Do You Make this Mistake About Your MLM Due Diligence?
Over at one of my favourite analytical sites about network marketing, and Mary Kay in particular, has a fascinating discussion about churning Pink Truth: Churning New Recruits.
How Many Recruits?If I told you that Mary Kay had 700,000 independent consultants in the United States in 2006, this would seem like a fairly impressive number. Surely there must be some of them who are making a decent living from selling product?
How Many Recruits Stay? Well here is where it gets very interesting. According to Pinktruth:
"In 2006, Mary Kay disclosed that the company had over 700,000 independent beauty consultants in the United States. This was similar to the 2005 reported figure of 715,000 consultants in the United States. This implies that at the current time, the number of consultants is staying relatively stable. (i.e. For every consultant recruited, one drops out.)
Mary Kay stated in its response to the FTC's proposed Business Opportunity Rule, that there are 2,400,000 "disclosure opportunities" (meaning interviews) per year. That's 200,000 women interviewed per month. Mary Kay Cosmetics further stated that there are 40,000 new recruits per month. (Thank God those other 160,000 per month said no… a total of two million women per year who turn Mary Kay down.)
At 40,000 new recruits per month…
That means that during 2006, Mary Kay Inc. recruited 480,000 women in the United States, and 480,000 women in the United States quit. Add the 480,000 quitters to the 700,000 (or so) U.S. consultants on the books at the end of the year, and we've got a total of 1,180,000 (yes that's over 1 million) women in the United States who were "in" Mary Kay at some point during 2006.
What a staggering churn rate, though, isn't it? Depending upon how you look at it… 41% of the 1,180,000 involved during the year quit. Or of those 700,000 on the books at the end of the year, 69% of them will quit in the following year. 480,000 women churned and burned in 2006." (my emphasis)
Other Interesting StatisticsThere are some other interesting statistics that will become available when the FTC amends its Business Opportunity Rule to cover Network Marketing
.
Section 437.1(e) will require the Network Marketing Opportunity Seller to disclose the number of cancellation or refund request in the past two years. This disclosure would have to be updated every quarter. It is required even if the Seller has no policy covering cancellations or refunds.
In Mary Kay, individuals can return part of their inventory within a year of joining Mary Kay. Many do not or simply sell their product on e-Bay. The new disclosure document makes the refund policy clear, before signing up, before the distributor meetings, and before a commitment is made. It will be interesting to have numbers to compare across different network marketing opportunities.
