Distributor Acquisition Over Distributor Retention?

The message of almost all MLM’s is the same and it resonates with people. A lot. So much that it allows the MLM to be careless with the distributor post-enrollment.

What’s wrong in this thinking? You are just playing with time. Treating distributors like they can be just churned through does not work in a connected world. Time will catch up with you soon enough.

iStock 104636359 300x200 Distributor Acquisition Over Distributor Retention?

Potential distributors are also becoming more savvy as are any other forms of customers with an internet connection. I think it’s pretty safe to say that even the least savvy of your distributors will run a few google searches on your brand before they signup. Right? What will they find? How will they think about you?

This obviously will not resonate with the companies that just want quick growth and then dissolve. There are lots of these. Those companies are just worthless and should not exist. They are thieves.

MLM companies need to adopt a mentality of building a strong brand / product line and providing real tools to their distributors to help them market themselves and generate leads.

So how do you measure your retention rate?

Your retention rate needs to be calculated using active distributors, not total distributors.

Be real with your self and don’t count people that are not “active”. Activity is a metric that you have to define relative to the opportunity / product line that you provide. You are the only one that can define this metric.

What is a good retention rate? It’s different for every company. You have to start measuring it and constantly tweak things to see how much you can improve it. If you have taken serious actions to improve it and the improvement has plateaued, then maybe you have reached your acceptable retention rate. But I’m sure you still have plenty of room to improve.

So what effects do low retention rates have on your distributor acquisition? MLM executives are just learning about the real effects of the social web on their business. The effects of connected distributors will mean more power for distributors and better MLM’s rising to the top. That’s a good thing for everyone in an industry.

But low retention doesn’t mean just low retention… the net effect of having high churn rates (low retention rates) is not just trashing the acquisition cost of that distributor and losing the positive word of mouth value of a happy distributor. You also have to count the negative effect of bad word of mouth.

Churning through distributors will catch up with you very quickly today.

Distributors aren’t stupid. Don’t assume they are. If you churn through them, enough of them will complain and let the rest of the world know which will in turn raise your distributor acquisition costs and eventually squeeze your margins tight. Your margins being tighter will mean that you will have to product development and resources for distributors which will only hurt you more. You’ll eventually bleed yourself dry.

So what creates these horrible retention rates? Why is it that distributors with large downlines just bounce from company to company? It almost doesn’t even matter what the company is selling. That means that you are only as good as your compensation plan and that you’ve become a commodity. There is nothing that creates your worth in the eyes of your distributors besides your comp plan. When the distributor is going from company to company, she is just looking at who pays her out the best… instead of asking: what are they selling? is this a reputable company? are they going to be around tomorrow? do they care about how well I do? what tools do they provide me to execute on my MLM business?

This means you’re losing relevance. When you lose relevance, your distributor acquisition costs will continue increasing and you’ll just have to keep paying out more and more. And before you know it, you have become a commodity. Don’t do that to yourself. It’s a race to the bottom. All MLM’s who play this game will ultimately lose. Not to mention that you attract the most fickle of distributors to yourself. They could care less about you. You don’t want that.

So how do you solve this? How do you stop the bleeding? That’s what I will cover in my next post.

February 19, 2011

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