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Business.com

MLMs Are Preying on the Dream of Entrepreneurship

Posted: 22 Aug 2019 01:00 PM PDT

Wherever there's something people desperately want, there are predators looking for a way to take advantage of the situation. It happened with the housing crisis, when lenders offered the American dream of home ownership to people who couldn't afford it, and it's happening now with MLM companies offering the dream of entrepreneurship to people who want to start a business.

Many Americans dream of being their own boss and answering to no one, opening themselves up to brutal manipulation by sharks in pretty Instagram filters. Americans want the dream of entrepreneurship so badly, and believe they can have it so fervently, that they are being manipulated into handing over their hard-earned money and time for the promise of financial independence and career stability that will never come.

The viciousness of multilevel marketing (MLM) companies cannot be overstated, no matter how family-friendly, female-friendly and diverse they might market themselves as being.

Multilevel marketing 101

A lot of people are confused about MLM companies and wonder how pyramid schemes can operate in the public eye for so long without getting shut down. Understanding multilevel marketing is key, and here's the weird fact: MLM companies are not illegal, but pyramid schemes are. Where it gets confusing is that many (some people would say nearly all) MLM companies are pyramid schemes. Here's the legal difference and why it's so hard to get them shut down.

  • Multilevel marketing: Sometimes called direct marketing, home-business franchising, network marketing, affiliate marketing or direct sales, MLM companies are not illegal in the United States. In legitimate MLM companies, salespeople make most of their money by selling products from the company directly to consumers, but they also often make a cut of the downline associate's sales (like in a pyramid scheme, which is why it's all very confusing).
  • Pyramid scheme: In a pyramid scheme, the primary way a salesperson makes money is by recruiting more and more downline sales associates, not by selling products.

So basically, to shut down an MLM company, you must be able to prove in a court of law that the company is knowingly a pyramid scheme, and not accidentally a terribly run business that happens to look a lot like a pyramid scheme. When the defense for your poor business practices is that you aren't predatory, just incompetent, that says quite a lot.

Pyramid schemes prey on women, minorities and immigrants

Direct sales companies aren't vilified the way financial companies are, because they're adept at publicizing glossy images of entrepreneurship and freedom, with the promise of being able to balance it all with a rich personal life. But make no mistake, these companies have one goal: to recruit as many people as they can and get as much of their money as possible. They actively target people they believe to have limited employment options, limited understanding of local business practices, or both, and they sell them every line in the book to get their money.

MLMs continue to grow by targeting people who really want to make money and who also belong to close-knit communities. This allows MLMs to cash in on the rich networks their recruits already have. Women, especially stay-at-home moms, are the primary target of many direct sales companies because they often have broad social networks and desire paid work that they can easily do from home or on a flexible timeline. The rise of the gig economy means more stay-at-home parents and spouses can make money from home by working on a part-time basis, and direct sales companies position themselves as a viable option that's identical to being self-employed, freelancing or otherwise making money on the side of a busy life.

There are many MLM companies with a foothold in Utah for exactly this reason. Utah has the highest percentage of stay-at-home moms of any state in the country and is also home to a large population of practicing Mormons. Generally speaking, Mormons highly value community, large families, and proximity to those with similar lifestyles and beliefs. As such, populations like those in Utah offer MLMs the perfect entryway into a vast network of people who are often close in connection and ideology as well as geography. Basically, Mormon stay-at-home moms are valuable to these companies because of their larger community ties.

Predatory companies use the exact same strategy in recent-immigrant communities, minority communities and lower-income international communities worldwide, as these groups are known for valuing family and community, are upwardly mobile, and have close, trusting connections. A single foothold in a tight-knit community is valuable for recruitment, because communities that value cohesion are likely to produce more recruits or, at the very least, more buyers (i.e., friends and family purchasing items out of a sense of community or social obligation).

Low-income immigrant neighborhoods offer pyramid-schemers the additional advantage of recruits' higher likelihood of ignorance about local business practices, which can make them easier to sell on wild business plans. When you're new to a country, everything might seem a little off, a little strange and unexpected. Therefore, you may be more likely to push aside that voice that says "this doesn't seem right" or "this seems too good to be true" than if you were in your native country. This is especially true among low-income groups, including non-immigrant minorities who might be more desperate for upward mobility than wealthier groups, which means they are willing to put in work or even invest their own money for a shot at the American dream.

Pyramid schemes use the language of success

Another thing MLMs do very well is using language that echoes the dreams of their targets. They call their recruits "entrepreneurs" and "business owners" and encourage them to talk about themselves that way. The allure of suddenly being able to say "I'm a business owner" or "I'm an independent consultant" for just a small down payment on goods is very strong. People, especially Americans, connect status to independent entrepreneurship and want to be viewed as "bosses" who are out in the world making their own way, running their own lives, and getting their slice of the American dream.

Women are encouraged to use images of themselves and their families on social media to push products and gain recruits. Many MLM Instagrammers use hashtags like #leanin (a la Sheryl Sandberg), #thefutureisfemale, #momboss or #entrepreneur. Using the language of third-wave feminism and borrowing quotes or phrases from real female CEOs helps recruiters and recruits see themselves as legitimate professionals, no different from a founder of a startup company or a C-suite executive.

Many prolific posters also share images of luxury goods and aspirational lifestyle shots. Before and after pictures and "fitspo" ("fitspiration") images are popular with health-related brands, for example. These help sell the idea that it's easy not just to make a modest side income from direct sales, but to fund an upper-middle-class lifestyle – entirely on your own hours, of course.

Direct sales companies purposefully obfuscate sales data

MLMs love to obfuscate the financial results of their sales associates. Many MLM workers will say they "can't tell you" how much money they make, but they can tell you how much they or their team have sold. So, they might tell you their team has sold millions of dollars of goods, but that could mean anything. Their "team" might be their entire upline and downline sales group, which could be hundreds of people. The "millions" in goods sold could be the value the company likes to say the product is worth, not the list price it's actually sold for (like TV marketing ads that say a product package is a $100 value, but it's available for just $65).

Direct sales consultants are often required to purchase the stock before they sell it. So even if a hypothetical representative does sell $10,000 in goods, she still has to subtract from that the cost of those goods that came out of her pocket and the percentage that her upline manager receives, so it's possible to sell a great deal of goods and barely break even. It has been shown ad nauseum that most people who participate in MLMs do not make any significant income and that many of them lose money. A recent report from the AARP Foundation found that only 25% of people who participate in direct sales companies make money, and of that 25%, more than half (53%) make less than $5,000.

How can you tell if an MLM is a scam?

Given the low success rate of people who get involved with all direct sales companies, some people would tell you that it's safest to just avoid them and seek employment elsewhere. However, if you or someone you know is already seriously considering joining an MLM company, there are a few things you should do to research the company before you sign on. After all, that's what all real businesspeople do; it's called due diligence.

Here are some research tips and red flags that you shouldn't ignore.

1. Read the criticism.

Don't seek out information that tells you what you want to hear; search online specifically for negative information to see what's out there. Try Googling the name of the company you're considering followed by the word "scam" and see what comes up. Don't just read one link – read several, and spend a couple of hours on the sites that talk about the company in question.

Of course, not everything on the internet is true, but scale matters in assessing the potential validity of people's claims. When hundreds or thousands of people from all over the country are saying the same thing – that some company was a scam, that they never made money, that it is a pyramid scheme, that it bankrupted them – you should take that very seriously. At the very least, you should ask yourself, "Do I really want to build a career at a company that so many people think is a scam?" The answer is probably no. When you research legitimate employers, like big-box stores, you don't find hundreds of people saying the company stole their money and lied to them, and there's a reason for that.

2. The recruiter is persistent in getting you to sign up.

Think about it: For most desirable jobs, the job seeker must apply, go in for interviews, wait, compete with other people and hope they get the job. If someone is urging you to take a job, being very persistent and reaching out to you repeatedly about taking the job, ask yourself why. Why can't they find someone to do this apparently amazing job? Why are they practically giving this job away? Why aren't more people trying to get such a high-paying, easy, flexible job?

If the recruiter is a family member or friend, and they are trying to get you to sign up by guilting you or accusing you of not trusting them, that's also a really bad sign.

3. The person you're talking to brags about their lifestyle and money.

Legitimate professionals do not brag about their own salaries or lifestyles to recruit other people to work for their companies. If someone is consistently telling you they're making so much money and how it's so easy and you can do it too, run. Real successful people don't do this. If the person is also posting on social media about how happy they are, constantly promoting their company, and is vague about exactly how much they make (only mentioning huge sums like "millions" or "tens of thousands"), they probably aren't as successful as they seem.

4. You must pay money to start working.

There are some legitimate business situations where you need to invest money to get a slice of the pie, like owning a franchise (such as a chain restaurant or store) or being a venture capitalist. However, most legitimate sales jobs do not require salespeople to buy the goods they are going to sell. If you want a job in commission sales, there are lots of avenues you can go down that will not require you to invest any of your own money, like pharmaceutical sales, auto sales, real estate, retail or even telemarketing. [Read about the best sales certifications to better your career on our sister site Business News Daily.]

5. Consult resources about MLM companies.

Pyramid schemes tear families and communities apart, and there is a growing opposition to these harmful businesses. Here are just a few resources you should consult before you choose to sign up as a direct sales associate with any MLM company:

How to Use Brand Activism to Ethically Grow Your Brand

Posted: 22 Aug 2019 12:00 PM PDT

On May 22nd, 2019, six-time Olympic gold medalist, Allyson Felix joined her colleagues in breaking their nondisclosure agreements to reveal Nike's lack of maternity protection for female athletes in an Op-Ed for the New York Times.

In the article, Felix narrated a harrowing experience of what it felt like to be denied maternity protection after prematurely delivering her baby due to severe pre-eclampsia at 32 weeks of gestational age. What's more, she's not the only one who's come forward with reports of discrimination. Alysia Montaño, Kara Goucher and Phoebe Wright – all Nike sponsored runners – have bravely given an account of the financial penalties handed out by an organization that urges women to "dream crazier."

The results of breaking their silence have been remarkable. In the same month that Montaño and Felix broke their silence, the company surrendered to the backlash and changed its policy. While this isn't the first time an organization has been criticized, Felix's and her colleagues' actions led to the hashtag #dreammaternity, a renewed focus on their personal brands and a closer look at how companies are responding to social issues.

What is the connection between a well-decorated Olympian and fighting to change unpaid maternity leave, and how can learning from this help you grow your brand and business? This is called brand activism.

What is brand activism?

Brand activism refers to a company's move to use its platform to influence reforms on social, economic and political issues. In the past, organizations and brands have long aligned themselves with causes that reflect their own core values and promoted them through corporate social responsibility. Now we have brand activism, and what this means is that companies have become more visible on the front lines and are often the first ones to seek justice on behalf of the public.

Instead of focusing on closing better deals or maintaining the image of a top athlete, Felix and her colleagues were not afraid to join a conversation that has a social and political impact. They chose to be brave and fight for a system overhaul at a time when celebrities and athletes have been told to only do what they're paid to do.

Why should small businesses engage in brand activism?

In a society where personal branding has become synonymous with social responsibility, there are a lot of expectations for small and midsize businesses to join a movement that is seeking to influence community change. While there isn't a hard-and-fast rule for exactly when to start engaging in brand activism, one thing is certain: your identity as an entrepreneur or a small business owner is not enough to give you a leg up on the competition.

We live in an information age, and for businesses to get ahead of their competitors without having to resort to gimmicks to boost sales, you need to start having conversations that are important to your audience. Just like customers are moved by calls-to-action on sales pages and product descriptions, they are also moved when they feel that you care about them. One way to do this is to strategically use your business platform to request social, political and economic reforms for issues that impact your audience.

Benefits of brand activism.

Here's how brand activism benefits you as an entrepreneur.

1. You become a pioneer in your industry. As a brand activist, you frame the moral discourse for issues you care about and seek legal legitimacy for them. You embrace a common fight with your audience to highlight a salient problem in your community, just like Felix and her colleagues have done.

2. Brand activism can take your brand from obscurity to massive visibility in your industry. It humanizes and shortens the perceived distance between your brand and your audience. People want to buy from businesses who care about the issues they value. This, in turn, shapes the character of customers, something that corporate social responsibility alone can't achieve.

3. Feelings of goodwill for you extend to your brand. Pop icon, Rihanna, already had a large fanbase of die-hard fans. But when she founded her makeup brand Fenty Beauty, which celebrates inclusivity for people of color in its marketing campaign and color palettes, her fans supported it enthusiastically, sending the beauty industry into upheaval. The brand reportedly made $100 million in sales in its first 40 days on the market and triggered a term known as the "Fenty Effect." Competitors rushed to expand color shades for people of color in their product lines.

How can you ethically use brand activism to grow your brand?

1. Have a genuine interest in the causes you choose to support. The idea for Jessica Alba's business, The Honest Company, was inspired by her desire to find nontoxic household products that are effective and affordable after she had her baby. YouTube beauty influencer and makeup artist, Jackie Aina, has repeatedly criticized several makeup brands for refusing to expand their foundation shades, despite the fact that they claim to promote diversity. These are examples of causes that sparked a movement because of female pioneers who had skin in the game.

2. Educate yourself on the culture of the community you choose to represent. Debating moral or political issues puts your brand under extreme scrutiny. Nothing spells disaster more for a business than ignorantly upholding negative stereotypes about the people you seek to support.

In the Journal of Brand Management, researchers explain how corporate moral wrongdoings and negative stereotypes of a brand's consumers can cause consumers to oppose a brand. We saw this happen in 2017 when Dove faced a backlash over its commercial showing a black woman turning white after using its products. Dove has since apologized, admitted that the brand "missed the mark," and has sharpened its focus on its campaign for real beauty.

3. Study global brands and how they have positively shaped conversations on socioeconomic issues. Global brands don't make mistakes all the time. Sometimes they hit the mark and bring about positive dialogue on significant issues affecting their audiences. For example, Dove's real beauty campaign capitalized on research that discovered that only 2% of women considered themselves beautiful. The success of this campaign painted Dove as a company that has an emotional connection with its customers.

As you study global brands, examine how they have changed branding rules. Consider these questions:

  • What conversations are they having on a regular basis?
  • Who are they having these conversations with?
  • What do their audiences feel or know about these topics?
  • What research was involved in the process?
  • How do we get buy-in from real people who use our products as we try to become socially conscious?

Once you have clarity on these questions, you're ready to start rebuilding your brand.

Do You Need to Develop a Negotiation Strategy for Your Company?

Posted: 22 Aug 2019 10:00 AM PDT

  • A company negotiation strategy can define your approach to fundamental issues such as your target market and pricing. Your strategy can create a clear picture of your company's goals.
  • Developing a negotiation strategy based on your company's goals can create unity and empower your team to work together.
  • Your strategies and values can determine the primary negotiation styles you train your employees to use.

Negotiating with no strategy is like driving cross-country without a map. If you don't have clear goals, action plans or limitations, it can be difficult to measure your success. In an article for Forbes, Keld Jensen pointed out the dangers of negotiating with no strategy. According to Jensen, you can lose up to 42% of a deal's potential value.

Without a common strategy, departments can develop varying objectives. For example, in a clothing company, the designers will likely want to use the best quality materials. Yet, the finance department may want to keep costs low. A clear strategy can enable departments to work better together. With the best negotiation training, you can learn how to develop your company's strategy.

Define your company strategy

Consider defining your company strategy before your negotiation strategy. A company strategy can be defined as the approach you plan to take to achieve your long-term goals. Breaking down your strategy into smaller action points is the essence of a strategic plan.

Your company mission, vision and core values are the building blocks of your strategy. These aspects can be used to define goals. With clear aims, your departments can think of strategies to achieve your company's overall goals. Here are some factors to consider when framing your company strategy:

Setting your prices

How you set your prices is a key aspect of your company strategy. Two of the main pricing-strategy drivers are revenue and margins. Your strategy should focus on margin or revenue, but not both. 

If you focus on revenue, you may set lower prices to move a greater volume of products. Yet, if your strategy is geared towards better margins, then you may focus on higher-quality products and premium services.  

Walmart is a perfect example of a company that prioritizes revenue generation in its price strategy. As one of the world's largest retailers, Walmart negotiates for low prices from suppliers by buying in bulk. 

Walmart is able to extend the discounted rates to its customers by keeping its margins low. This way, Walmart can beat its competitors on price and generate more sales.

Alternatively, companies like Apple and Ferrari develop premium products and focus on profiting from higher margins. While Apple may not sell as many mobile phones as Samsung in a year, the total profits it generates maintains its competitiveness.

Selecting your target market

Your target market is the specific group of people who are most likely to buy your products. Defining your target market can be a major component of your company strategy. Target market affects how and where you market your products. It also impacts the type of personnel you hire. Target markets can be selected based on criteria such as age, gender, profession and hobbies.

A company like Disney specifically targets children. The bulk of Disney's products and marketing campaigns are designed to appeal to children and their parents. 

Other large companies can develop products that appeal to varying target groups. Cosmetic companies are known to develop different product lines for men and women. By developing gender-specific hair products, perfumes and lotions, cosmetic companies can serve two different target groups in the same market segment.

Clarify your negotiation strategy

Most companies fail to define their negotiation strategy. The few companies that do define a negotiation strategy do so only for their sales and procurement departments. By defining your negotiation strategy company-wide, your departments can develop synergy. Working together, each department can save time and resources. Also, strategic planning teaches you ways to enhance customer relations.

The following factors can be useful when developing your negotiation strategies.

Company financial structure

Your company's financial structure can guide your negotiation strategy. Your stakeholders' needs can affect a lot of your decisions. Financial training can teach you smart ways to manage your debt, equity and investors. Your planned revenue can guide you when defining your negotiation priorities.

SWOT analysis

SWOT stands for strengths, weaknesses, opportunities and threats. SWOT can be used as a strategic analysis of your company's abilities and limitations. Your opportunities and threats include external factors that you may not be able to control.

However, the SWOT analysis can show you how to build on your strengths and weaknesses. The analysis can also guide your hiring and training decisions as you build your team.

Department objectives

Each department of your company typically has its own specific objectives. These objectives frame the department's key performance indices (KPIs). Your company's incentive and reward system most certainly affects the department objectives.

You can get the best results by enabling departments to work together. This is possible when you align department objectives with company goals.

Flexibility

You should consider each department's structure in your company's strategy. Flexibility can give your departments room to improvise and adapt strategies that fulfill your main strategy.

Harvard Business School professor Michael Wheeler authored The Art of Negotiation in 2013. In the book, he explained that it is important to know how to improvise when you negotiate. He added that to be effective, it's wise to be ready to adapt in a wide variety of contexts.

Negotiation students learn to think on their feet. In business, hesitation can be costly. The best training can teach you to study various problems and act with the most logical response. A departmental strategy informs your negotiators' decision-making, which is highly desirable when under pressure.

Negotiation Styles

There are five main negotiation styles. Skilled tutors can teach you how to flex each style according to your strategy. Below is an outline of these styles, applied to the sales department.

  1. Collaborate (win-win): The aim of using this style is to create value and a longer-term relationship for both you and your customer.
  2. Compromise (I lose/win some, you lose/win some): This style is geared toward both companies meeting somewhere in the middle. Neither you nor your customer loses or gains too much value in the deal.
  3. Compete (I win, you lose): With this style, you seek to gain value, and allow your customers to fend for themselves.
  4. Accommodate (I lose, you win): With this style, you are ready to lose value in the deal to preserve your relationship with your customer and win their approval.
  5. Avoid (I lose, you lose): In this style, you seek to end the talks or pause negotiations.

Different departments may thrive by wisely choosing the right negotiation style at the right time. Your customer relations department may use accommodating styles when dealing with unhappy customers. Through practice, your teams can learn to leverage these five styles. Yet, collaboration may be the best style for your sales department.

Round-up

Developing negotiation strategies for your departments should have lasting benefits for your company. Your departments can develop better negotiation skills that support your strategies and build confidence.

Running a company without clear strategies can be a challenge. The lack of direction can limit the creativity and effective decision-making potential of your departments. Negotiation training can map out the options in both capability and strategy deployment for your staff. With a clear understanding of your company's goals, your staff can be more focused and innovative.

How Can SMBs Customize Their Social Media Marketing Strategies?

Posted: 22 Aug 2019 10:00 AM PDT

Due to the popularity of social media use at the personal level, many organizations, including small-and-medium-sized businesses (SMBs) use social media as a marketing tool. Organizations can use social media as a marketing tool to build brand/fan communities, increase traffic to their website, inform current customers, attract new customers, hear consumer preferences, get new product development ideas, advertise new products, share promotional campaigns, increase donations and encourage event participation. Thus, organizational use of social media marketing has become a global trend. 

Although it is very common for organizations all over the world to use social media as a marketing tool, many factors, such as size of the organization (e.g., SMBs versus big organizations), the type of organization it is (e.g., B2C vs. B2B vs. nonprofit), and the structure of the organization (e.g., domestic organization vs. global organization), may affect its use of social media marketing. Furthermore, demographic variables, such as gender, age/generation, and income, may affect consumers' use of social media. There is no one-size-fits-all social media marketing strategy. 

To communicate effectively with different groups/segments of customers and successfully run social media marketing campaigns in different countries and regions, organizations really have to customize their social media marketing strategies. But how can organizations customize their social media marketing strategies? I would like to provide some suggestions.

Customize for your markets. 

Research your markets and customize your social media platforms for different international markets if your organization plans to reach or already has international markets. With the help of social media, organizations with different sizes, including SMBs, can easily advertise products in different social media platforms and sell products to consumers in different parts of the world. 

However, there are cultural differences in consumer behaviors, including social media usage behaviors. Some social media platforms, such as Facebook, Twitter, LinkedIn, YouTube and Instagram, are global. Facebook is the most popular social media platform worldwide (except for a small number of countries, such as China and North Korea). However, there are also international social media platforms which are popular in specific countries or regions. For example, most global social media platforms, except LinkedIn, are banned in China. Therefore, if your organization is interested in the Chinese market, you may use WeChat or Weibo to communicate with Chinese consumers. Line is popular in some Asian markets, such as Japan and Taiwan. Global social media platforms are not banned there. You may use both global social media platforms, such as Facebook, and Line as marketing tools in Japan and Taiwan.

Personalize for your target audiences. 

Consumers in different demographic groups may have different preferences for social media tools. Pew Research Center's (2018) research findings suggest that there are generational and gender differences in using social media platforms in the U.S. 

Generally, Facebook is widely used by consumers in different gender and age groups. However, Instagram and Snapchat are frequently used by the younger generation. If your organization would like to reach a wide range of customers in diverse demographic groups, Facebook is a good choice. Or you can choose specific market segments based on gender, age or lifestyle, if you advertise on Facebook with paid advertisements. 

If you would like to sell products to the younger generation, you may use Instagram as a marketing tool. There are also industrial differences in social media use. Many fashion companies, such as clothing companies, post product pictures on Instagram. The key is that you choose the right social media platforms to reach your target audiences.

Modify your social media marketing goals.

Different types of organizations (e.g., business to consumer/B2C vs. business to business/B2B vs. nonprofit) have different organizational missions and goals. Different types of organizations may have different social media marketing goals.

I conducted an online survey to explore organizational use of social media marketing and compared different types of organizations' social media marketing goals and use of social media marketing tools. The research findings were presented at the 2018 Association for International and Intercultural Communication (IAICS) conference in Chicago, Illinois. The complete research report will be published by China Media Research in 2020 (Wu, 2018; Wu, in press).

The research findings suggest that more B2C organizations than B2B and nonprofits use social media to listen to the customer voice, increase sales and build brand/fan community. More NP organizations than B2C and B2B organizations use social media to increase donations and to encourage event participation. Furthermore, more B2B organizations than B2C and nonprofits use LinkedIn to deliver informative content and demonstrate thought leadership (Wu, 2018; Wu, in press). 

It's important that your organization's social media marketing goal is consistent with your organization's missions and overall business objectives. For example, if your organization is primarily a B2C company, you may use social media to hear the voice of the customer (VOC). 

Your customers' social media comments can provide valuable feedback and insights about your products and services. Their suggestions may also help you generate new product development ideas.  If your organization is a nonprofit, you may use social media to encourage your supporters to attend your organizational events and donate online. 

Tailor your video content. 

Today's consumers are very visual. You may consider posting video content in your social media sites. Seeing is believing. One video may be worth 1,000 words. I would suggest customizing the length and content of your online videos for different social media platforms. 

YouTube is the most popular video sharing site. Thus, you may produce creative videos to show your products, services and events. If you would like to educate your customers or potential customers about how to use your products, YouTube is a good platform for your organization to use. Usually, the length of YouTube videos can be longer. It allows you to post detailed product demonstration or customer education videos on YouTube. 

Other social media platforms, such as Facebook and Instagram, also allow users to post videos.  But the length of Facebook and Instagram videos should be shorter than YouTube videos. I recommend posting short and sweet videos (less than one minute) on Facebook or Instagram. The content of the video should be creative and relevant to your target audiences. Speak your target audiences' language, and make sure that the content of the videos fit their lifestyles and satisfy their information needs.

Choose appropriate social analytics tools.

There is no single best way to measure the effectiveness of social media campaigns. Many organizations simply look at the numbers, such as the number of followers, likes and comments. Many platforms have built-in tools, such as Facebook Insights and LinkedIn Page Analytics. They are free and easy to use.

There are also other social analytics tools that are commonly used by organizations. For example, some organizations use Google Analytics to track social media traffic and engagement across platforms. If your organization would like to analyze electronic word of mouth (eWOM) in social media sites, you may use social sentiment analysis tools, such as Hootsuite, to identify the keywords of your customers' social comments and evaluate how many percent of these comments are positive negative or neutral. 

You may choose the appropriate social analytics tools based on what you want to know, your social media marketing goals and your budget. Using social analytics tools can help your organizations track the effectiveness of your social media page/posts and whether you can achieve your social media marketing goals.    

In conclusion, organizational use of social media marketing is a global trend. Social media has been adopted and used as a marketing tool in different industries, in different types of organizations and different countries. There is no single best way to use social media as a marketing tool. Different factors, such as consumer demographics, cultural differences, organizational structure and governmental regulations, may affect organizational use of social media marketing. You have to customize your social media marketing strategies. 

References

Smith, A., & Anderson, M. (2018, March 1). Social media use in 2018: A majority of Americans use Facebook and YouTube, but young adults are especially heavy users of Snapchat and Instagram. Retrieved from Pew Research Center website: http://www.pewinternet.org/2018/03/01/social-media-use-in-2018.

Wu, M. Y. (2018, July). Exploring Organizational Use of Social Media Marketing: A Global Perspective. Paper presented at 2018 International Association for Intercultural Communication Studies (IAICS) Annual Convention, Chicago, IL.

Wu, M. Y. (in press). Exploring Organizational Use of Social Media Marketing: A Global Perspective. China Media Research. 

Why Businesses Should Consider a Merchant Cash Advance

Posted: 22 Aug 2019 05:00 AM PDT

Like the name suggests, a merchant cash advance is an advance provided as a lump sum to a business in exchange for future credit card sales. Therefore, it cannot be considered a loan because it does not have the technical details of a bank account such as collateral and a fixed repayment term. Instead, it is more akin to factoring where a lender gives an advance of cash against an invoice. In fact, the companies that offer financing are very careful not to be referred to as lenders but simply as providers. This allows them a lot of leeway when providing financing to small businesses.

In a factoring business, the one providing funding s buying a portion of a company's future receivables. In a merchant cash advance agreement, the business' receivables are in the form of credit and debit card sales. This is a riskier approach for the lender because an invoice does not exist. Thus, the interest rates are higher because of the higher risk profile of these cash advances. Despite the costs, there are still circumstances that necessitate taking an advance as your business may face too. To help you navigate the industry and make more informed decisions, this guide will teach you everything you need to know about a merchant cash advance (MCA).

Editor's note: Looking for a small business loan? Fill out the questionnaire below to have our vendor partners contact you about your needs.

 

How does a merchant cash advance work?

The process for receiving a merchant cash advance begins in a similar way as a typical bank loan. An application is made by your business to receive funding to an MCA provider just as you would apply for a bank loan. Unlike a bank loan, though, merchant cash advances are almost exclusively applied online because most MCA providers have an online business. Also just like a bank loan, the lender will analyze the details of your business to determine the eligibility of your business to receive the advance.

The most important detail an MCA provider will need to understand about your business is how much you receive in the form of credit and debit card sales. Because a merchant cash advance is paid primarily as a percentage of the credit/debit card sales, the lender will need to assess how much of your cash flow is received in this manner. It is from these credit and debit card statements that the lender will determine the rates and terms of the cash advance to be given to your business.

In your application for the MCA, you will be required to provide your business bank statements for the provider to assess how much your business makes from credit and debit card sales. For this reason, an MCA is most ideal for a business that receives most of its revenue from credit and debit card sales than cash and other methods. Other documents the provider may require include your credit report and business profile. Your credit report will aid them in determining how risky an advance for your business is and to set the factor rate. Meanwhile, the business profile will show how long your business has been in operation. The provider is counting on future sales from your business, which is why they will be interested in knowing whether or not your company will still be active for the duration of the advance. [Are you looking for a small business loan? Check out our reviews and best picks, including our pick for the best merchant cash advance option.]

Terms of a merchant cash advance (MCA)

Once you have received your cash advance, some of the terms of the loan that you need to consider include:

1. Advance amount and term

The total amount of money advanced will be the advance amount while the term is how long you will have to pay it all back. Typically, a cash advance ranges between $2,500 and $250,000 while the advance term can be between 3 and 18 months.

2. Factor fee

In a cash advance, the interest rate is replaced by the factoring fee, although it is essentially the same thing. The average rate is between 1.14 and 1.18, and when multiplied with the advance amount shows you what you owe in total. When this factor fee is converted to an annual percentage rate (APR), it becomes equivalent to 15% or more. [Want to know more about factoring? Check out our reviews.]

3. Holdback

Every day, a percentage of the daily credit card sales that is deducted from your bank account and sent to the MCA provider. The percentage can be between 10% and 20% and will be charged until the debt is repaid.

To facilitate the daily payments to the lender, an MCA deal is made with the collaboration of a credit card processing company. One way they allocate monies is by deducting the total sales of the day and sending those to the lender while the rest are processed to your business bank account. The other way is by allowing the MCA provider to have access to your credit card sales and they make their deductions before sending the remaining funds to your account. Alternatively, your bank can handle the account and the provider's portion is sent to them by ACH.

Why are merchant cash advances ideal for small businesses?

At some point, you may need financing for your business. Perhaps you need a boost to expand the business by adding employees, stock or renting a business premises. Whatever the need, it is not unusual to be in such a situation. However, in recent years merchant cash advances have become more popular for small businesses in particular.

This trend started following the global financial crisis of 2008 that saw the collapse of several major banks and credit unions. Following the collapse of these banks and massive losses by the others that survived, it became a lot harder for small businesses to get loans. FinTech (financial technology) companies saw an opportunity to fill the gap and took it. By 2015, Bryant Park Capital reported that the MCA business had provided $10 billion to small businesses. By 2018, NBC reported that fintech lenders, including MCA providers, accounted for 25% of all small business loans: about $31 billion worth.

Aside from being more available to small businesses and entrepreneurs than bank loans, MCA providers don't have strict requirements. To get a bank loan, the bank will need to analyze your company's financial and bank statements. These documents show details about your company's cash flow and help the bank determine the loan amount to be granted. This automatically eliminates many small businesses that either have a small profit margin or have been in business for a short time. Merchant cash advances have more flexible requirements that can serve these small businesses and startups.

In addition, banks also check with credit bureaus to know your credit score and report. If you happen to have a less than average credit score or a blemish in your credit report, it is unlikely that the bank will give you a loan. Although MCA providers will also check your credit score, they only use it to determine the factor rate of your loan but you will get a cash advance nonetheless. Finally, because a merchant cash advance is provided with the backing of future credit card sales, you are not required to provide any collateral. For a small business to get a loan, you may have to use the most valuable assets you have as collateral at a bank, which would all be lost in the unfortunate event you're unable to pay back the loan. As a result, merchant cash advances provide your business with the funding it needs without risking any essential assets. 

Considering how any small blemish on your credit report can affect your credit score, these cash advances become very ideal for small businesses. For example, a minor mistake like having an overdraft might be enough for a bank to deny you a loan. For a small business owner, it is common to have an overdraft on your business checking account or to go below the minimum operating balance, both of which can lower your credit rating.

There is also the problem of time, where your business may be in need of a quick loan. A typical bank loan for a business will take at least several days as the bank staff analyze your loan request and weigh their own risks. Merchant cash advances are not loans and are usually applied for online. A typical MCA will be processed and disbursed within 24 hours and a couple of days depending on the situation. That makes it ideal for emergency situations where an immediate influx of cash is necessary for the business to survive.

What is the disadvantage of a merchant cash advance?

The most glaring and obvious problem with MCAs is their high cost. At first, the factor rate makes it seem that the debt would be low, but in actuality the interest rate is quite high. In some cases, the rate can be as high as to reach triple digits, which is much higher than a bank loan. Also considering the daily holdback, your business' cash flow can be negatively affected.
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