Thursday, September 13, 2012

Genre Analysis: MLM and... mobile phone service?

English: metroPCS store, 618 South Hewitt, Yps...
English: metroPCS store, 618 South Hewitt, Ypsilanti Township, Michigan (Photo credit: Wikipedia)
EDITOR'S NOTE: Genre Analysis is my personal opinion on a particular genre of network marketing, like MLM + penny auction, or MLM + daily deals, and so on.  

You can mix MLM with almost any business that needs a lot of consumer-level marketing. A long time ago there was Excel Communications selling long-distance via MLM. More recent years there was ACN (which even got on "The Apprentice" TV show for a while). Then there's Lightyear Wireless MLM a couple years back. And now, launch of Solavei, another wireless MLM.

Does the genre make sense though? Let's find out.

Does MLM + wireless service make sense? Only somewhat.

A MLM needs to have very good margins so it can allow the affiliates a lot of profit to cover their marketing and training costs. By law, MLM can only pay affiliates for the SALES done. However, affiliates need to pay for three things: customer acquisition / marketing, identify and recruit potential sales team members, and training of such members. Thus they need profit margin for the sales they do, not just for themselves, for for the team members as well.

This generally leads to two types of MLMs, the "part-timers" MLM, and the "full-timers" MLM.

The part-timers MLM have smaller margins, and offers only limited income potential to the affilaites, who will only able to sell to a limited number of people. They rarely create a team, much less a large team. The profit margin does not support creating a larger team.

The full-timers MLM have nice big margins and thus, allow the affiliates a lot of room to pay for marketing and training for the downlines, and in turn, is nicely rewarded with a ton of group volume commission for growing the downlines and having them sell the products.

But what about wireless service? Is it part-timer, or full-timer?

Wireless service prices have only dropped since the advent of wireless service. Now you can get unlimited almost everything service from the major carriers for $70, as low as $40 if you go with smaller carriers like MetroPCS. If you prefer even more precise control, you can always go prepaid and pay only for the minutes you use. Thus, this is NOT a high-margin business. It is regulated by the FCC who watches over rates like a hawk, and carriers are bleeding money trying to upgrade everything to 4G LTE in the coming 5-10 years. Competition is getting fierce, as different carriers tried different branding to attract different customers, offering different package deals, different phones, and so on.  Sprint is bleeding billions dumping their WiMAX 4G and going with LTE, and spent billions getting the iPhone on their network.

The established carriers have their own deals and network in mind, and the stuff is a commodity. MLM carriers are actually MVNOs, or "virtual carriers" that actually operate on other people's networks so they don't have to pay for all that infrastructure, but have to pay pretty hefty rates to the real carrier. This limits the margin available. Add to the fact that exist carriers are far better entrenched, and you can see that Wireless MLM is a "part-timer", as there ain't so much margin for you to earn a significant income.

This is confirmed when you compare the plans available through Solavei and Lightyear vs. the traditional carriers like Verizon and AT&T. While the MLM carriers are cheaper, they offer more limited service, more limited selection of phones, smaller service area, and so on and so forth.

The comp plan also confirms that you earn a few dollars per downline, at best. You will need to recruit a LOT of users to get a decent income, and what are the chances of that as you need to spend a LOT of time and money acquiring each customer?

The Wireless MLM opportunity is probably NOT going to replace your existing income in a year or two. It may general some supplemental income.

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1 comment:

  1. Just heard that Solavei has declared chapter 11 bankruptcy reorganization.