Inflated Retail Prices Kills MLM Companies
March 28, 2007 | By admin | 2 Comments »
I got a call from my friend. He said, “Join this company. It has the highest payout in the MLM Industry. Over 70%!”
I went, “Woah, is it really that high?” That night, I checked out the compensation plan.
After a while, I realized that there are many compensation plans out there who seem to be offering commissions so high, you wonder whether the company is making any money at all.
When I finished my research, I found out two things about compensation plans.
* Just because the payout percentage is very high doesn’t mean that distributors can be making a lot of money
* Many companies claim to payout based on retail volume instead of distributor price but it could be misleading.
Let me explain…
Just because a company pays out 80% of their volume back to distributors doesn’t mean that YOU will get the whole 80%! Not even if you have reached their SUPER TRIPLE DIAMOND AMBASSADOR WARLORD!
Profit pools and generational overrides do not belong to you. Yes the company pays out all the commissions, but it goes to your upline or downline generation or even to your sidelines. Basically, the money doesn’t go into your pocket.
Randy Gage says in his training sessions that high payouts doesn’t mean that everyone is making a lot of money. In fact, some volume quotas or challenges are so steep that it is impossible to hit the bonus level or qualify for whatever the prize money is.
A company is doing well when MOST of their distributors are making money. MLMBlog has posted that they have received reports of people in USANA not making money and facing high attrition in their sales force.
The second thing about high retail payout is this.
Suppose you have a super product that costs $10 to produce but you sell it at $100. The company decides to pay out 80% of the total sale to the distributors but 50% is marked up as retail commissions. Even if the customer can afford it, the one who services the customer pockets the 50% but the remainder of the 30% gets distributed back into the network.
Imagine only 30%! It shows that the network builders get much little than expected. Maybe only 3-5% override on an average. So unless you have a bunch of super salesmen and women, you probably won’t succeed in this company because the overrides are too low.
Plus… is if the cost of the product is so small and the retail price is so inflated, one really wonders whether the company is using the product as an excuse to create a short-term product pyramid scheme.
If the retail margin is marked up too high, most loyal customers will wind up joining NOT TO BUILD A NETWORK but just to get the discount, and that’s all.
Do your due diligence – especially when it comes to comp plans.
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I completely agree that MLM target="_blank" rel="nofollow" href="http://gobala.linktrackr.com/buildingonabudget-mlmrkeywords">MLM products are frequently very expensive. Tragically, my experience with just three products is that they have all been excellent products, well worth the money – but virtually impossible to sell.
James Mangosteen Dean