Network Marketing vs ECommerce and Traditional Business

When your prospects are looking to start a business, they’re likely exploring multiple different options to figure out which one is best for them.

It’s a good idea for you to understand the major types of businesses people start, so that you can demonstrate their pros and cons, and how network marketing stacks up against it.

This week, we’re looking at how Network Marketing compares to e-commerce and even traditional “brick and mortar” businesses.

There are a few key differences that I believe give our industry the edge, and in today’s video, I’m going over all of them for you. 

What is Considered a Small Business?

So, what is considered a small business?  Factually, I don’t know, because the  US Small Business Administration counts companies with as much as $35 million and 1,500 employees as a “small business” depending on the industry. 

Outside of government, companies with less than $7 million in sales and fewer than 500 employees are widely considered small businesses. 

But the key metric to understand here is that out of 28 million small business owners in America, 26 million have zero employees, so now you can now understand that as we compare different business models in this discussion, we’re really working with 2 million small businesses that have employees.  

Risks of a Traditional Brick-and-Mortar Business

Here’s a few examples of small business and some of the things that are required for a business to be successful. 

So let’s talk about the brick and mortar store that’s best understood. In this particular scenario, the guy owns a camera shop. He’s got a lot of expertise, assuming he’s got a lot of expertise about cameras. He has some inventory: lenses, cameras, books, filters. 

He’s probably renting the store space, and he has to do marketing and get people into the store. 

Or how about the fashion store. It has to have employees and inventory. The business owner has to rent store space, like in a mall or other building. And it has to do marketing to get people to come into the store and shop.

Let’s look at a restaurant business. It has employees, it has to rent a building or space for the business. It has perishable inventory (ie: tomatoes that go bad, you cannot keep them in inventory for months). This business would also have to have liability insurance (think problems with e coli or bacteria). And of course, it has to do marketing to get people to come and eat. 

And my last example is a car mechanics business. To start off, the owner and employees are going to have some expertise. I went through five different vocational schools to learn body repair, engine repair, engine rebuilding, tune-ups, things like that. 

The business also has to make capital investments: equipment and tools to do the work. This business will also need employees and inventory.  It will need to be responsible for  liability and will also need to do marketing.. 

What you see consistently here is marketing. And a lot of people who go into business, do so because they love it. I certainly loved working on cars. The thought never crossed my mind that if I opened a mechanic shop that I would need to be doing a lot of marketing. 

But if you’re going to have a business, you have to keep that in mind, because you have to find ways to get people to come to you, to come into your business. 

Geographic Limitations of a Traditional Business

So that gives you a picture of the traditional model, if you will. Now, let’s get into some of the drawbacks that caused me to no longer do that type of a business. I live near Park City, Utah. You’ve got Whole Foods, Staples, Walmart, groceries stores, and some Outlet Mall stores.  

It’s kind of a hub area or “go to” location and everybody goes into this one location to do their shopping. 

These businesses are able to draw traffic from perhaps about 30 minutes max from all directions, but there’s not a whole lot because you have a finite number of people who will come to this area. In other words, down in Salt Lake, the people are not going to drive the way up to Park City to go to these stores. 

So if you think about opening a store, you can only serve a certain geographic area. 

Inventory Headaches: Where Do You Break Even?

Let’s talk about inventory. All of those businesses described earlier need inventory to be in business. When you consider starting a business and buying inventory, there’s some things you really should consider. 

In this example I’m going to use a random number. Let’s say your product wholesale cost is $100 per unit. You sell it for $150 per unit, and you have a $50 gross profit per unit. You order 5,000 units. 

Anytime you order inventory or have something manufactured, you order in increments. The more you order, the cheaper price you get. Most businesses try to order up into the higher units to get discounts. (And by the way, you really don’t get ito the good discounts unless you’re ordering 20,000 units.) 

But back to our example, your order 5,000 units at $100 per unit – so now you’re sitting on $500,000 of inventory. The big question is: When do you break even? 

Well, 500,000 units divided by $150 (remember, that’s what you’re selling them for) is 3,333 units.  In other words, when you sell 3,333 units you are at the break-even point and the 1,667 remaining units will be profit. 

And the next big question is: when do you re-order more inventory? You have 1,667 units on hand, but now you need to get in line at the manufacturer, because it takes time to product the product and you don’t want to run out of inventory. So you’re going to have to cashflow this order…you’re finally making some profit on these items but now you need another $500,000 to purchase more inventory.  Can you afford it?

I used to sell a product called Brilliant Compensation. At first it was VHS, and then it was manufactured as a DVD. I remember doing this inventory modeling. I had to figure out how many people were going to buy it. Well, I decided I wouldn’t know until I started selling it. 

So I purchased a smaller quantity and started selling it. And it wasn’t long before I did that a few times, where I would bet bigger and bigger. I was getting 20,000 units, then 50,000 units. I ended up selling 44 million copies of that thing – when I finally figured it out. I would have to sell every single one and not buy anymore in order to reap all of the profits on all of that inventory. 

The headache with inventory is that you have to make the right bet on how much inventory to buy and keep on hand. You may think you are making $50 profit, but if you can’t sell your inventory or you order too much inventory you aren’t making any profit. 

Pros and Cons of an E-Commerce business

Let’s move over into eCommerce. There are some benefits from e-commerce: 

• You get to cut out the brick and mortar expense
• Your geographic location can expand to anywhere in the world
• Your website is open 24 hours a day, 7 days a week 
• You typically have fewer employees 

As far as what it takes to make the business successful, you’ve got to do some research and development in product design. You get to do website design, website maintenance, database security, and customer records.  Then you’ve got advertisements and marketing, website traffic, inventory and merchant accounts. You also get to deal with shipping, returns, order fraud. 

E-comm Compared to Network Marketing

Let’s take just a minute and compare these types of business to Network Marketing. 

In Network Marketing, we can cut out almost all of those things that a small business or ecommerce business does except for advertising, marketing and traffic. 

To me, one of the big differences between the two is product research and development. What I see most often in e-commerce product selection is that they go out and either get an already existing product and white label it. What that means is that you rip off an existing brand and you put your brand name on the label. 

If that’s the model that you want, great! 

The other option is, you can make a custom product. Let’s say you develop a skincare or nutrition product. Here you’re working with ingredients, not even knowing if the formula is going to be great. 

These small businesses don’t have a full research and development department like I’ve seen in Network Marketing, where around 16 people work endlessly every year, going through all of the research and testing formulas and testing different substances from earth. This R&D team combines these ingredients to see what effects they have, and they also do a lot of research in journals and professional papers to learn what has already been discovered with these ingredients. 

Tech Headaches: Your Website Must Convert

If you’re going to have an E-Commerce business, then your website must convert. 

That is the primary component you’re looking for when your website is created.  In addition to that, you also have to have strong security measures in place. 

In my experience, websites require a lot more cost than you might think. So here’s a fun story to help illustrate this point. I wanted a website to sell my video, Brilliant Compensation. I bought a copy of the book Front Page 1997. I sat down with that book – it was a really thick book – and I had it opened on my lap and I built a webpage by following along with the book’s instructions. 

It was awesome. 

It took me about two weeks in order to get my name to actually come up on the page. 🙂 Well, I ended up building the page and I figured out how to upload the image of the video, and write some text to explain what it was about. (Keep in mind, I really didn’t know sales copy – you have to know sales copy in order to get conversion.) 

And then, I waited, and waited and waited for a sale to come through.  I didn’t get an email to notify me about any orders. So I placed a test order – and still – no orders came through. 

So I finally broke down and hired somebody to come in and test. And I said, “I can’t find out where my orders are going.” And he said, “Well, is it going into the database?”  

I said, “The what?” 

And he says, “To the database.” 

I said: “What’s the database?”  

And he proceeded to tell me that the database is where the orders have to flow into. 

In other words, there’s so much that is needed for a successful website, and there’s so much that needs to be known and maintained. And the moment that you hire a team to do this, they have lassoed you, and it’s called the pain of disconnect because you don’t know, you can’t just go in there and rip it out with a cord swinging. They’ve got ya!  

That’s the pain of disconnect and you don’t know how to get away from it at that stage, because you’ve got all this money invested into it and it’s not working. And you can’t reach the person when you need them the most, like when you’ve got an ad running, but the site is down. You’re paying for every one of those clicks and they’re going nowhere, right? 

These are the problems that you will have with an eCommerce. I assure you. 

Another headache I’ve personally experienced is with a merchant account. I had 40,000 orders one month, and my merchant account (the company that collects all of the money from credit card orders) shut down my account. When I inquired why they shut down my account, I was told that there were too many orders coming through. 

I thought too many orders was a good thing, right? But the merchant said they shut down the account in case they were fraudulent orders. So they froze my account while they invested to make sure fraudulent orders weren’t going through my account. 

I asked how long this would take and they said three months! I told them I’d be out of business by then. 

Anyway, people don’t think about things like this when they want to go into business. 

How Network Marketing Solves E-commerce Problems

Let’s take a look at how Network Marketing solves E-commerce problems. 

On the R&D side of things and products on the shelf, Network Marketing companies can develop very unique products. We don’t have to compete with the WalMarts, WholeFoods, Vitamin Shoppe, and GNCs of the world. Those stores don’t carry our products. But, all of those stores carry the same or very similar products that are all competing brands. 

We’re also not in competition with them because those general store products don’t even come close to the quality standards of Network Marketing companies. The results standards are so ferocious and fierce in the competition world. 

13 Top Benefits of a Network Marketing Business 

These are the benefits, from my perspective.  (You can watch the full video here: The 13 Top Benefits of Network Marketing)

1. Exponential, residual income
2. Team effort 
3. Reps, not employees
4. Build from anywhere 
5. Low financial entry & risk 
6. The customers are your customers 
7. 1099 tax system
8. Geographic diversification 
9. Work with the people you want to work with 
10. Money & time freedom 
11. Easier transition (part time) 
12. Marketing dynamic 
13. Availability of training 

This of course is my list, but it may be different for you. 

So, what do you think about Network Marketing vs. a traditional or eCommerce business? What experiences have you had in traditional business? What were the benefits? What were the downsides? I’d love to read your comments and hear about your business experiences. 

P.S.  If you don’t have a team, haven’t recruited anyone (or less than 10 people), this is THE course you should get – Network Marketing Training Course