the installation fees for the phone line, and the monthly service fees on business account phones are tax deductable.
The largest cost to consider is also the one that is most "hidden" and undefined. This is the cost of marketing and advertising in order to sell product and connect with new prospects. Whether you are advertising online, in print or through direct mail, your advertising is the key to your successful business. Your advertising will be the driving force behind picking up new product customers and locating new prospects for your downline.
There are free ways to advertise your product, and many of them can be effective. However, you should also count on placing advertisements that you will be paying for. Newspaper and magazine ads, online banner advertising and click-through affiliate programs can be effective ways to get your message out, but they all cost money. The more you advertise, the more business you will receive. Your advertising budget should be the heart of your work-at-home start-up budget. The more you can initially put toward advertising, the faster your company will grow.
Large, expensive ads are not necessary. In fact, you will find that many small ads placed in a variety of mediums will get you just as much (or more) business than one large ad, and your costs will often be much less.
Decide how much you can afford to spend on advertising each month, then decide on an advertising medium that is within your budget.
Some companies will require you to use their advertising materials in order to ensure that advertising is in-line with their corporate image and philosophy. This also helps to prevent unscrupulous people from using false or mis-leading advertising to promote their business. If your network marketing company requires you to use only their marketing materials (such as brochures, business cards, pamphlets, etc.), then be sure to include the cost of these in your advertising budget.
When your first fat check comes in, dont make the mistake of spending it! Consider that only 10% of that money is yours, 30% is the governments and the rest goes back into your business to purchase more advertising and to help pay the bills. The 30% to the government is a good rule of thumb number to use when calculating what you will need to pay out in taxes at the end of the year. You dont want to spend all of your income only to discover that you owe a good portion of it to Uncle Sam at tax time. Network Marketing organizations do not pay you like an employee. They do not take out your taxes before sending your check. You will need to plan and save for the taxes that you will owe the following April.
The good news is that most of these expenses are tax deductable, and will actually help you in the long run by cutting down on the amount of your profits that you will need to send to the government.
You will also need to consider your "floating money". This is the money you will need to have on hand to continue to pay bills as you "float" your business. Chances are, you will not see big returns from your business for the first six months or so, and hopefully you will have spent any returns during those first months on re-investing in advertising and saving for taxes. Your "floating money" is the money that you budget to cover your regular bills until you begin to see the payoffs that will come with a good business strategy.
By planning for these expenses, you will ensure that you have the resources to make your new business thrive. There is nothing worse than putting a lot of time and money into growing an organization and then having to drop it because you didnt plan for all of the expenses that are associated with it.
And remember, hard work and persistence are the keys in this business- as in every other business. Dont go into a network marketing opportunity expecting huge pay-offs fast. Any reputable network marketing organization will not make "get-rich-quick" claims! You will need to grow your business in a responsible manner in order to see the big payoffs in the end!
About the Author
Naisha Ahsian left a VPMarketing position in the corporate world to pursue her dream of a successful home business. After failing in three businesses, she finally found the right opportunity and is now enjoying a successful career at home!
:To contact see details below.
nahsian@prepaidlegal.com
http://www.EthicalHomeBusiness.com
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