What is the 80/20 rule? This principle sometimes called the 80/20 rule was developed by a fellow named Pareto, he came up with the idea around 1906, it works like this.
Let’s use a typical business that sells products for example. Our business sells $100,000 worth of products per month. Our business has 1000 customers and it sells 100 products. Now lets apply the 80/20 rule to our business. The rule states that 80% comes from 20%, so that means that we know $80,000 of our sales came from 200 customers and 20 products. The other $20,000 in sales came from the rest of our customers and products. The bad news is until we have some sales history we do not know which 200 customers are going to be the best and we do not know which 20 products are going to be our top sellers.
So what does the 80/20 rule mean to you regarding Multi Level Marketing?
It means several things, first for every 100 people you recruit into your business only 20 will do anything at all. Of that 20 only four will be above average. The really bad news is that maybe one of those four people will move up to the next level in the network. So be prepared to do a lot of training.
Would you like to know how many leaders there are in the MLM you are considering and what your chances are of getting to the top? With the eighty/twenty rule you can find out.
In this example your MLM has eight advancement levels that you can attain. You have also found out that this MLM currently has 475,000 distributors in the first level. This means that in level two there are about 95,000 distributors. To get this number all you have to do is multiply 475,000 by 20 for the 20%. Moving on to the third level we have 19,000 distributors, 95,000 X 20 = 19,000. Level four has 3,800 distributors, I think you know by now how we got that number. Level five has 760 distributors. Level six has 152 distributors. Level seven has about 30 distributors and level eight has about six distributors. Of course you can make more and more money as you climb the advancement ladder, but it’s lonely at the top and it appears pretty hard to get there. Your odds of making it to the top in our example is about one out of 80,000.
Of course you think you are going to get in on the ground floor of this fantastic opportunity. Before you jump to that conclusion lets see if Pareto and the 80/20 rule can help us here.
The success rate of start-up businesses has been tracked for many years. We know that for everyone hundred businesses that start this year only 20 will be around next year. We also know that only four of them will make it through to the third year. Does this look familiar to you? Yes it’s the 80/20 rule at work, that Pareto fella was a pretty smart guy. Now you need to ask how long has the MLM you are thinking about joining been around, and is a ground floor opportunity really that good of a deal? Most businesses that make it past the five year mark have a much higher likely hood of staying in business.
You can apply the 80/20 rule to almost anything and your calculations will be accurate enough to make some basic decisions. What you just read were examples to help you determine if Multi Level Marketing is something you want to pursue by taking a look at the numbers. Now get some actual numbers from the MLM you are considering and plug them into Pareto’s Principle and see how they look.