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Franchises and MLM for Retirement Business
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By Stan Spector
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 to see if they make a good retirement business.
Franchises are frequently larger companies that have numerous employees, operate at 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. All these characteristics are exactly the opposite of what I have suggested are good bets for seniors in my book “Baby Boomers’ Official Guide to Retirement Income”. While franchises may make good sense as a business, they are 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 that 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 are referred to as Multi-Level Marketing because a member will get a large commission from products 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 by people the newer members they have brought in under them have brought in, and so on. Many have minimum monthly purchases even when the members are not selling that much in product, so dangerous inventory buildups can leave unsuccessful members with a basement full of products. 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 those who 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 two disclaimers. The first is that they will deny that they are a MLM organization. Their organization may differ slightly from the standard model, such as in 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. Second, 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. Do your research carefully before becoming involved.
Ed Note: Before entering into any retirement business, but especially a franchise or MLM, talk to at least three other people who are doing that exact business. Ask them about costs, time involved, and unforeseen problems. No one ever goes into business thinking it will fail. The reality is that 90% of business fail within the first five years. It’s one thing to have a business failure when you thirty and have time to recoup losses. It’s something else entirely, to have a business failure when you’re in your sixties.
Stan Spector is the author of “Baby Boomers' Official Guide to Retirement
Income”
The book web site is www.StanSpector.com
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