How could a $1,000 a month in Network Marketing income be worth $200,000?
The Rule of 200.
Your income could be worth 200 times the monthly income.
I know it sounds like a bizarre claim … even non-compliant. Fortunately, I am not selling anything or recruiting anyone with this post. That gives me some freedom-of-speech leeway. And I will gain even more leeway by keeping the facts and the truth right up front.
Most Network Marketing incomes are not worth any more than the actual income. $100 a month is worth just that … $100 a month. $1,000 a month … is worth just $1,000 a month. They are not worth anything beyond the actual amount.
Most is an understatement. Almost ALL Network Marketing incomes are not worth any more than the monthly check. They are all considered linear or earned income.
If you stop working, the income stops with you. The advantage is you can earn some income choosing your own hours, working from “phone,” and creating a global customer base without any significant financial risk or educational investment.
Network Marketing is the ultimate gig.
Residual Income is defined as income that flows long after the creation work is done.
If you spent 10 years inventing, patenting and creating sustained sales for a product, then you might have residual income from the “long tail” of the sales.
We can think of many products that we would continue to buy even if there were no marketing efforts. Think iPhones, Teslas, Kleenex, and French’s Mustard. The income these brands earn could be considered residual. Therefore, the owners of the brands have an Asset … worth a great deal. Ergo, Asset Income.
Here are some conditions that create only Linear Income in Network Marketing:
- The products may attract first-time buyers, but sustained sales are fleeting.
- Maintaining sales requires constant recruiting, promotion, and management.
- Sales maintenance and growth only occur with contests and promotions.
- Sales fluctuate significantly month to month.
- Sustained sales require the company to always be introducing new products.
- If you “take off” for a month or more, your sales start declining.
- Your company has not proven that it is married to the Network Marketing model for life. It may not be capitalized enough to persevere in the case of adversity or may just not have the ownership resolve to be here paying you 50 years from now. Some owners bail at the first sign of tough times. Some owners bail at the first signs of the ability to “cash out.”
What leads to a Network Marketing income being RESIDUAL?
First and foremost, the host company that has created the products is paying you to promote them.
You can never have Residual Income if the host company is not around to pay you. Residual means virtually forever. And while no company has yet to be in business “forever,” some have proven to be good bets.
Sharing the spot for “most important” is the product line. Legitimate Network Marketing income only comes from product sales. We do not earn anything from recruiting people, holding events, social media efforts, or recognizing the successes of our teams. We only get paid when people buy our products.
There are two categories of product sales:
- New product sales to brand new customers.
- Repeat sales to customers that buy again and again.
Residual income ONLY comes from repeat customers. New customers are required for growth. Repeat customers are required for there to be an Asset.
What is it about a product line that has customers keep buying it month in and month out for years, even decades? Immense value. What the customers get from the customer experience continues to outweigh the price they pay.
Value trumps all. Value includes the actual performance of the products, the packaging, the label, the branding, and the “story” behind the product, including the romance and the science.
And don’t forget education. The best brands continue to educate their customers, not only on why to continue buying, but on the whole context of the problems the product solves.
Sustained repeat sales is a lofty challenge. Repeat customers are constantly assaulted by the fancy new marketing of fresh brands, brands looking to “knock off” successful brands, cheaper brands, new technologies, and simpler, more appealing methods of distribution, i.e. 1 click ordering, free freight and loyalty awards.
Customer retention is the Holy Grail of Network Marketing. Any company that has figured out how to keep customers loyal and happy for 20 plus years deserves our highest respect and attention. Anyone can promise it. Hardly anyone ever proves it.
The third requirement for residual income is a proven customer acquisition program. The reality is most customers do not stay forever. A big group of them never make a second order. They try a product and decide it is not worth it to them to keep buying.
A huge factor in this is not actually the product, but the fact that as salespeople we are always there promoting and promising for the first order, but we are MIA for the repeat order.
Customers are on their own. Big mistake. Attrition is like rust or termites. If you do not protect the asset, nature will erode it. Those who do quit buying need to be replaced. How much recruiting of new customers’ needs to be done depends on how many are quitting. Mediocre products require a lot of recruiting.
Here is a list of conditions that lead to Asset Income:
- The sales culture is “quiet.” Specials, promotions, new products, discounts and contests are exceptional events rather than constant white noise.
- Sales are predictably constant from month to month.
- Sales do not depend on any one sales leader or system. The sales are effectively spread out amongst a large database.
- The relationship between Retention and Recruiting are high enough to create sustained growth.
- Repeat customers are 90% of sales, demonstrating that the products are carrying the day.
- Sales leaders (those who are successfully engaged in building their own teams) make up 5% of your total team, including customers. Sales leaders are the only members of your team/customer base that intentionally create growth.
- The company has proven that in its DNA is to pay, and pay you forever. They bleed Network Marketing. They have proven they can and will persevere through tough times and will not lose focus or their commitment to you during bonanzas of success.
If you have all 7 of these qualities present in your business, your income should be characterized as ASSET INCOME. That means your distributorship/membership that you own, that is tied to the sales of all of the customers in your genealogy and all the sales leaders on your team that are building their own teams … IS AN ASSET.
How do you know for sure that your income is Asset Income? Take 3 or more months off and see what happens to your income. You don’t need to ignore your team, just quit driving it. Don’t quit. Don’t go MIA. Don’t make them wonder where you are or what you are doing. Just take your foot off the gas. Let sales and recruiting be whatever it is going to be without you having anything to do with it.
Watch what happens to your leaders. Do they step up or do they follow your lead? To what level do your sales settle in after a few months? Season your sales. Let them find their natural residual level. Maybe while you are driving sales growth you are earning $7,000 a month on average. If you “retire” for a few months and your income settles in at a predictable $5,000 a month, then you may have a million-dollar asset.
How is a $5,000-a-month income worth a million dollars? I call it The Rule of 200. The value of your asset could be worth 200 times your monthly residual income.
Compare it to the traditional income-producing assets we own that we might value at $1,000,000. If you owned a rental home that paid you $5,000 a month, it could easily be worth $1,000,000.
If you owned a million dollars’ worth of bonds or dividend-paying equities, they would pay you between $1,500 and $3,000 a month.
If you had $1,000,000 in a mutual fund, it might pay you $1,000 a month. If you are getting a 5% annual return on your $1,000,000, you are earning $4,000 a month.
The only way you and I get a 5% return on a $1,000,000 asset is in real estate or the stock market, both of which fluctuate sometimes wildly without notice.
$5,000 a month in true asset income could easily be worth $2,000,000.
Can you sell your Asset Income distributorship for 200 times the income? No. Why not? Why would someone pay you a small fortune for something they could build themselves for nothing but some sweat equity?
Yes, you could sell your Network Marketing Asset Income, but for 2–3 times the annual income, or more like The Rule of 30.
The people that build successful teams do so because they find a way to become highly motivated and stay that way for a few years.
I've found that educating them on "The Rule of 200" can help with that motivation. Without it, we are just earning an income and might as well drive for Uber or Lyft.
With Asset Income we're building the kind of wealth in a few years only available with a lifetime of saving and investing.
The work is worth it,
P.S. Comment below! Tell us what you thought as you read this blog. P.P.S. Don’t forget to share it with your team and followers!