We see and hear about a large number of franchises and Multi-level Marketing (MLM) businesses and I am often asked if these are good for the retired person. So let us take a look at them one at a time.

Franchises are frequently larger companies having numerous employees, a fixed retail location with the high overhead associated with this, require high up front fees, normally require a full marketing plan and budget as part of the commitment and most are year around full time businesses. That is in direct opposition to everything I have tried to warn seniors of in my book “Baby Boomers’ Official Guide to Retirement Income”. While franchises may make good sense as a business, it is not normally a good idea for a part-time or seasonal business for a retiree. But I spend time each week looking over the business models of any new franchise that I can find on the Internet.

Franchises are mostly very successful business and new franchises are in sectors that are growing. These companies do their screening well. Looking at their information, will provide you with typical startup costs of the business and will help you budget your business if you decide to enter the business sector even if you make a number of changes to the business plan. The franchises sometimes provide you the demographic information to locate the business but this is information that you will need to help identify your customers. You can use much of their information to analyze and plan your business.

MLM businesses have gotten a bad name since many of these businesses use high-pressure tactics to make their “members” buy and sell more products. These businesses get their name since a member will get a large commission from product they sell, a smaller commission from products sold by newer members that they have brought into the organization under them and an even smaller commission from sales the people the newer members they have brought in under them and so on. Many even have minimum monthly purchases even when the members are not selling that much in product. So dangerous inventory buildups leave unsuccessful member with a basement full of product. I have seen statistics that suggest that well over 90% of the participants do not make significant money from these ventures. But they do work for the aggressive sales people. The large earners in these systems are ones that bring in people in the organization under them. The large commissions are made by developing a large network organization below you and not by selling the product yourself.

When talking with someone from a MLM organization you will normally hear 2 phrases. The first is that they will deny that they are a MLM organization. They may have some slight change in their organization, such as having customers buy product on-line and they just get a referral fee and fees from their network organization, so they deny they are a MLM organization. Many times they do not provide clear information about the total costs of their products and try to get you to accept that they are “competitive” or below the store price.

So MLM organizations are not all bad but most are bad. So do your research carefully before becoming involved.

* * *

This new weekly column, 101 New Business Ideas for Retirees, is compiled specially for GetEntrepreneurial.com readers by Stan Spector. View all articles in this column by Stan Spector.

Stan Spector is the author of “Baby Boomers’ Official Guide to Retirement Income - Over 100 Part-time or Seasonal Businesses for the New Retiree”. The book's website can be found at StanSpector.com.

• 2 Comments

  

Comments

Hi,

It is very much happy to see the options. I was actually worrying to take decision but after reading your article I have come to a decision.

Thanks for your help.

 Posted by: franchise tips at January 25, 2008 6:33 AM

Hi Stan.

I read your article with interest and frustration. I feel it to be quite an uneducated piece of writing. You make many generalisations and assumptions when talking of MLM or CDM (which is what those in denial call their MLM business).

Also, your statement about franchises "mostly very successful" is a stretch and not backed up in any way.

I have had experience in both. I have a great work ethic and placed genuine time into both. The latter was lucrative and made such a difference to our family. We never stock-piled product and became better educated about the world we live in. It was our first MLM and a fantastic learning experience. Now we understand comp plans and which ones serve everyone best, so have opted for a better structured business plan - still with a product that does not waste people's time or money.

The first (a franchise) sucked us dry of all of our finances and it was with that business where all we did was maintain stock and staff, all whilst losing money!

It's a disappointment that you would take the time to write such an article with such broad statements - get some experience and come back with a report. You might be qualified to do so then.

Nicole
www.nabcorp.com.au

 Posted by: Nicole Hore at February 18, 2008 8:09 PM

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