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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 fail to build a successful business. Among that number are people who don’t act and people who build a business yet experience a real business collapse.
The oft-quoted statistic purportedly from the Small Business Administration(SBA) that 9 out of 10 of all businesses fail within 10 years is comparatively untrue.
According to Brian Headd’s article from 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% live six years or more. Traditional small businesses do better than the 90% failure rate people in the network marketing industry quote.
What is the difference? Is the network marketing model itself flawed? Many familiar marketing models use the same business model as network marketing. Real estate sales are a prime example. Many top sales people across the automotive, pharmaceutical, travel and other industries have as their primary responsibility the recruitment and training of sales people and in turn are paid commissions based on the performance of their teams. This is not the model.
What is it? Why do so many people fail in network marketing?
Working with people for the last 5 years and talking to other successful network marketers at the same time, I have come up with 5 factors:
1) The entry cost is very low: The average start up cost can be from 0 to $1500 dollars. Think of the person who decides to open a traditional business and needs to invest tens of thousands of dollars to do so. How is that person different from the person who can start their business with a credit card? The person who wants to open a conventional business where the investment is high will make a business plan. That plan will include an assessment of skills, expected costs and projected revenues. If a prospective business owner realizes that they lack a skill material to their business success, they can either work on learning that skill before opening their business or they can provide funding and a plan to acquire that skill while they are in planning. periods and before they open for business. Now imagine the person who can only put their initial expenses on their credit card. For most network marketers there is no planning beyond getting started. Most never ask their sponsors or themselves what they need to be successful other than startup startup costs. They never ask what skills they lack. There are ongoing business costs in addition to start-up costs and costs can range from $100 to $500 dollars per month. Many do not make provision for ongoing expenses. Ongoing business expenses are likely to be considered expenses similar to a cable bill rather than an investment in their business. A low start, then, can be a barrier to business success.
2) Lack of appropriate training: Unfortunately many companies and groups do not offer training beyond corporate activities. To be successful network marketers must master a simple formula, the Invite Formula, and they must use that formula 30 to 60 times per month. Without this formula many new and seasoned network marketers will invite the wrong prospects to check their information and find themselves disappointed with the results. The Invitation Formula is simple to learn and implement. Why is there so little training available in network marketing? I believe the reason can be found in the reasons why people start network marketing. Take the wage earner who wants to fire his boss. He didn’t want anyone to tell him what to do again; he hates his boss and wants to be free. Take the corporate executive and the entrepreneur who are both tired of managing people and want to build a crowd of independent business owners that they don’t need to manage. Put two groups of people in what are basic business people and what do you get? People who find that they have to do what they are trying to avoid in order to succeed and be free! YIKES!
3) Too many people are looking for the big income points and fail to appreciate the small amount of income they earn along the way. Most people start network marketing because of the many claims of income. They want six figures. If they don’t get it they stop. Here is a statistic that will knock your socks off. Anyone who earns $30,000 per year or more at their respective companies is among the top 3% of their company’s earnings. Here is another fact. Income earned through network marketing is tax-advantaged income. Income earned through a job is not. Anyone earning an additional $30,000 dollars per year in tax-advantaged income who fails to take significant steps to improve their wealth will never improve their wealth by $100,000 per year. Ultimately, the road to earning and saving six figures and beyond is a 5 to 10 year process and there is no way around it. It is a process that requires growth and change in the areas of personal finance, emotional maturity, spiritual maturity, and personal relationships.
4) Low EQ, failed expectations, too much hype in the industry: It seems like I mixed 3 different ideas at one point but they are actually 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 all of Joe’s family is involved in the network marketing industry, that all are successful, and that Joe works as a waiter just to know what his options are. . Those skills required are just one of the “inconvenient truths” of network marketing. Hype often leads to disappointed expectations. If people understood in the beginning that network marketing is really a business that requires a skill set less people would start and more people would be successful. Manufacturing organizations will shift from vertical marketing organizations to consumer-oriented organizations as more people seek to be product users rather than business owners. Network marketing itself is an industry that attracts many people who want instant gratification. Daniel Goldman describes the Emotional Quotient or EQ in his book Emotional Intelligence. He found that the biggest determinant of long term success is a person’s ability to delay gratification.
5) Money In, Money Out: Many people treat Network Marketing as a Money in, Money out proposition. Think of a black box. On one side of the box is the word “IN” in bold letters. On the other side is the word “OUT” in bold letters. It’s easy to think that just because you put money in, you must get money out. Investments rarely work that way. See trouble is the “black box”. Something goes on in the black box that changes inputs to outputs and there’s the rub. As an illustration, I was on the phone with a prospect the other day. He said, “I’ve been scammed so many times, all I need is someone to work with me, show me the ropes, train me… are you that person?” My answer was, “yes, we have a training program that starts with our training manual. We have weekly calls and I meet with you twice a week and give you assignments every time we meet. No you will improve. unless you do the chores and attend the training calls … are you the man?” Stone cold silence. He never answered my question. With my first company, I received motivational materials worth $60 dollars per month but no training. In my second program there was training galore that I didn’t take advantage of. I believe that my team system will build my business for me. When I realized that it was not, I had a choice, stop or continue. In order to move forward I need to ask myself some questions, including, What skills or abilities do I lack? There are 2 skills needed in network marketing A) the inviting skill which includes listening skills, sorting and sifting and B) The training skill which requires boundary setting skills and the skill in setting expectations. I lack invitation skills. I learned my profession through experimentation, direct observation and practice. I applied the same strategies to learn the skill of inviting and went from sporadic checks to consistently making multiple 4 figures every month.
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