Profit or Loss? Compensation or Waste of Time? Let’s Talk About Money!

• December 23rd, 2007
• View Comments (4)

There seems to be at times, a misunderstanding of what constitutes a loss and what it means to profit from this business. I’m going to do my utmost best to make this clear. This is going to be an outline of what to expect if you decide to stock some inventory. I have a feeling that the majority of people reading this already know this; however, you never really know who’s reading so I’m going to post it. This information can also be very helpful when talking to new team members about the inventory options and giving them a clearer picture of what to expect. This also may help to relieve worries of those who may feel they have too much inventory or what not.

I also would like to point out that I’m going to show this from the point of view of someone, like myself, who starts this business as a hobby that can make some money. This reflects someone who may not be confident in their ability to sell a product and are starting out seriously, yet allowing time for growth.

First off, much of what I’m referring to can be found here. I’ll start at the beginning. As brand new consultants we are faced with a major decision: Invest in Inventory or Don’t Invest in Inventory. Some opt not to stock an inventory. Their decision is made. Now they just need to book appointments and get orders. For those of us who choose to invest in inventory, the decision just became a little more complicated. We are now faced with the question: How much inventory do I need/want to stock???

My honest feeling is that a brand new consultant would be most successful starting relatively small. If she has the money to invest (or has a low interest credit card) I would recommend $600-$1200 wholesale for starters. I would also recommend reminding the new consultant that this means she is receiving $1200-$2400 retail and that is what she should focus on: the retail. Retail is what she is actually moving and I do believe thinking in terms of retail puts it more into perspective. With wholesale, it may seem like a small amount of money, but the reality is its double that in retail. When I was making my inventory decision, I was planning to start really small and start with $600 wholesale. Then, I thought since I had a 0% APR and there was that 90% buy back guarantee, I could afford to risk a little more. So, I started with $1200 wholesale. I felt I could sell $2400 retail in a reasonable amount of time and this would also ensure me that I would have things that people wanted/needed. I would not recommend to anyone ordering more than what I ordered. If they choose to do so, that is their decision, but I don’t make the recommendation. I also ask, “are you sure this is what you want to do?” I want them to really think about their decision before taking a nose dive into this business.

On the flipside, if I am dealing with someone who has no credit, poor credit, or is in some type of financial bind, or plain doesn’t want to start with inventory; I recommend she get her starter kit and start handing out books and scheduling appointments. I help her set a goal of selling at least $400 retail within her first month so she can become active.

OK. From here on out, I’m going to be speaking to those who started with inventory and have some type of debt related to that initial purchase. So, let’s say you start with $1200 wholesale and you put this on a credit card. I was advised that $2000 debt warrants a monthly payment of $100. $1200 is less than $2000, obviously, but I would go with the $100 minimum payment anyway–incidentally, the payment plan is based on 13% APR so for someone with lower APR, the $100 payment will be even more beneficial.

The Loss

When you buy your Starter Kit, you are at a $100 business loss (plus tax and shipping). When you purchase your inventory, that is also a loss. So, let’s say you signed up August 15, to sell Mary Kay. Your inventory debt is $1200. You need to sell $2400 to get rid of that inventory.

Now, let’s say you start selling product. You get your first class booked. It holds. You sell $300. Your profit is $150. Now, your goal is not to treat this like a job job. You are in it for fun and you like the people you meet and the meetings you attend. It’s fun and you can make a little money on the side so you’re not real focused on holding appointments every week. You just want to sell enough to make that monthly payment for now. It will help you learn to sell and to see if you have potential. Your next class isn’t until September. You sell $250. Your profit is $125. You get a few orders from family and friends who already use the product. This may be another $50 retail and your profit is, therefore, $25. So, in September you made $150 again. This is again enough to pay toward your debt. In each month, you paid your $100 monthly payment and had $150 extra (you didn’t have a payment due in August). I realize that’s not a lot, but the point is, you’re not failing if you’re able to 1. make that monthly payment and 2. have extra money after that payment is made.

OK. So, let’s say the rest of the year is similar. You started in August. You paid $100 in September toward that debt; $100 in October, November, December. You get the picture. At tax time, you’re going to show a loss. You owe more on your balance than you made. You’re basically breaking even on your investment. This is like operating as a nonprofit organization. There is absolutely nothing wrong with that unless, of course, your goal is to make a living — keep in mind, this takes time in this business.

The Profit

The profit you make is anything you pocket after you pay your monthly business expense–in this case your inventory debt. I started as a “hobbyist” and, therefore, I was happy as long as I had enough money to pay on the debt and order more if needed. Someone who wants to go at this full time would be very dissatisfied with these results. If that is the case, then by all means after a year, go ahead and send the product back.

The fact of the matter is this: if you have money in your pocket after you’ve paid your business expenses, you’ve profited. Most likely, the profit will start off small. If you work with diligence and persistence, you will see the profit grow.

Compensation

So let’s talk about compensation. How do you measure it? This will vary for each individual. Some won’t feel compensated unless the profit is huge. Others are happy with any bit of profit they make because some profit is better than zero profit.

What constitutes “compensation?” It has been my experience in MK that we are compensated for time spent in front of an audience. So, if you have a skin care class and it lasts 2 hours and the sales are $200; you made $100. You made $50/hr at this appointment. That is how I was taught to calculate my compensation. Based on this calculation of compensation, $50/hr is pretty good money. If you then book follow up appointments from this class and you average $50/hr at those appointments, you’re off to a great start! I’m going to write more about compensation in a different post.

This was a very simplistic explanation of these concepts, but this is my understanding of it all. It has also been my experience. I don’t feel like a failure. The reasons are:

1. My initial reason to join MK was not to make tons of money.
2. I initially joined MK for fun and to find a new hobby. This one fit nicely because it could also be potentially profitable.
3. I just wanted to have fun. As long as this is fun for me I have no reason to stop.

That’s all I have for now. If you have other ideas or information to share, please share.

Tags: Making Money, Money Management, Time Management