How the Pareto Principle, the “80/20 principle”, can make or break your business.
Don’t let the title of today’s material fool you. It is basic. It is also one of the most neglected principles in Network Marketing. When you “get” this, you will know how some “dine [in luxury] with the classes while serving the masses.”
Let’s go back to the goal we defined in Day 1. Very simply, here’s what you need to have a Reliable, Long-term, Leveraged, Residual Income:
Requirement 1: A Lot of People Doing a Little, Consistently
When you have a lot of people doing a little consistently, you really can enjoy leveraged income. But what are they doing? In M.L.M you need a lot of real customers who purchase products every month. And, you need a percentage of those customers to refer, recruit, or “sponsor” other customers, who also purchase products every month. And all of those customers need to be receiving real value. In other words, you also need…
Requirement 2: A Lot of People Receiving Real Value, Consistently
As simple as that sounds, it obviously is not that easy to achieve, or Network Marketing companies would be outselling Wal-Mart by now!
Here is one of the facts of life that complicates the achievement of this goal. It is called…
The 80/20 Principle, or the Pareto Principle
In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that roughly twenty percent of the people owned eighty percent of the wealth. The 80/20 Rule has been expanded to apply to all kinds of activities of life and to mean that in any endeavor or enterprise, a few (20 percent) activities and persons are vital to achieving a desired result, and many (80 percent) are “trivial.”
In real estate sales, for example, the 80/20 principle is used to describe the reality that roughly 20% of the agents usually make 80% of the sales. Conversely, 80% of the agents usually make the other 20% of the sales. Now, while one could argue that the percentages may not be exact, it is a fact of life that only a relatively small percentage of people in any kind of organization create 80% or more of the results.
And that has been one of the biggest challenges of MLM companies. They need “A Lot of People Doing a Little, Consistently,” yet 80% of the people involved, considered as individuals, will do little to add to the bottom line. The 80/20 Principle is a known and recognized fact. We can’t change it.
It’s like the law of gravity. You can’t defy it. But, if you’re smart, you sure can work with it. (The Wright brothers learned how to work with the law of gravity (and other laws) and flew when everyone else said it was impossible.) In fact, to thrive and create a truly reliable, long-term income for its participants, an MLM company MUST recognize and work with the 80/20 Principle. To do so would mean that an MLM company would have to take good care of the “20 percenters,” of course. But it must also take good care of the “80 percenters.” It just makes sense.
Compare an MLM company’s distributor organization to an army. Would it be possible to have an army with no generals or other high-ranking officers? No, of course not. There would be no leadership. But just as importantly, could you have an army with no foot soldiers?
The fact is – both are required.
MLMs have earned a notorious reputation for highly rewarding their very top distributors, their “20 percenters” (arguably, a much smaller percentage than that) at the expense of every one else.
The vast majority of the “distributors” lose money. The enormous failure rate of distributors and the resulting “churning” of good people is well known and deplorable. The Pareto principle ignored in these areas guarantees the ultimate degradation of a company’s reputation as well as its probable demise.
Additionally, the perception of most people is that the prices charged to customers by M.L.M companies are not competitive, so reorder rates are dismal as well. This is so important that I have more than a whole chapter dedicated to this challenge in my Special Report.
So you know I am not making this up. A 2000 report on MLM from the Federal Trade Commission declared…
“Most people end up with nothing to show for their money except the expensive products or marketing materials they’re pressured to buy.” – http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt008.shtm
The 80/20 Principle Can Work in Your Favor – Not Against You!
You will see how this can be done in various ways when we give you The 12 Critical Success FactorsTM.
But simply put, to be a Truly Money-Making, Residual Income Producing, Network Marketing Opportunity, one that can be both reliable and long-term, the company absolutely must find a way to deliver a positive experience to everyone who joins.
Yes, the top producers must be well compensated for their leadership. Good leaders are hard to find. But everyone participating in the business needs to profit, at least in proportion to his or her contribution. No one should be losing money.
And, just as importantly, all the customers must be receiving real value.
In short, to get “A Lot of People Doing a Little Consistently,” a company’s business model MUST take care of the “80 percenters” as well as the “20 percenters” by delivering real value to all.
This is one of the biggest challenges of multilevel marketing companies. But if they can pull it off, you can have the Pareto Principle working powerfully, and exponentially for you!
Next – I am going to tick off a lot of people when I debunk one of the biggest myths in M.L.M. But you need to know it. Here’s what’s on tap…
Day 6 – They say “Timing is Everything.” Here’s what you absolutely need to know about timing – and I will bet that no one has ever told it to you, even if you have been around the industry for 25 years!
“See you” tomorrow.
Founder of the new…
www.MLM-theWholeTruth.com for people who want to know the up-to-date, whole truth about the industry.
“Whoever renders service to many puts himself in line for greatness – great wealth, great return, great satisfaction, great reputation, great joy.” –Jim Rohn