How to Increase MLM Distributor Retention by 20% or More
MLM has a dirty secret. The secret is that on average, network marketing companies experience 80% annual attrition of customers and distributors. That means if 100 new recruits join in January, only 20 will be active in December. We’ll explain the major causes and some of the best solutions, beginning with how distributors recruit.
For more than 20 years, we have studied why people join network marketing companies, why they stay, and why they leave. Understandably, the reasons for joining are different from the reasons for staying, which are all different from the reasons for leaving.
In a 3-year study, we tracked the reasons that MLM distributors gave for leaving. Here are the reasons, in order:
1. Poor Communication
2. Lack of Training
3. Unmet Expectations
4. Inferior Support
5. Life Changes
Of these five, Life Changes accounted for only 15% of all the reasons distributors quit. The remaining four reasons can be influenced, often significantly, by the company working together with its field leaders.
At the same time, we also observed the traits and characteristics of the “Retention Leaders,” those distributors that had remarkably high retention rates. They faithfully follow 4 key principles and apply a variety of effective practices that drive retention. Here, we will touch on the following:
- How even a small increase in retention greatly leverages growth and momentum
- That Retention is one of the key opportunities for high Return on Investment (ROI)
- That increasing distributor retention by 5% can increase net profits by as much as 100%
- The four principles around which the Retention Leaders are succeeding
Leverage Growth Through Retention
Not only can a company measure and impact retention, but retention levels drive recruiting requirements, growth, and profitability. Let’s illustrate the impact of even a small move of the retention dial.
Suppose an MLM company sets the goal to achieve 1,000 active accounts in its business. As a simple illustration, say the company’s annual retention rate is 20%, the industry norm. That company will need 5,000 recruits to meet the goal of 1,000 active. Now here’s the point, as outlined in illustration 1: by increasing the retention rate only 5% the company will need only 4,000 recruits, instead of 5,000, to meet its goal of 1,000 active – that’s 20% fewer recruits needed to meet your goal because it increased retention 5%.
If the goal is 1,000 active, and the retention rate is increased to 25% (5% above the industry norm), a company will need 20% fewer enrollments (4,000 instead of 5,000) in order to attain the goal of 1,000 active. Thus, the effect of a 5% increase in retention is a 20% reduction in the number of new recruits needed to meet and sustain your goal.
Return on Investment (ROI)
A study published by the Boston-based firm of Bain & Company concludes that a 5% improvement in retention can result in as much as 25% to 100% increase in profits. Moreover, a mere 2% improvement in retention is the equivalent of a 10% decrease in expenses.
In addition to Return on Investment (ROI), we have also come to learn that the costs associated with Risk of Inaction (also ROI) can be enormous. Not only does a company become entrenched in cultures, processes, and systems that are difficult to change, but those MLM companies that wait until they feel they have enough of a base of customers and reps to begin focusing on retention always lament that they did not begin to focus on retention when they first launched their business.
The Four Principles of Retention
Principle 1 – Value
Creating value for distributors and their customers is the foundation of a successful MLM business system. Creating value for customers and business builders produces loyalty, and loyalty in turn drives retention and builds growth, profit, and more value. Value must be created and adequately communicated at all levels of the corporation and in the field.
Let me give you a sample practice that falls under this key principle, that you can sink your teeth into what I am saying. The practice is CONVEY VALUE. Does your staff clearly understand the value elements that you offer? Do they know the nifty elements of your pay plan? Product features? All the things that make your company special? Are these value elements organized and presented in a way, from the time that each new employee joins you, that you are confident that they are consistently conveyed to the world? Are the features and benefits of those unique value elements clearly identified and trained so that sales and upsells and service efforts are enhanced? You must methodically build this practice into your infrastructure, and over time you’ll experience the rewards of your preparation. Of course, I’ll shamelessly say that you can build this practice by yourself, or we can guide you through its fast, effective implementation.
Principle 2 – Expectations
Know, Manage, and Exceed Expectations. From the very beginning of the life cycle of a customer or business builder, you must know their expectations, do all you can to manage those expectations, and deploy all your resources to exceed expectations.
Here is a sample “best practice” under the principle of expectations. Business builders come with a high degree of energy and drive when they first join you. Do you have in place the absolute, fool-proof, stepped-out methods for assuring that they experience immediate success and short-term success experiences that meet their expectations and help to fund their progress? Are you applying the important disciplines for managing expectations when a person first signs up with you, having been promised the world by their sponsor?
Principle 3 – Service
The Golden Rule still rules. Service begins with a true desire to enhance the customer experience. It can be an overwhelming task, with so many tools available in the world of service, but with help you can break it down into a manageable and worthwhile undertaking.
Here’s a sample best practice in the area of service. Retention leaders provide the training and encouragement and support for their front-line employees to find a way to say “yes” to requests. This can be a complex and daunting practice to implement unless you have a couple of key elements in place, which include an effective system for contact tracking, clear guidelines for employees to follow, skills for making judgment calls, and accountability for decisions rendered and money spent to build goodwill. This is all attainable with careful planning and implementation. And the benefit can be enormous as the company gains consistency while it earns the highest marks in service.
Principle 4 – Leadership
Shape the vision, provide the passion, lead the way. Every corporate staff member must lead by example. Identify leaders, build leaders and make them successful.
One of the practices that we insist upon that falls under the leadership principle is the design of an organizational structure that is uniquely built for delivering the highest levels of service and responsiveness to business builders. For instance, your customer service manager should have unrestrained access to the CEO. The organization structure, when designed a certain way, can make the difference between a half billion dollar company with an astounding service reputation, and a struggling enterprise that is trying to figure it out. It can be as simple as removing the barriers and restrictions that always occur when a customer service manager reports to the operations, finance, or administrative executive rather than to the CEO.
Let LaunchSmart help you to build a new MLM company that attracts and keeps MLM distributors for long-term success.