International Articles
Is your MLM company really ready for international
expansion?
In today’s increasingly smaller world, a common question
asked by distributors is, "when will our company go international?"
As international consultants, our question is not when will the
company go international but rather, when is the best time for a
company to go international. We will answer this question in this
article.
Unfortunately, more often than not, MLM companies are ill-prepared
for international expansion. This lack of preparation has in many
cases caused irreparable damage to the company and to the international
mlm industry. Nobody stands to gain if companies fail and in the
past decade there have been far more failures than successes. Why
is that? Well, the reasons for failure are many, but are not to
be discussed in this particular article. We want to focus on when
is the right time to consider going international.
There are obviously many factors that come into play when determining
the right time for each company to consider going international,
but through years of experience in these matters, we have found
some general guidelines that seem to hold true for most. The most
important guideline is generally sales level of the company. We
suggest that most MLM companies need to have at least $25 million
in annual sales in order to consider going international, and preferably
$40-50 million in annual sales. These numbers hold true for a couple
of reasons:
1) At $25 million in annual sales, the company should have some
expendable financial resources to support international expansion
(i.e. cash capital and human capital).
2) At $25 million in annual sales, the company generally has been
able to identify a reasonable group of committed distributors that
are willing and able to carry the torch of international expansion.
Let’s break down the financial picture for most MLM companies
at $25 million in annual sales. At this stage of sales, a competitive
MLM company with a well-structured compensation plan will pay out
commissions to its distributors around 40-50% of its revenue. For
the sake of discussion, let’s say that after breakage and
other factors, that the MLM company is paying out 45% on $25million
in sales ($11.25 million), leaving it with $13.75 million. Let’s
assume that the company has COGS around 16% ($4 million), leaving
it with a gross margin of $9.75 million. Most companies operate
G&A around 16-20% ($5 million at 20%), leaving it with a net
margin before tax of $4.75 million. Taxes would represent about
$1.25 million, leaving the company with $3.5 million for its investors/owners’
returns and for exploratory projects (R&D, Intl Expansion, etc.).
Most owners target 6-10% of sales as their ROI (10% = $2.5 million),
which in this case would leave the company with $1 million to consider
using for R&D and other projects.
Now that the financial picture is better understood, can you see
why $25 million generally is a good trigger point for international
expansion consideration? Pursuing just one foreign office in the
traditional expansion mode, is at the very least, a financial commitment
of $500,000 in start up and first year operations. This explains
why most MLM companies cannot afford to pursue more than one country
per year. To do otherwise could be financially devastating from
a cash flow standpoint.
Now let’s take a look at distributor preparation in the international
scene. Most distributors realize the important role they have in
an MLM organization (key role), but more often that not, distributors
are over zealous in their international requests, unrealistic in
their expectations and impatient with their demands. We have all
heard the stories of a distributor promising the MLM home office
thousands of people in a hotel conference room in Sweden if the
home office would merely open the country for them. Their cousins
and friends will build massive organizations if the product was
just available. Right? Well, this has happened before, but it certainly
isn’t the norm. Although these well-intentioned distributors
want the best for the company and themselves, most do not appreciate
the ramifications (i.e. lost momentum, financial instability, home
office implosion) of forcing an ill-prepared management team to
chase down foreign markets. International expansion is a difficult
proposition for even the most seasoned internationally, savvy businessmen
and women. To think that any distributor could just fly over to
a foreign country and start building a business is not only unrealistic,
but is also very damaging.
Generally, when a company reaches $25 million in sales, we have
found that a recognizable group of qualified distributors have surfaced
within the company that have the wherewithal to actually help the
company succeed. It goes without saying that without capable distributors
that are willing and capable of "carrying the torch",
no MLM company will succeed internationally...and that is the
bottom line. It might only take one distributor, but preferably
there will be around 25 leading distributors that are able to assist
the company with its international plans. Once resources have been
set aside and distributors are truly prepared, then the company
should begin the process of international expansion. Has it been
successfully done before without these elements in place? Yes. But
the percentages are strongly against the company that does so. We
could name company after company that have been on the "international
failure list".
Given the current worldwide sales levels reported by the DSA, a
US based company doing around $25 million in annual sales, with
a well-implemented international expansion plan, should be able
to forecast worldwide sales of around $_____ million, unless some
country-specific anomalies (growth phenomenons) occur that oftentimes
can’t be predicted, and so we don’t.
These forecasted and generalized calculations hold pretty true
under the traditional expansion methodology. They do not however
take into consideration the impact on international expansion sales
that are now occurring via a new international expansion model created
by R&R International Consulting. Under this new model, the international
game is quickly changing. The playing field is leveling out. Never
before in the history of MLM international activities, has it been
reasonable to believe or expect that citizens from non-G7 or the
less advanced countries of the world, could become leading distributors,
but that is now becoming reality under the new rules of MLM expansion.
Thereby, the $_____ million international sales extrapolation for
a $25 million company is being restructured for those leading the
charge using the new model. The new model allows for multi-country
openings per year, and rapid international expansion...without
internal implosion, giving rise to far greater momentum than in
the past. For example, instead of waiting for 10 years to see if
England is going to be opened for business by your company, under
the new model, you can be assured it will be available . Finally,
the company is able to outpace the distributors.
R&R International Consulting is a division of EDGE Consulting
Inc.
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