break even analysis

The purpose of starting a business is to make a profit. If a business spends more money than it makes, then it will belly up. So why should network marketing be any different?

We know that network marketing gives exponential passive income with time. If you have a group of 100 to 1,000 people in your network who are buying the products and recruiting more, then you will be getting richer and richer! We all know that.

It’s SURVIVING the first 3 to 6 months in the business that is crucial. There is a learning curve involved …….typically a new distributor will go through three months of trial and error period. After It’s SURVIVING the first 3 to 6 months in the business that is crucial. There is a learning curve involved …….typically a new distributor will go through three months of trial and error period. After which it takes 3 to 6 months to build a network that starts paying you money. If you can learn to manage your cash flow wisely,  and also teach the people you sponsor to do the same , then you will succeed in this business.

The key to survival is CASH FLOW. People in network marketing usually run out of cash flow normally after 3 months, and they quit because they have not planned properly. If you teach and help the new members in your team to reach breakeven as fast as possible ……..It will give them confidence to continue in the business.

Typical Network Marketing Expenses

A typical network marketing business will have the following expenses:

• Joining Fee
• Auto-ship
• Petrol
• Training Material
• Promotion materials
• Meetings and Rallies
• Phone Bill
• Leads
• Advertising
• Miscellaneous

People, when joining the business only look at the initial costs of joining and auto-ship. They fail to take into account other expenses that are vital to succeed in business. This results in cash crunch and dropping out of business.

Budgeting and Reducing Costs

To succeed, you have to budget your expenses and find ways and means to reduce costs. There are unscrupulous people in this business who make new members spend on advertising and promotional materials from which they generate revenues to run their own business. Advertising and promotion is essential to the success of any business but has to be done sensibly. Every dollar spent must show some positive results for the business, or it is a waste.

Spending money on your education first is the best investment you will ever do. If you are educated, then you will save thousands of dollars in the course of your business. There is simply no substitute for education. Find a mentor with a servant’s heart who will coach you for free. Even if you have to pay a little money, do not hesitate. You will get exponential results from this investment. You have to invest in your education first, because as discussed earlier in this book–network marketing is a mentoring business and not a sales business. You have to learn before you can teach.

Some other suggestions to reduce your costs are given below:

• Keep minimum stocks necessary to run your business. Some stocks are necessary to share the experience with other people, but keep it to the minimum. You can always order more when you need them. If you have too much stock in your garage, then sell it to generate cash flow. It will give a new lease of life to your business.
• Have a buddy in your area. This will not just save costs when traveling to meetings but will also create synergy.
• Do some research and switch to low cost-phone plans. There are many free systems like SKYPE available on the internet.
• To save petrol costs, try and qualify your leads before you decide to drive down and meet them. If you are prospecting someone who is indecisive, lazy and complains constantly, it is better to keep him or her in the back burner and focus on people who are excited about the business. You don’t want to find yourself driving miles just to talk to someone and after two hours find out that they are not interested. A very good way to qualify what type of prospect you are dealing with is to ask few questions about their dreams and self-development. If you find that they have no energy in their words, or are not doing anything to improve themselves, then you can very well save lots of time and petrol.
• As your network grows, you will have to find leaders in your team who are highly motivated and work with them for the betterment of the team.
• The most important cost in your business is the leads and how you generate them. The cost of generating the leads and converting them into your business can be so huge that I will devote a separate section to this topic. You have to learn how to minimize these costs and be effective. This is something you have to understand and perfect if you have to succeed in this business.
• Hold local training sessions (besides that of the company)with all your team members. This may save costs to your team members.
• Educate all the team members about proper cash flow management when building the business.
• Everyone must focus on following the same system in your team! It is crucial for duplication. Can you imagine 100 people all going in their own direction? This is a recipe for disaster. A simple system of duplication saves costs, time and effort of the team.

Tax Dollars Can Fund Your Business

Most governments give huge tax incentives to people engaged in home business. This is because it is good for the economy. Employment is a political issue for governments. They encourage people to start small businesses that hopefully will grow into big corporations someday. This is why governments give huge tax breaks if you start your own home business. If you are a paid employee on a fixed income, it is always smart to start a part-time home business to take advantage of the tax incentives provided by the government.

What most people do not realize is that the biggest chunk of cash outflow from their pockets is taxes. These can range anywhere from 20% to 55% of the income. This is huge in terms of dollars. When you engage in network marketing business, you can claim cost of communications, travel, entertainment, advertising and office stationary. You can even claim for products that you bought through auto-ship used for promotion as legitimate business expense.

You can claim part of your electricity, water bills, rates, house insurance and rent/mortgage as legitimate expenses for running a home office. You can also claim depreciation on your computer, office furniture, car, fax machine and other items that you need for your home business.

You can claim back the GST on items you purchased to run your business. You will need to register for GST before making any claims. As tax laws are different in each country, you will need to talk with your local tax consultant.

What these tax breaks do is give you huge cash flow to run your business. You can claim back the taxes paid and get a refund to run your business. In case there are unrecoverable losses, then these can be forwarded next year and claim it back when your business starts to generate income.

The tax incentives, in most cases, are so generous that they can fund your network marketing business in the initial stages. The breakeven point of your business is much closer than you think when you take tax incentives into account.

Please do not join network marketing just to get tax refunds. You have to be active in the business to claim refunds, otherwise the taxman will come knocking on your doors. Having said that tax incentives provide a huge motivation to start your home-based business and save on those dollars that will invariably go to the taxman– never to be seen again.

Network marketing is without doubt the best route to start your own home business and get on to the road to financial freedom. It is the best program if you are looking for an early retirement.

Make sure your team members succeed. When you help them make money, they will help YOU make money!