Back when I was teaching generic seminars for network marketers, I noticed a disconcerting pattern: top distributors would buy my resources after the training and their credit cards would decline. These were leaders who bragged about making $40,000, $60,000 or $80,000 a month.
Several times a year I would get distressed calls from top earners who had been terminated by their companies or had their companies go out of business. Invariably they would tell me that they were a month or two away from having their cars repossessed or losing their homes.
I started to realize that many network marketers are broke—even those with high incomes.
Earning large amounts of money is fairly easy in this business. Learning how to create wealth is a completely different skill set. For many people, including myself, network marketing is the first time we’ve ever made a lot of money, and we don’t know how to handle this new wealth … until we learn a few important lessons.
Expenses, Taxes and the Cost of Selling the Dream
Here’s a typical scenario: you crack $25,000 for the first time on your bonus check and you buy a $25,000 watch. You justify this purchase two ways. For one thing, you figure, “It’s what I make in one month.” What’s more, you tell yourself that when people on your team see you with this dazzling new jewelry, they’ll get fired up and build even faster. Wrong on both counts.
First of all, $25,000 may be one month’s check, but it’s not what you earned in one month. It took some expenses to create that check. It may be only a couple thousand dollars for phone, business tools, samples, etc., but if there was travel involved, it could be five or six grand. Maybe you grossed $25,000 but only netted $18,000 or $20,000.
Then there is the biggest issue for network marketers: taxes. The number of top networkers who have been or are currently in tax trouble is staggering.
That twenty-five grand you grossed is before taxes. Depending on where you live, your tax bill could be 25 to 50 percent of your income. The good news is, almost everything we do in this business is tax deductible, and smart planning can keep your tax bill modest. Still, it’s a chunk of your bonus check that isn’t yours to spend. If you buy a $25,000 watch with your $25,000 bonus check you have just dug yourself into a hole. Pay your taxes first.
Another mistake is the belief that if you “sell the dream” by loading up with trips, cars, jewelry and homes beyond your means, this will inspire your team to work so hard that it will pay for everything.
People may be impressed with your new Rolex and think your Ferrari is hot, but that’s not necessarily going to make them build any faster. Even if it did, do you realize how many people would have to work faster to generate enough volume to produce the increase in income you would need to pay for those expensive toys?
When to Quit Your Job
Another important lesson network marketers need to learn is not to quit their jobs prematurely.
Most networkers join the business because they hate their jobs and want to fire their bosses as soon as they can. Your job as a sponsor is to help your people make prudent financial decisions, not give them rah-rah hype that will soon fade and leave them in a precarious money crunch.
Let’s say your new distributor earns $2,500 a month in her day job. As soon as her bonus check gets to $1,500, she’s certain that if she can do the business full-time she’ll replace that income quickly.
This almost never happens. Why not? For one thing, because now their recruitment efforts are driven not by an expansion mentality, but by one of desperation. When you need a new recruit to make your car payment, you’re going to put out that needy energy, and it’s likely to repel everyone you approach.
When you’re making $1,500 a month, don’t try to live on that. Instead, invest that money to grow your business. Otherwise you’ll be earning $1,500 a month forever. If you want to get up to $10,000 a month, or $50,000 or $150,000, you must invest proceeds back into the business in your early stages.
Sacrifices and Rewards
Building an organization always involves some degree of sacrifice. You will have to watch less TV, spend some time away from your family or cut back on some recreation activities.
If prospects see a payoff at the end of the tunnel, they are more willing to make those sacrifices. If you earn $2,500 a month with your job and start making $1,500 with your network marketing business, you can reinvest $1,000 a month in your business and use that extra $500 to pay off your credit cards. When you’re making an extra $3,000 a month, you may have an extra $1,000 to spend. Now you are actually living a better lifestyle—and your friends are likely to notice that.
If you quit your job the moment your bonus check equals your old job income, you will have exactly the same lifestyle. And prospects notice that, too. They see you going to meetings several nights a week and making sacrifices, but they don’t see the tangible rewards. Given the choice between going out to a presentation or staying home watching TV, most will opt for CSI and Law & Order.
When prospects notice you driving a new car, winning free trips, wearing nicer clothes and jewelry, they are much more likely to take your opportunity seriously. The secret is to obtain those things the right way: by earning more, not by going into debt.
It’s great that you can earn lots of money in this business. Be sure you’re building wealth at the same time. Make a commitment to growing your own net worth as you grow your network.
RANDY GAGE is world-renowned speaker who teaches
how to harness the power of thought and intention
to manifest success in all areas of life. He is an active network
marketing leader and a faculty member of Networking University.