The Unchanging Equation: How Net Profit Is Really Created?
Net Profit = Traffic X Conversion Rate X Dollar Per Sale X Number of Repeat Sales X Margin
"The number one business rule is Profit is King. The success of your business has nothing whatsoever to do with how much revenue it makes or how many people you employ. And it also has nothing to do with market share it enjoys. It's all about profit." -
Brad Sugars' views on Net Profit
I was blown away when I first read this equation in one of Brad Sugars book. It applies to ALL Businesses, including MLM Network Marketing business.
Understanding the Net Profit Equation
Let's take more in-depth look at the factors in this Net Profit Equation. It may look a little complicated and hard to understand, but I'll try to make it as simple as it can be. Here goes!
1) Traffic This refers to the stream of potential customers that comes into your business. In the case of traditional business, this could mean the customers that walk into the retail outlet or for online businesses, it means the number of hits to the website.
2) Conversion Rate This is the percentage of potential customers that ACTUALLY buys something from you, thus creating revenue.
3) Dollar Per Sale This is the dollar value for each sale you closed for a particular customer.
4) Number of Repeat Sales This is the number of times the same customer buys from you.
5) Margin This is your profit margin, or your net profit expressed as a percentage of your revenue.
By breaking down the Net Profit Equation into its individual components, you will be able to see clearly which areas your business is functioning well and which areas are the bottlenecks.
If you can understand what I'm talking about so far, you are already better off than 80% of the people out there who has no idea how to make money in businesses!
But I'm confident you are way smarter, so we are going to look even deeper....
MLM Business Model Dissected
To apply this to the network marketing business model, we need to recap what we learn in
Fact 1 of the 7 Hard Facts of InterNETwork Marketing
, that a network marketer's job is to Train the NETWORK and MARKETING the Products. I discussed the need to have 2 systems, a Training System and a Marketing System.
Applying this knowledge to the Net Profit Equation, I can break down the equation into 3 Main Parts:-
1) Marketing System = Traffic X Conversion Rate The function of a marketing system in network marketing is to bring in qualified prospects (traffic) and convert them to customers (conversion rate). An effective marketing system in network marketing brings consistent flow of qualified prospects into your business. This system works on people BEFORE they join the network marketing business. It's like a beautifully renovated retail shop in a great location, attracting interested people into the shop to take a look at its products and services.
2) Training System = Dollar Per Sale X Number of Repeat Sales The MLM Company's product training system and the MLM Organisation's (the group you joined) training system are meant to equip distributors with the necessary products knowledge and business-skills to service customers. A MLM training system works with people AFTER they join the business or buy its products. It's like the well-trained sales staff introducing the retail shop's products after the customer entered the retail shop.
3) Company's Compensation Plan = Profit Margin How much you get paid depends on the MLM company's compensation plan and that's your profit margin. This is pretty straight-forward.
Feeling overwhelmed?
Don't worry! I'll show you step-by-step in details how each of these 3 parts in the Net Profit Equation fit together in the MLM network marketing business model.
Next I will share with you Why MLM'ers are Literally Killing Themselves using the marketing methods that their uplines taught them!
Go on to read Fact 3 of the 7 Hard Facts of InterNETwork Marketing.
Committed to Your Freedom,
Willy Lim, "Bridging InterNET to NETwork Marketing"
