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by on May 10, 2010 7 Comments

Recruiting vs. Sponsoring

There’s a difference. One is about slinging warm bodies in a downline. Participants are required to buy the products and immediately asked to turn over their contacts and recruit more participants to engage in the cycle of consuming, recruiting, etc. Recruiting is primarily self-serving. When there’s a small chance for making sales to customers due to pricing issues, the participants focus on the only thing that brings them income: recruiting. And when the primary means for earning income is via recruitment, there needs to be a recruitment engine that makes it easier for participants to jump into the stream of activity and repeat the cycle. This leads to an ill-informed group of participants that are oversold on the merits of the business and uninformed about the expenses and sustainability of the behavior. Companies with heavy recruitment cultures flame out within a few years (or several if they’re lucky), or worse, get shut down.

Sponsoring is about taking personal responsibility for the new participants in the business, ensuring they have a good understanding of the responsibilities associated with owning their own business, educating them about the product and mentoring them along the way as they make sales and sponsor other participants. Sponsoring is about caring and education. It creates a win/win relationship between the sponsor and the enrollee.

The ultimate safeguard a company can put in place to ensure a healthy balance between recruiting and selling is a retail sales rule. In Amway, a distributor is purportedly required to make a certain amount of retail sales before they can earn override commissions on their downline volume (their recruit’s volume). Before the participants can benefit from their recruitment efforts, they need to demonstrate a proficiency in selling.

Businesses that require constant recruitment is a deck of cards. It’s cool in the beginning but it has a violent end. It’s nirvana when things are going well, but when recruitment slows just a tad, the whole thing comes crashing down. Customer sales is the best way to fortify a business. And to accrue customer sales, there needs to be a marketable product. What do you think?

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  • http://(noneatthistime) Mark W Loughner

    Hey Kevin, I'm planning to join this company called 5LINX…you may or may not know of them…they market and sell telecommunications services (home phone [VoIP], cell phones [all 4 major providers], high-speed internet [providers such as Cox, Charter, MediaCom, CenturyLink, etc.], home security [Protect America/GE], satellite TV [DirecTV and DISH Network], and now identity theft protection [5LINX ID Guard]…to join up you pay a fee of $499 to become an IMR (Independent Marketing Representative), then your goal is to accrue 20 customer points (services, not people), and sponsor two "qualified" new IMRs; if you achieve that within your first 30 days, they pay you a Fast Start Bonus of $1000…and they have an A- rating from the BBB…would you say this company meets your personal standards to be considered a good opportunity to be with?

  • Dwayne

    Kevin,

    I like the article, but I fail to see how any MLM can be primarily sustained by retail sales of product. It would definitely be instructive to know just how many MLM's out there are able to pull this off.

    It seem to me that the only way this could ever be achieved if the MLM happened to be the pricing leader for that particular good or service. It would seem to me that most MLM's would be able to test their long term sustainability quite simply. First, try to operate as a retailer ONLY. If the product has legs and can sustain the company, the start the distributor/sponsoring/recruitment effort.

    Can you imagine how great it would be to come to the table with the ability to say the product is already successful in the retail world and have the hard data to back that statement? People would not have to be "recruited" per se, because they would be tripping over each other trying to get in.

  • http://MLMHelpDesk.com Troy Dooly

    Kevin,

    This is a great article, and does explain several issues most reps overlook.

    Thank you for posting this.

    With your permission I would like to also give a little insight to Mark and Dwayne.

    Mark, 5Linx is a company with solid products, and leadership. They do focus on customer acquisition and even have some training on how to acquire small businesses.

    They have lost some top leaders in the last few years, who wanted to focus more on recruiting than building a solid business and acquire the right amount of customers.

    Now with that said it is no Lightyear or even and ACN, but it may be someday.

    Dwayne,

    To answer your question. Every billion dollar MLM company in history focused on customer acquisition over the business opportunity.

    Primerica they serve millions of customers and have only about 100K reps.

    Excel grew to be the fourth largest communication company on customers.

    Forever Living the worlds largest aloe Vera company

    Avon the worlds largest cosmetic company

    Tupperware the worlds largest plastic kitchen wares company

    Amway the worlds largest nature health and nutrition company.

    Companies which focus on customer acquisition, based on the quality of their products, will always attract great distributors.

  • Dwayne

    Troy,

    Thanks for pointing out some very successful MLM companies. For me when looking at direct selling I am face with a a dilemma. Does the great product drive the success of the company or does the great marketing drive the success. Great products with great marketing can't fail, however great products with poor marketing often do fail. On the other hand, marginal to poor products with great marketing often thrive in the MLM setting(although sometimes short-lived). Many critics of MLM show us lots examples of marginal to poor products that only succeed because of the "network" and "recruiting" and give the industry a stigma it can never really shake.

    My question really is this: What prevents a savvy and shrewd marketer from taking a bogus product and trying to promote it through direct sales/MLM? In the traditional world(not MLM) or business, it seems more difficult to pull that off, while in MLM/direct selling there are often scads of "revolutionary" products that are often found to be ineffective or bogus in the end leaving reps holding the bag and the founders in another country living off recruiting money at the expense of those who were duped. I guess my observation here is exactly how does this industry start to police itself and get those rogues out. It is almost as if new startups are doomed regardless of how great the product is because of the stigma that exists. I almost believe that a governing body for this industry is needed to act as a gatekeeper of sorts. I know you do what you can Troy, but most of the time, despite your gallant efforts to stop the rogues, many folks do get hurt financially. Just wondering if you think MLM needs regulation or if our society can be trusted enough to let free market forces weed out the bad actors. My doctor and my pilot must be licensed so why not force MLM's to meet certain standards before they can do business. Are the AG standards for doing business in each state really that lax?

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  • Wdezzo

    Hey Kevin this is William from New York.  I was forwarded this article and enjoyed reading it.  I am part of Dream Team Worldwide the lead marketing organization for Financial Education Services (FES).  FES offers finacial protection services that assist people with building thier credit profile, restoring thier credit, protecting thier assests, protecting thier identity, and helping get out of debt.  FES are members of BBB, a CUSO (Credit Union Services Organization) and are NACSO accredited (National Association of Credit Services Organization).  Though FES offer these services in a MLM model, Dream Team focuses on sponsoring.  In today’s climate do you think a compamy like that can compete with all the MLM’s that offer products and futuristic technology?  My frustration stems from the thousands of people I come across who are dead broke, and want to improve thier finances and recognize the need to improve thier credit, however won’t sacrifice the $499 (cost of Credit services) to do so.  However, they will spend hundreds or even thousands of dollars on the phones, the tablets, the Wii’s, gurdles, juice and all the other junk.  What advise can you give? 

    • http://www.themlmattorney.com/about Kevin Thompson

      William, thanks for your comment. I’m seeing a growing need for credit repair services. If the service has value for people outside your network, you’ll do fine. As for your question about your ability to compete with other MLMs, it depends on the monthly cost and the pay plan. With low costing services, it’s hard to attract the big leaders who typically like a monthly spend between $100 to $200 per distributor for bigger commissions. Take care and best of luck.