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Using multi-level mktg to generate clients
need devil's advocate
mgm_03




msg:781395
 4:18 pm on Jul 18, 2004 (gmt 0)

From what I know (still very new to the biz), designer/developers often cite word of mouth referrals as the primary way of getting new clients. If that is so, why not capitalize on that in a way that is a win-win for you and your client?

Disregarding T's and C's to keep things simple:

If my client A refers client B and client B pays me to build a site, then client A gets a 10% commission on the price of client B's project.

If client B refers client C and client C pays me to build a site then, client A gets 2.5% and client B gets 7.5% (total 10%) of the price of client C's project. After a while, this starts to develop a "family tree" although I would not extend commissions to 3rd level.

So, I never pay out more than 10% commission.
I can offer this "referral program" in my site design proposal.
I can inflate the proposal estimate because there is an income oppty for the client.
The client can eventually re-coup the cost of his website.
After re-coupment, the client makes profits.
No pressure, quotas, obligations, fees.

Similar to paying taxes...., if I pay $5000 in commission, it's because I garnered $50,000 in contracts. Also, if I spend $250 for an advertisement, there is no guarantee I will get one lead, much less a contract.

Now, tell me what is flawed with this concept? Someone must have already done this?

 

vkaryl




msg:781396
 1:34 am on Jul 19, 2004 (gmt 0)

Thought MLM was basically illegal in the states.... would assume that that's just here though.

Robino




msg:781397
 1:38 am on Jul 19, 2004 (gmt 0)


Sounds like a great way to build business.

Good luck!

johntabita




msg:781398
 4:05 pm on Jul 19, 2004 (gmt 0)

MLM is NOT illegal in the US. What is illegal are "pyramid schemes", which are different than MLM.

yowza




msg:781399
 4:24 pm on Jul 19, 2004 (gmt 0)

The only problem I can see with this is having your clients know how much you charged other clients.

In my case, when I was just starting out I would charge much less than I do now for web development. I plan to continue to raise the prices and lower the prices according to supply and demand.

In sum, I wouldn't want to have to explain my pricing to my clients.

mgm_03




msg:781400
 4:36 pm on Jul 19, 2004 (gmt 0)

great point, Yowsa. Thanks for the input.

vkaryl




msg:781401
 6:13 pm on Jul 19, 2004 (gmt 0)

Thanks johntabita - didn't realize there was a difference....

stuntdubl




msg:781402
 10:49 pm on Jul 19, 2004 (gmt 0)

There are many common misconceptions with MLM marketing. Actually, though some may moan and groan, and definitely not agree with me, there are many similarities between the MODELS of network marketing and affiliate marketing.

In my mind affiliate marketing is the positive extension that network marketing never quite reached. One of the problems I always had with network marketing was the "sell out your friends and family first" notion. In network marketing, you must grow your network, and a good place to start is with friends and family. The problem is, when you learn later that the vitamins you sold them were crap, you are out some friends (and your family won't like you real well either). With affiliate marketing you are able to reach an audience based on your knowledge and skillset. While you still may accidently sell crap, at least you will alienate strangers rather than those close to you;)

The above makes me sound very pessimistic about MLM and Aff programs, which couldn't be further from the truth. I think it is a great model for distribution that rewards hard work and positive word of mouth. To me, there is a striking similiarity between network marketing and aff programs. Aff programs have taken the positive aspects of the distribution model, and brought it to a new medium.

After digging for quite a while to find it, there was a great discussion on this subject in the supporters forum some time ago:
Affiliate Marketing = Network Marketing [webmasterworld.com]

I will regurgitate a few of my posts from there, as they may be helpful:
===============================
To me, affiliate marketing more closely resembles "retail distribution" without the need for inventory. Consumers are being charged a premium, and manufacturers are willing to give a price break (or greater incentive) for increased volume of distribution.

My bet is that affiliate marketing will also put a decent dent in retail distribution revenue in most industries since there is much lower overhead in fixed and even variable costs. It equates to better value for consumers and brick and mortars in many industries that can't compete due to inefficiency.
===============================

I could never personally go to my "friends and family" looking at them with dollar signs in my eyes. Of course, it is easier when you don't see users to your site as well, but it's easiest when you really DO see value in what you are selling. I have never been big on high pressure sales myself as it rekes of desperation to me.

A*way I believe was one of the biggest MLM companies ever, and there is good and bad that you will hear about them, but ultimately they were successful because they actually distributed value-added products that were necessities. The reason most folks have bad things to say about them is because they didn't like the high pressure "rah-rah" attitude that goes along with being a part of their programs.

Ponzi schemes are what really gave MLM the worst name. These are the ones that there are no hope of the numbers holding up...extremely exaggerated claims that prey upon greed...no public records...executives with shady backgrounds, etc. These are the programs that people get sucked into based on greed and loose relationships over. It is programs like these that give legitimate MLM a bad name. Similar to those still selling "submit your site to 10,000 search engines" for 99.95, and legitimate SEO's have to calm new clients down and explain why tht submission actually sunk their site.

The actual business model behind most MLM programs is somewhat sound. Both the consumer and manufacturer benefit from lower distribution costs, similar to the way affiliate programs work. MLM takes advantage of a great form of advertising...Word of Mouth. It is the execution and hype behind this advertising that sometimes creates problems, and gives MLM programs a bad name in the eyes of the general public that don't care to understand general economic and business principles.
==============================

There is a major difference between MLM and a ponzi scheme in my mind. There may even be crossover for those selling a product or service of very little value for high costs. The biggest issue to me is the "value offered". If you are feeling somewhat philosophical about the subject, you can pick up "Zen and the Art of Motorcycle Maintenence" for interesting reading on the abstract subjects of "quality" and "value".

I don't think it is as much a semantic issue as it is a moral one. Of course no one can predict the future, but historically speaking, I think one can decipher programs that were created with the intention of making short term profits (schemes), and those that were meant to bring value to consumers (business models). The issue is where the priority is placed...value or profit?

===================================

Hope this helps:)

mgm_03




msg:781403
 11:06 pm on Jul 19, 2004 (gmt 0)

Good input....I will no longer refer to the idea as multi-level marketing, affliate marketing, or network marketing.

It's simply a Referral Program. If a client likes the work I have done and feels like sending business my way, great. They win and I win.

vkaryl




msg:781404
 11:52 pm on Jul 19, 2004 (gmt 0)

stuntdubl: that was an eminently readable expostition on the differences I never previously perceived.

Thanks. That's a REALLY worthwhile addition to the library methinks. Because a "referral program" as mgm_03 says is not a bad idea at all, and your defining post makes it less likely to get the sort of statement I made earlier (without having anything but remembered articles when some "scheme" went down and took thousands AND their money with it), and more likely to attract "quality before quantity".

It's a cliché, but that doesn't make it wrong: on WebmasterWorld, you CAN learn something new every day!

henry0




msg:781405
 11:43 am on Jul 22, 2004 (gmt 0)

You also simply may call it a "Brokerage program"

further all of the above will only apply if you get a few clients signing with you :)

so first get those to prime the pump
BTW how did you get those first one?
well that might be your answer!

regards
Henry

mgm_03




msg:781406
 3:05 am on Aug 5, 2004 (gmt 0)

I want to update this topic that I started...

After getting a reality check from a friend on the original referral idea, I have pulled it back for sake of simplicity, fairness, and clarity. It's now just a simple referral bonus for whomever refers business my way. No multi-level commissions. Reason is, it can get confusing for the clients participating. Also, it's important to base the commission on the referr-ee's project cost and not the referr-er's ....because if Client A bought a $15,000 site and referred Client B who bought a $1000 site, then 10% is $100. BUT, if the commission is based on Client A's project, then I lose...paying $1,500 to get a $1000 project.

hope that helps someone

alain_bonaf




msg:781407
 9:08 pm on Aug 7, 2004 (gmt 0)

>MLM is NOT illegal in the US. What is illegal are "pyramid schemes", which are different than MLM.

I would rather say that it is "Ponzi Schemes" that are forbidden. Normally a ponzi scheme is about selling contracts that have no underlying real asset. A typical MLM is a Ponzi-Scheme when it just consists in recruiting members: all the revenue comes from recruitment. So as not to be illegal MLM today are now selling products mostly nutritional and telecommunication stuffs. Same for commissioning for a web design service on multiple levels, it shouldn't be illegal, it's just awfull to manage :).

Now I will profit from the subject to make a little fun about Google's IPO.

Let's say that I sell you a toilet paper 1$ and that you resell it 2 dollars to another guy, the other guy sells it 4$ to another one, etc..., there is a real asset which is the toilet paper. But you would say that the toilet paper is not worth that price although based on an asset.

OK then let's replace the toilet paper by a stock paper. Typically Stock Market is divided officially into primary and secondary markets. The secondary market creates no value because it is just like the toilet paper that changes hands. And what is designed by "Stock Market" in common speak is in fact technically the secondary market also called officially occasion market. And financially it is the secondary market that drives the most amount of available money in the world. So what is called "investment" is quite an oxymoron because it is indeed "speculation".

So when you will have bought Google's IPO think about it once it is on secondary market: it becomes the game of who will be the last fool ... just like in a Ponzi scheme :)

vkaryl




msg:781408
 12:36 am on Aug 8, 2004 (gmt 0)

alain_bonaf, I LOVE the way you think!

Thanks for further clarifying my mistaken thoughts about "pyramid" schemes....

johntabita




msg:781409
 3:42 am on Aug 8, 2004 (gmt 0)

I would rather say that it is "Ponzi Schemes" that are forbidden. Normally a ponzi scheme is about selling contracts that have no underlying real asset. A typical MLM is a Ponzi-Scheme when it just consists in recruiting members: all the revenue comes from recruitment. So as not to be illegal MLM today are now selling products mostly nutritional and telecommunication stuffs. Same for commissioning for a web design service on multiple levels, it shouldn't be illegal, it's just awfull to manage :).

MLM's also can get into trouble when they make too much revenue from "internal products" (i.e., tapes, brochures sold to distributors). In the 80's, Amway used to sell tapes at $6.00 a pop, then had the nerve to claim they didn't make a profit from tape sales...

alain_bonaf




msg:781410
 12:17 pm on Aug 8, 2004 (gmt 0)

>MLM's also can get into trouble when they make too much revenue from "internal products" (i.e., tapes, brochures sold to distributors). In the 80's, Amway used to sell tapes at $6.00 a pop, then had the nerve to claim they didn't make a profit from tape sales...

You know it's like sect and religion: the frontier is fuzzy. In Europe sects are clearly purchased not in US. In fact sects and MLM are interlinked: Herbalife is linked to scientology.

But one must not confuse the tool with the way a tool is used. If you use a knife for cutting a piece of steak that's not bad, if you use it to kill somebody...

So the technique of MLM by itself is not bad. In fact it is not called MLM sometimes but hidden behind some new semantic whereas in essence it is based on the same principle: for example the term networking will be used. It's the intention that is or is not bad. Networking in business is crucial. You will never build a great fortune alone. Now it can be great to be alone because there are less hassle but you are vulnerable : question of choice.

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