By Len Clements (c) 2001
Once upon a time, one of the greatest bragging rights of most all network marketers was the superiority of our products. The theory gos: MLM operations don’t have huge advertising and marketing budgets, so they can afford to pump a lot more dollars into developing their products. They also, again in theory, are afforded a greater margin thus lower priced products than comparable items sold through conventional means.
So much for that theory.
In reality, there is rampant inflation in this industry. Product pricing is spiraling out of control, and has for most of the decade. This is likely due to the massive influx of MLM opportunities into an already over saturated market. As the existing distributor pool continues to be spread thinner and thinner, most companies have chosen to compete for distributors by juicing up the numbers in their compensation plans. The bigger the pay out, the more distributors they will attract. One need only peruse any of the MLM trade publications and it will become glaringly obvious that the vast majority of MLM programs today compete by comparing the theoretic pay outs of their comp plans. And, sure enough, prospective distributors do migrate towards the program that promises the greatest income. After all, we aren’t doing this for our health. Are we?
So, as the percentage of each product sale that goes towards commissions increases, so must the margin between the company cost and wholesale. Thus, the wholesale and retail price of the product increases as well. And it’s been steadily increasing for fifty years, and skyrocketing the last five. Just take a look at the first MLM compensation plan back in 1945. It paid 3% down one generation! Most plans back in the 60’s paid overrides of around 15-20% down four or five generations. During the 80’s total pay outs of around 40% were common. I remember designing a unilevel plan back in 1991 that paid 7% down seven levels (49% maximum pay out) and being concerned that the 35-40% it would actually pay was too much. Today, that plan would be laughed at. Most compensation plans have theoretic maximum pay outs of 60-75% or more, and many actually pay somewhere in the neighborhood of 45-60%.
The result is an 8 ounce bottle of shampoo with a suggested retail price of $25.00! Nine to twelve dollars wholesale for shampoo is common place in this industry today. Of course, they all try to justify their pricing with the old “superior quality” routine. Hey, for $25.00 the stuff better not only clean my hair, it better soak into my brain and make me smarter. Or, how about a 1.5 ounce candy bar for $2.20 — wholesale! One Halloween and, boom, you’re wiped out. Or, how about a box of laundry detergent for $49.00? Oh, but it’s “concentrated” they’ll tell you. For that price, it better be so concentrated that not even light can escape from the box!
All of the above are real examples. To only a slightly lesser degree, the examples are endless. And we should be ashamed.
Not only are the prices of most MLM products getting ridiculous, so are the types of products. I mean, how many prepaid calling card companies do we need? Several companies now have gone so far as to not even offer a product. Instead they provide you with the fundsto purchase a wide array of products and services from third-party, non-related vendors (usually a catalog company of some kind). They then claim to be offering “thousands” of products and services. Uh uh. They are actually selling nothing but the opportunity to make money. The travel industry has been inundated with quasi-travel agents trying to get discounts by flashing laminated “independent outside travel agent” cards. The MLM industry was quick to jump into the foray in a big way. After all, imagine how much commission you could pay out (and profit you could make) by selling a $4.95 laminated card for $300-$500 per year! Yes, there are some legitimate travel deals out there that do offer a bona fide service, and a few are network marketed. A few. Most, however, are nothing more than “card mills.” Every month it seems we have some new gimmicky miracle product on the market. A few companies are, once again, offering a smoking cure (this is a fad that comes and goes every few years). Of course, if the product actually worked it would be front page news all over the world, the pharmaceutical industry would surely be trying to classify it as a drug, and the tobacco industry would be spending billions to debunk it.
Another company is selling a single product — an aphrodisiac based on green oats. This is the same ingredient that was the basis for a short lived fad back in the late 80’s, before the media began to report that it didn’t really work on men and gave many women headaches (which, of course, kind of defeats the whole purpose of the product).
Most recently there have been a wave of “fat sponge” products based on ground up crustacean shells. This ingredient was previously used to soak up oil spills and as an ingredient in hair conditioners. Very few formal studies have been done (that I know of, and I looked hard) on the long term results of ingesting this stuff in the body. In this case, only time will tell if we have another aminophyllin on our hands, which was an asthma medication found to reduce thigh circumference when applied regularly to the skin. Several MLM companies had heated battles over the rights to aminophyllin a couple year ago — which dissolved about the same time that many woman began reporting adverse reactions to the product.
One MLM company has devoted itself almost entirely to ridding us of parasites in our bodies. Their cassette tape which describes the benefits of their product is certainly compelling and moves a lot of product, I’m sure. Curiously, though, I’ve yet to speak to a single user of this product (and I’ve spoken with several) who didn’t have some variation of an “I passed an eight inch tape worm” story. I’ve even heard about one woman who claims she rubbed the product on her arm and eventually induced parasites to emerge from her skin! I mean, come on people.
Today, with the success of such tapes and the “parasite tape” and the “Dead Doctors tape” it was inevitable that more MLM companies would start to ask, “What kind of tape can we produce that will scare the hell out of people?” The result (and it’s only the beginning, folks) is a new product that will rid you of microscopic arachnids (spiders) in your bed. Something this companies tape claims we allhave! In fact, one part of the tape I listened to the doctor/speaker went so far as to claim that the feces from these little critters can account for “up to 10% of the total weight of your pillow!”
If the Cold War hadn’t ended, there would undoubtedly be some MLM company right now distributing tapes describing the great threat of Soviet nuclear weapons and the horrific effects of radiation poisoning — and the need to purchase their radiation testing product and/or bomb shelters. And I’m only exaggerating slightly.
Probably the most ridiculous MLM product I’ve seen yet was a set of shoe insoles that apply accupressure to key points on the bottom of your foot. This product was then suppose to make you healthier and even cure diseases.
It’s funny, in a strange sort of way, that for decades we have all been taught, over and over and over, to “duplicate what works… don’t reinvent the wheel… find out what your successful upline is doing and do the same thing.” Then, as soon as these same people go out and try to start their own MLM company, what’s the first thing they do? They try to come up with some gimmicky compensation plan no one has ever tried before and look for a product niche no one else is currently in! Folks, there is a fifty year history to network marketing. There is half a century of precedent to go by to help us determine what works in this business and what does not. And for fifty years, tangible, consumable products have worked and almost, but not quite, everything else has failed! Try to come up with a list of all the current MLM companies that do notoffer tangible, consumable products (i.e. skin & hair care, nutritional, home care, automotive, personal care, foods, etc.) that are at least three years old. I came up with fourteen (such as Primamerica, Discover Toys, Prepaid Legal, Jewelway, Excel, etc.). Just fourteen. Out of thousands and thousands of companies over the last fifty years. Fourteen! And don’t put NSA on your list. Over half their sales today is a nutritional drink. Quorum? No, they also added consumables to their line, as did Nikken and The People’s Network. Companies such as Personal Wealth Systems and American Benefits Plus tried to convert to a consumable product line just to survive (the former eventually merged with a product company, the latter became KaloVita, which also merged with a product company). Even Destiny Telecom won’t be eligible for the list in a couple years — they just added consumables to their line!
Personally, I believe that most MLM companies out there today were started by a group of people, usually ex-distributors, sitting around a table with the idea that they can make a lot of money by running their own MLM operation and asking the question, “Now, what can we sell?” The result is a hodgepodge of token products whipped up simply to support an MLM compensation plan. Think about it. Were there really hundreds of people out there who were into the pycnogenol/DHEA/Cats Claw/Colloidal Silver business who all decided to start an MLM company right about the same time? Come on. (To their credit, at least they were following the “duplicate what works” theory). Or, how about all these “lead generation” deals where you spend $100.00 per month for 500 names of “opportunity seekers” (which likely cost the company less than ten bucks). Oh, they claim they are generating their own leads with their own ads, but if they even get 1,000 people to join they are going to have to come up with half-a-million leads per month! Yes, some such services, such as Ad-Net and Pro-Step do offer a service of value, but most are simply using “leads” as an excuse to exchange cash.
These are all MLM programs for the sake of an MLM program. So many such companies today offer mundane, token products with basic formulations designed to keep production cost to a minimum and margins high — so they can pay out “the most lucrative compensation plan in the industry.” And their products are still twice the price of the stores!
What I wished more distributors understood was that the calculation to compute your commissions has a number on both sides of the multiplication sign. It’s V x P = C. Or, sales Volume times overridePercentage equals Commissions. In other words, PRODUCTS times COMP PLAN equals commissions. And it’s the product side of the equation that is as, if not more important in determining your income. I don’t care if a plan pays 10% down fifty levels — 500% of zero is zero! Any pay out multiplied by a small amount of volume is going to result in a small commission check. It’s the volume side of the equations that has an “unlimited” ceiling. It doesn’t matter what the percentages are, how many levels you’re paid, or even what type of plan you are working — you move enough volume through it and you are going to make money!
The point here is that when you price your products outrageously high to accommodate a higher pay out, guess what happens. Thepercent side goes up, that’s true. But the volume side goes down. You don’t have to be an economics professor to figure that out. It’s tough to move a lot of $25.00 bottles of shampoo. On the other hand, if more companies would keep there pricing in line, even if it meant reducing the percentages in the comp plan, income might actually increase! Why? Because 6% of $100.00 is more than 10% of $40.00. Not only that but we might actually reduce the number of MLM company failures at the same time. Let’s take another look at our equation: V x P = C. Now let’s add another variable called CP, or Company Profit. Now, raise P and V goes down, C stays the same (at best) — and CP goes down as well. Not good. Now, lower P, raise V, C stays the same (at least) — and CP goes UP! In fact, it’s even possible that the company could end up paying morecommissions to the field — and increase their profit at the same time. Imagine that. Increasing profit while increasing an expense! Increased sales volume is a wonderful thing, isn’t it?
And, by the way, if you can find a way to increase P and increase V, C and CP, then contact magician David Copperfield as soon as possible. He’s looking for new material.
How do you create a higher sales volume? Find a product line that accomplished the following:
1. It is highly consumable. Not just consumable. I have a 2 ounce bottle of skin cream I purchased from an MLM company that I’ve been using as an after shave balm for almost five years now — and it’s not gone yet. And I still haven’t used up the water purifier I bought back in ’87 or the gold ring I bought in ’89.
2. It lends itself well to transfer buying. In other words, there are a variety of products you would likely have purchased anyway. Most folks usually don’t add Ginkgo Biloba or colloidal minerals to their weekly shopping list.
3. Can actually be retailed. They are products that people would actually want to buy even if they weren’t part of the income opportunity.
4. Are of genuinely high quality. Genuinely being the key word here.
5. And most importantly of all, they must be priced reasonably!
All compensation plans have a certain personal volume that must be met each month to qualify for commissions. Most distributors tend to do what ever the minimum volume that is required of them. The whole idea behind numbers 1 through 4 above is to get the distributor to purchase more than they have to. And you just can’t do that if you fail at number 5. Paying $29.00 for a $12.00 bottle of vitamins in not transfer buying, even if you would have purchased vitamins anyway. And you certainly can’t mark up those vitamins even higher and retail them.
Please understand that this is not a condemnation of all network marketing companies. There are a few that have held there pricing to within reason, maintained their quality, and still have very competitive compensation plans, although they may not look as good on paper percentage wise.
But then, I pay my bills with dollars, not percentages.