The four most exciting words in my vocabulary are “Long Term Residual Income“ because they mean financial freedom and more importantly, time freedom. It means I’m no longer trading time for dollars.
One of the exercises I go through when evaluating a network marketing/MLM/ referral marketing program entails calculating the number of people I would need in order to make a certain amount of residual income.
Residual income is money that flows monthly whether you are on the job or not. It’s the income that allows you to take 6 months, 1 year or 5 years off; or even retire.
There are several benchmarks on the way up the income ladder.
$1000 per month; hey! there really is something to this network marketing / MLM.
$2500 per month gets the bills paid.
$5000 per month and we begin to have a life.
$10,000 per month buys some luxuries.
$15,000 per month and you can have a really good time and even take care of other people financially.
$20,000 per month and you can do more of the all the above.
$25,000 per month and it starts to get really exciting, but how much do we really need?
I have been through all these phases.
The calculations are simple. But 1st some questions.
How much money do I want to make?
Is my product or service necessary, useful, easy to use and affordable?
What is the Commission Value – CV (upon which I get paid) of the product?
What is the average monthly purchase of my product or service?
Is it a “hook” product? Will it be around in 5 years; 10 years?
What is the re-order rate?
How many new people are coming in and how many people have quit?
What percentage of the folks in my organization will aspire to do what I am doing?
Commissions
Since we are talking about residual income I will use the industry standard of 5% commission and will not include One Time Bonuses or Retail Commissions. The 5% usually includes the Matrix, Generation and Performance portions when calculated over a large, deep network.
To make $5000 per month, I would need: $5000 / 5% = $100,000 per month in commissionable sales volume (CSV).
Commission Value (CV)
Another question; what percentage (CV) of the monthly wholesale volume am I paid on? What is the Commission Value? The higher the CV the better, obviously.
Average Monthly Purchase
What is the monthly average purchase in your company? $49 is the average monthly purchase in the MLM industry.
Re-order Rate
The MLM industry re-order rate is around 15%.
That means I need 2000 / 15% = 13,333 customers/affiliates to generate 2000 sales which generates the $100,000 in sales volume (2000 x $49 = $98,000).
An ”in-demand”, high quality product/service might get as high as 35% to 40% re-order rate. Very few achieve this rate. I would need 2000 / 35% = 5714 customers/affiliates to get to 2000 sales; a much lower and better ratio.
New Customers and Turnover
In a mature networking organization between 3 to 5% will join every month and 3 to 5% will leave every month. An entire networking organization can turn over every 12 to 24 months. What keeps customers coming back are “hook” products; products that people need and can’t live without.
Leadership
About 1/2% (.5%) aspire to become leaders and follow you. To find 2 to 3 leaders one may have to personally enroll 50 to 100 customers. The rest will come from deeper within your organization.
I have taken these statistics from my study of the industry over the last 20+ years. They hold up very well even from my own experience.
Our home business is blessed however by an outstanding YLEO re-order rate; averaging 38% and an average monthly order of $180 (hook products) and a CV of 96% (statistics tracked and compiled monthly over the last 13 years) … http://bit.ly/2NDkeO.
Hope you find the info interesting and educational. If you do, please let me know.
All the best, Alan
