Today, I want to talk about the value of a network marketing business. Keep in mind, this is my opinion, based on what I have experienced and learned during the past 19-years in this great industry. As a disclaimer, I am not an attorney, CPA, or financial advisor, so please do your own due diligence. This information is for educational purposes only.
The primary purpose of building ANY type of business is to create an asset that you can one day SELL for a large profit.
Write that down and remember it.
That’s the goal of most entrepreneurs. Work hard for ten to twenty years and then cash out and live your dreams! Another common goal is to build a business that does not need YOU to run it and keep it going. Basically, you build a business with a system, and the system runs the business without you, all while you enjoy the profits.
The Asset Value of a Network Marketing Business
A network marketing business is an asset, not a job. I define an asset as anything that produces positive cash flow.
In today’s world, most people do NOT save enough money for retirement. Most people are loaded with personal debt, have minimal retirement savings, and are just one or two paydays away from being financially destitute. It’s a sad reality. Can you relate?
Smart people INVEST money for the future, so they own assets that produce ongoing income before and during retirement. Basically, you save/invest a lot of money during your working years and live off the interest when you retire. That is the plan, although most people never achieve this.
I had a mentor once explain to me the power of residual income from network marketing, compared to a traditional financial investment. In a nutshell, this is what he said:
- To create $500 per month in cash flow ($6,000 per year), you would need $100,000 saved and earning you a 6% yearly interest rate.
- To create $1,000 per month in cash flow ($12,000 per year), you would need $200,000 saved and earning you a 6% yearly interest rate.
- To create 2,500 per month in cash flow ($30,000 per year), you would need $500,000 saved and earning you a 6% yearly interest rate.
- To create $5,000 per month in cash flow ($60,000 per year), you would need $1 million saved and earning you a 6% yearly interest rate.
- To create $10,000 per month in cash flow ($120,000 per year), you would need $2 million saved and earning you a 6% yearly interest rate.
The truth is most people will never save this amount of money during their lifetime, to have a consistent residual cash flow when they do retire. Most people will never save $200,000 let alone $4 million. That’s why most people spend their Golden Years struggling to survive, hoping the government or family members will take care of them.
Even worse, finding a stable, consistent interest rate above 6% isn’t all that common. Yes, it’s possible. But, most investment returns fluctuate year-to-year and come with different levels of risk.
Network marketing offers the average person a solution to their long-term residual income challenges.
For example, if you build a $500 monthly residual income with network marketing, it has an asset value of a $100,000 investment earning 6% annual interest. That does not mean you could sell your MLM Business for that amount, but that is the equivalent asset value. Make sense?
MLM is a Great Option
Network marketing is a business. That means there is NO guarantee of success. You might hit a home run, you might strike out. Most people strike out because they give up too soon or don’t treat their business seriously. But, you do have the POSSIBILITY to change your financial future with network marketing. That is what I love about our industry. It’s a level playing field for anyone who will commit, work hard, and stay the course.
With network marketing, it won’t take you a lifetime to generate a $500 to $10,000 monthly residual income. If you treat your business seriously, I personally believe you could create a very significant residual income within a few short years. Of course, individual results will vary.
Even if it took you five years to create a $5k monthly cash flow in your network marketing business, it would be worth it. Heck, it would be a great deal. How much would an extra $5k per month help you in your retirement years? Most retirees live on far less than this.
Going back to the example listed above, you would need million saved in an investment, earning you a 6% yearly interest rate, to give you the same amount of cash flow (k per month).
Resale Value of a Network Marketing Business
I’ve had a lot of website visitors ask me how to determine the resale value of your MLM Business. As a disclaimer upfront, this info is just my opinion. I am not a CPA, lawyer, or financial advisor. Also, check with your Company’s Compliance Office to make sure you can sell your downline if you choose to. Some companies allow it, some don’t. Assuming you CAN sell your downline, or you are thinking about buying someone else’s downline, here is the process I personally recommend.
STEP # 1: Find Out Why They Are Selling
Ask the person WHY they want to sell their downline. Are they leaving the industry for good? Are they going through a divorce? Are they in a money crunch? Is the company in trouble financially or legally? Or is it something else?
They might not tell you the truth about why they are selling, but try to find out anyway. This will help you discover if they are a MOTIVATED seller and if it will be easy to negotiate with them.
STEP # 2: Review the Last 3 Year’s Earnings
The next thing I would do is look at their last three year’s earnings with the company. Get a copy of the distributor’s past three tax returns or past three year’s 1099-MISC form. Find out the commissions paid to them and try to go into greater detail to get a breakdown of their earnings. If possible, find out their net income after business expenses, not just the amount of commissions they received.
This might sound weird to some people, but this is normal when someone is buying a business. They want to look at the “books” and see where the business stands financially.
STEP # 3: Calculate the Value
Your next step is to calculate the value of the MLM Business. In most cases, this will be two to four times the yearly earnings. For instance, if they received $100k in yearly commissions, on average for the past three years, the business would be valued between $200k and $400k (my opinion).
STEP # 4: Negotiate and Agree on a Price
As a buyer, you will want to negotiate and get the best price possible. It’s perfectly okay to haggle with the seller so you can get a price you are both happy with. As a seller, you want to educate yourself so you don’t “give the business away” or sell it far below its fair market value.
Once you agree on a price, you simply need to sit down with your attorney, sign the paperwork, and transfer ownership. If necessary, have someone from corporate oversee the transaction.
Remember, a business is only worth what someone else will pay for it! Just because you think your business is worth XXX amount of dollars doesn’t mean it is to someone else.
Here are a few additional things to consider when you are determining the value of a network marketing business.
# 1: Growth Rate
Has the downline grown each year? How much has it grown each year over the past three to five years? You want to look for a distributorship that is growing each year, not shrinking.
# 2: Size of Team
How big is the downline? How many customers and distributors are there? How much volume is being generated each month? How many distributors are on auto-ship? How many distributors are active and sponsoring new people each month? How many RETAIL customers are there?
Finally, how many leaders are there in the downline at each rank? Do these leaders have growing or shrinking businesses? Make sure you review a copy of their monthly printout to get this information.
# 3: Company Review
Make sure you do your homework on the MLM Company itself. Is it established and proven? Is it financially sound? Are they currently in a lawsuit or on the verge of bankruptcy? What is their online reputation? Are there a bunch of the company’s products for sale on eBay or Amazon? Will there be long term growth and stability? Or, is the company in trouble? Talk to industry experts, the corporate leadership team, and several successful distributors within the company to get some extra insights.
If you consider these factors, you should be able to make an educated decision about the “resale value” of the MLM Business, whether you’re buying or selling a downline. Your goal is to come up with a fair and accurate number that pleases both parties involved.
Once again, if you are thinking about buying or selling a distributorship, it would be in your best interest to consult with a CPA and attorney (with a background in MLM or Small Business). This will keep you out of legal trouble and help ensure everything goes smoothly.
Of course, you can ASK for a much higher selling price, but just like real estate, you don’t always get your asking price. Sometimes you get less and sometimes you get more.
Here’s an additional consideration:
For most people, if your network marketing income is stable, and doesn’t require a lot of time to maintain, it doesn’t make a lot of economic sense to SELL your business. Instead, let it run on auto-pilot and just enjoy the residual income as long as you can.
One Thing No One Talks About
While most people in the MLM Industry only talk about earning the big money, I’m here to tell you that you could build SUBSTANTIAL wealth by earning an extra $500 to $1,000 per month with your network marketing business. If you were smart and disciplined with that extra money, you could purchase additional assets, such as real estate, to create additional income streams. Or, you could just invest that extra $500 per month into your retirement account.
What if all you ever did was earn an extra $500 per month for 20-years in the industry and used ALL of that income to buy assets? You would retire a wealthy person. I think so anyway. Combine that with the tax advantages of owning your own home-based business, and it is a true win-win proposition.
At the End of the Day
At the end of the day, only you can decide what is best for you. It might be network marketing. It might be something else. Even if you decide NOT to do network marketing, I hope you will take the time to create some type of business (or asset) that can build you a residual income and consistent monthly cash flow. I believe EVERYONE needs residual income, especially in their Golden Years.
In conclusion, this is what you need to know about the value of a network marketing business. I hope you found the information helpful. Please leave a comment below to tell me what you think.
As a quick disclaimer, I am not a CPA, financial advisor, or lawyer. This article is just my opinion and is for educational purposes only. Please do your own due diligence and do what is best for you. Thank you.