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Five Reasons Why Ninety Percent of Network Marketers Fail
Nine out of 10 people who fill out a network marketing application will fail to build a viable business. Among this number, there will be people who do not take action and people who start a business but experience a real business collapse.
The oft-quoted statistic allegedly from the Small Business Administration (SBA) that 9 out of 10 businesses fail within 10 years by comparison is not true.
According to Brian Headd’s article Small Business Economics 21:51-61, 2003: Redefining Business Success: Distinguishing between Closure and Failure, 66% of conventional businesses survive 2 years or more, 50% survive four years or more, and 40% survive six years or more. Traditional small businesses are doing much better than the 90% failure rate quoted by people in the network marketing industry.
What is the difference? Is the network marketing model itself flawed? Many familiar sales models use the same business model as network marketing. Real estate sales are a prime example. Many high-level salespeople in the automotive, pharmaceutical, travel and other industries have primary responsibility for recruiting and training salespeople and in return receive commissions based on the performance of their teams. It’s not the model.
What is it then? Why do so many people fail in network marketing?
By working with people over the past 5 years and talking to other successful network marketers over the same period, I was able to come up with 5 reasons:
1) Entry cost is too low: Typical start-up costs can range from $0 to $1,500. Imagine the person who decides to open a traditional business and has to invest tens of thousands of dollars to do so. How might this person differ from someone who can start their business with a credit card? The person looking to open a conventional business where the investment is high will develop a business plan. This plan will include a skills assessment, projected expenses and projected revenues. If the potential business owner realizes that they have a skills gap that is important to the success of their business, they will either put in the work to learn that skill before opening their business, or they will provide funding and a plan to learn that skill while he’s in the planning. stages and before they open for business. Now imagine the person who can simply put their start-up costs on their credit card. For the majority of network marketers, there is no planning beyond the initial start. Most never ask their sponsors or themselves what they might need to succeed, other than the initial start-up costs. They never ask what skills they lack. There are ongoing business costs in addition to start-up costs and these costs can range from $100 to $500 per month. Many do not plan for current expenses. Regular business expenses tend to be viewed as cable bill expenses rather than investments in their business. The weak start can therefore be a stumbling block to business success.
2) Lack of proper training: Unfortunately, many companies and teams don’t offer training beyond corporate events. To be successful, network marketers must master a simple formula, the invite formula, and they must use this formula 30 to 60 times a month. Without this formula, many new and seasoned network marketers will invite bad prospects to review their information and find themselves disappointed with the results. The inviting formula is simple to learn and implement. Why is there so little network marketing training available? I believe the reason can be found in the very reasons people get into network marketing. Take the employee who wants to fire his boss. He never wants anyone to tell him what to do again; he hates his boss and wants to be free. Take the business executive and entrepreneur who is tired of managing people and is looking to build a fleet of independent business owners that they will never have to manage. Put the two groups of people together in what is basically a people business and what do you get? People who find they have to do what they were trying to get away from in order to succeed and become free! YIKES!
3) Too many people are looking for the big income and don’t appreciate the smaller amounts of income they earn along the way. Most people get into network marketing because of the big earning demands. They want the six digits. If they do not receive them, they resign. Here is a statistic that will blow your mind. Anyone earning $30,000 a year or more with their respective company is in the top 3% earner of their company. Here is another fact. Income generated from network marketing is tax-advantaged income. Income earned through employment is not. Anyone who earns an extra $30,000 a year in tax-advantaged income and fails to make meaningful progress in improving their wealth will never improve their wealth with $100,000 a year. Finally, the path to earning and retaining six figures and beyond is a 5-10 year process and there is no getting around it. It is a process that requires growth and change in the areas of personal finances, emotional maturity, spiritual maturity, and personal association.
4) Weak EQ, failed expectations, too much industry hype: Looks like I mixed 3 different ideas into one, but they’re actually all related. There is a lot of hype in the industry. Joe Smith, the waiter, went from 0 to six figures in one year. Of course, Joe Smith and his company forgot to mention that Joe’s entire family was involved in the network marketing industry, all of them were successful, and Joe worked as a waiter just to figure out what his options were. The fact that skills are required is just one of the “inconvenient truths” of network marketing. Hype invariably leads to dashed expectations. If people understood from the start that network marketing is truly a skill set business, fewer people would get started and more people would succeed. The organizations created would shift from vertical sales organizations to consumer-based organizations as more people seek to become product users rather than business owners. Network marketing itself is an industry that attracts too many people who desire instant gratification. Daniel Goldman described Emotional Quotient or EQ in his book Emotional Intelligence. He found that the biggest determinant of long-term success was his ability to delay gratification.
5) Money In, Money Out: Many people view network marketing as a money, money proposition. Imagine a black box. On one side of the box is the word “IN” in bold type. On the other side is the word “OUT” in bold type. It would be easy to think that it is only because you invest money that you should get out of it. Investments rarely work that way. See the problem is that “black box”. Something is happening in this black box that turns inputs into outputs and therein lies the problem. To illustrate, I was on the phone with a prospect the other day. He said: “I’ve been scammed so many times, what I need is someone who will work with me, show me the ropes, train me… are you this person?” My response was, “yes, we have a training program that starts with our training manual. We have weekly calls and I will meet with you a few times a week and give you assignments whenever we meet. You won’t progress unless you do homework and attend training calls…are you that person?” Stone cold silence. He never answered my question. With my first business, I received motivational materials for $60 a month, but no training. In my second program, there were a ton of workouts that I didn’t take advantage of. I thought my team’s system would build my business for me. When I realized it wouldn’t, I had a choice, stop or continue. In order to continue, I had to ask myself a few questions, among which, what skill(s) am I missing? There are 2 skills required in network marketing A) the inviting skill which has integrated the listening, sorting and sifting stills and B) the training skill which requires the boundary setting skills and the skill setting expectations. I didn’t have the skill to invite. I learned my craft through experimentation, direct observation and practice. I applied these same strategies to learn how to invite and went from spotty checks to consistently earning 4 figures per month.
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