What’s The ETA Of The ROI Of Your MLM?

by bobandanna on October 22, 2012

A prospect asked our friend Karen Miller,

“If I join you in your company, what ROI can I expect?’

It was a question we had not heard before, but it got us thinking. Karen wrote an excellent blog article at MLMNetworkingAuthority.com where she explains the meaning of ROI, and how it is useful for investments, but not really applicable to MLM with so many other intangible variables at play – your commitment level, the amount of time you invest, your coachability and skill level, etc.

She suggested that a better question for evaluating an MLM company is The 10k Question:

“How many active people do I need in my business to generate a monthly residual income of $10000?”

We commented …

“Great article, Karen! You are right that you can’t calculate ROI because you can’t assign a number to the investment in yourself. The 10k question is the only one that makes sense for an MLM and is the only fair way of comparing comp plans that we have seen. Asking for the ROI for an MLM is like asking ‘How many snards in a renastigator?’ Thanks for the excellent read and great insight!”

Then Brian Satterlee posted a comment that got us thinking again …

“I think you actually can get a basic idea of what your return on investment is from your $10,000 per month idea.

Let’s say you spend 10 hours per week, 52 weeks per year, and after 2 years you are making $10,000 per month. That would be a yearly return of $120,000 on 1040 hours invested. If you value your time at $100 per hour, you have $104,000 invested.

$120,000 divided by $104, 000 gives you a 115% or so return on investment after 2 years.

These are very specific numbers and are somewhat unlikely, but you get the idea of the calculation.

If you had a 115% return on investment, that would be very good for a business. Generally, I think you are shooting for 20-25% in a risky endeavor. For something very safe you might compare to the rates on a treasury bill.

ROI is an important concept in business, and you should really treat your company as a business rather than a lottery or something.

Hope this is helpful.”

Investopedia tells us that ROI = (Gain – Cost) / Cost. That means if you invest $100 and get back $125, your ROI is (125 – 100) / 100 = 0.25 or 25%.

Using Brian’s numbers, his actual ROI should be (120000-104000) / 104000 = 15%, not 115%. Still, 15% is much better than the average rate of less than 5% for treasury bills or bank accounts.

Then we got thinking again …

The return on your investment into your MLM business is NOT a one time amount. It’s residual, coming to you month after month. Consider this …

If you invest $400 at just 3%, that will pay you $12 per annum, or $1 per month in interest, month after month. That means that every dollar you earn in residual income represents the equivalent of $400 in the bank!

If you are earning a small residual check of $100 per month, that’s not just $100. It’s the same as having 100 x 400 = $40,000 in the bank.

What a great way to think about your MLM business! How many other ways do you know of accumulating $40,000 in a short time? Or ever?

Back to Brian’s numbers …

If you are earning $10,000 per month in residual income, that’s the equivalent of having 10,000 x 400 = $4,000,000 in the bank! Do the math and count the zeros. Four million dollars!

If you have invested $104,000 worth of your time and money to get there, that’s an ROI of (4,000,000 – 104,000) / 104,000 = 3746%! Much much better than Brian’s estimate of 15%!

Now, let’s work with some more conservative numbers.

Let’s say you work 10 hours per week for a year. That’s about 500 hours.

If you value your time at $20 per hour (not $100), that’s an investment of 500 x 20 = $10,000 worth of your time.

And let’s say that after a year, you are earning $500 per month. That’s the equivalent of having a bank balance of 500 x 400 = $200,000.

That makes your ROI = (200,000-10,000) / 10,000 = 1900%!

Even if you work twice as hard and/or include monetary expenses and/or earn just half of this, your ROI is between 200 to 500%!

Ask any business owner if they received any positive ROI at all in the first few years of operation. Most will tell you they lost money and took little or no pay for years before succeeding. In MLM, because of the low costs, you can be a success right away.

Although we still don’t agree that ROI is a reasonable way to look at an MLM business, these calculations have been interesting and very encouraging. Thanks to Brian Satterlee for inspiring us to take a second look!

So there’s your ROI on your MLM. The ETA is up to you!

If you want to make your returns positive, fun, and rejection free, you’ll want to learn the skills for MLM success right away from the trainer voted best in the world, Tom ‘Big Al’ Schreiter. Visit www.BigAlSkills.com for a free list of 25 Essential Skills for Networkers.

Bob and Anna Bassett
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