The Pay-out Percentage To Direct Selling, MLM, Network Marketing Distributors?
This question is often asked and we have analysed the annual and quarter report (Financial statements) of a number of product driven public network marketing companies. In service driven companies it might be different.
To summarise the pay out margins:
- Elepreneurs pays out 51%
- LifeVantage pays out 48,4%
- NHT Global pays out 45,6%
- Youngevity pays out 44,6%.
- USANA pays out 44,2%
- Mannatech pays out 40%
- Nu Skin pays out 40%.
- Nature’s Sunshine* pays out 34,4%
- Herbalife** pays out 27,9%.
- Tupperware pays out 15,1%
*Based on Volume incentives. **Based on royalty overrides.
The gross profit margins are:
- LifeVantage 83%
- USANA 83%
- Herbalife 81%
- Mannatech 80%
- NHT Global 79,5%
- Nu Skin 76%
- Nature’s Sunshine 73,8%
- Tupperware 66,6%
- Elepreneurs 66,5%
- Avon 57,7%
There is a debate going on, if looking into financial statements is good enough:
Richard Bliss Brooke stated:
Financial statements do not tell the story and should never be used to address the subject. MLM company comp plan payouts range from 35-45% of THE WHOLESALE PRODUCT SALES PRICE.
A company like Youngevity may include their coffee roasting sales in their sales…those are from a non mlm division. The 35-45% above is net payout after breakage. They may pay out another 2-3% in incentives which are also 1099 income to the field. What % payout a company can afford and also earn enough profit to invest in the future depends on the cost of the product vs the wholesale price.
Most MLM products have a 6 to 1 markup cost to wholesale. Of course if your product costs $1 to make and you are selling it for $20 you can pay out a much larger %. BUT if your product is marked up that much the odds are it is overpriced which leads to fast growth fueled by hype and the comp plan but a quick demise from no retention.
RETENTION is the holy grail not comp plan payout. Dumb MLMers ask about the comp plan. Smart ones ask about retention.
What would you rather have…1. 50% payout with 10% on the 5th level and 5% to infinity with 20% retention Or 2. 35% payout with 40% retention?
Our challenge as a profession is that too many companies sell products that no one would buy every month for 50 years at the price charged….a price trumped up to fund a fancy comp plan. Overpriced mediocre products leads to zero retention which leads to the demise of the company.
Eric Worre commented:
Iin my opinion ALL Network Marketing companies need to reduce the overall percentage of commissions to get their unique products more in line with competitors.
When they do that, their retention will grow and so will long term profits for all.
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I believe the money shown in the balance can give a misrepresentation as well ! Because commissions paid in total as part of a balance don’t specify how much of that money is paid in BDA’s on the side that have nothing to do with the complan. Some companies burn millions paying and buying leaders outside the plan. Or they set-up special extra bonuses on the leaders volume on top of the complan for a certain period just to get them inside.
Better would be to look at the % volume calcualtion and then as well because of breakage how much on # that represents on the money.
Companies public and private can put any expenses they want to in the line item..Commissions”. I am not saying these companies lie. I am saying companies lie. And the payout means nothing. Retention means everything.
What I find missing in the accounting practices of both private and public companies… and is what truly started the Herbalife challenges, in my opinion is that very few companies using the direct sales channel is they do not keep any real details on customer numbers.
Here is what I mean…
1. Customers – not classified affiliates/distributors
– preferred/wholesale on monthly subscription.
– Customers buying additional or one off products
– life cycle of customers on monthly subscription
– customer per affiliate/distributor ratio
These numbers could do two things.
A. Raise the valuation of the business.
B. Protect against over-reach if regulators.
Now don’t get me wrong, if the ratios are all messed up and the majority of customers are also classified affiliates/distributors then these numbers could have the reverse affect on things. ?????
What isn’t mentioned in the article is that while a comp an May lead you to believe the company pays a stated percentage, that’s often not the truth. As stated by Richard, MLM companies lie. And breakage – what actually DOESNT get paid out due to reps not qualifying or dropping out – is rarely stated and difficult to discern.
What starry eyed distributors need to understand is that the companies hold all the cards, and there’s often a love/hate relationship between the two.
Sir pls share all direct selling company18-19 financial yr.closing.like amway,tupperware,herbalife.modicare,vestige etc or where r show all direct sellingcompany financial status
Agree 100% with Richard (Bliss Brooke) in that it’s not ‘percentage payouts’ that matter, but retention!! It’s the first question I ask any company I work with …”prove your year-on-year retention”.
If the goal is to build a long-term, sustainable business that generates revenue (income) for it’s Distributors, and profit for the company, surely the metric that we should all be looking at and aspiring to achieving (for the good of everyone’s business) has to be …RETENTION!
…so what would be a totally refreshing change is if companies released their year-on-year retention ie for every 100 that joined, how many remain ‘active’ a year on …now THAT would be a very revealing number! (and ironically, if companies worked to increase that number, how much good would it do it our industry as a whole?)
Hello Ted
Finally something of real interest thank you. Such interesting comments. This is a big deal because why do people join a company or partner with them. It’s to make money, (if it was for the product they could buy it with out joining.) and if the company is making money because of the Salesforce. The people that joined that opportunity they should share there revenues fairly. I think all would agree. The question is what’s fair, that’s a debate that will go on well after most of us here are gone from this earth.
If the business model is sound and a fair compensation to the field it could grow for generations. All do have limitations, product companies, telecommunications, energy supply companies, they all have to be profitable and there salesforce which brings that profits has to make money. Don’t get me wrong there’s no profits with out the salesforce and the salesforce makes no profits with out a good company with good leadership.
The mean question would be since you can recruit people and train them in a company A, B, or C. It would make business sense to do it in a company that will give you the biggest bang for the time you spend and if you want generational wealth it should be sustainable and be able to last though what ever economic conditions happen though out the decades.
That being said it’s not so easy you usually have to learn from train and error what you like and what you don’t like also learning the skills it takes to become full time and successful in network marketing.
That being said it comes down to how duplicatable the system is, how do you make money, what’s the profit margins. Is the industry going to be around for ever?
It took me several companies to learn what I like and what I didn’t and to learn these points. I finally found a company that from day one I know how much of everything coming in from clients is paid out to the field salesforce. The partners were with are some of the largest companies on the planet and some been around for more than a century and lasted. Last year paid out very close to 800 million dollar to its field sales force. It’s system enables me to help set up someone in USA, Canada in a real career/ business and I can pare them with one of the top leaders in that city as I have thousands of partners across both country’s to really help them learn our system.
There is a limitation people will have to put in the constant time and effort to learn our system and get some government licensing depending on the state or province your in but we have a great system to help people with that.
The other thing is that we help a lot of people and are not on Business From Homes web site, earners or anything.
So I usually don’t do this but if anyone wants to reach out to me feel free to text me at 514-663-0303 I know I’ll probably get some flack for plugging my number but I’ve been pleased with this opportunity so I must share it. It took me a lot of false starts but I’ve finally found a home that appreciates its people.
I just love this stuff! Old saying, “Liars figure and figures lie.” Somehow I cannot help but believe that it is an MLM inspired saying.
A little common sense to support Richard’s point. The marketing plan is a lie to begin with. The 15% of level whatever [etc] is NO WHERE 15%… If a box of X cost 100 and the BV is 80 and then the 15% commission is $12… which, no matter how bad you are at math, is NOT 15% … so they begin by skimming that differentical right off the top. And they DO NOT stop the field from saying ‘and we pay 51% out” … 51% of what? 70% of the purchases? LOL?
So in a group of mine at one time 4000 active reps did 296,000 in purchases… and I got commissioned on all of it… BUT.. the BV was 223,000…. or 73,000 no factored in. LOL. Times 12 months? Meaning my organiszation did 876,000 that NO ONE got paid on. HUGE LIE… 51% of what? LOL
Never met an executive that could answer these 2 questions……
1. Why the Cash/BV differential? [most hem and haw but a few morons actually say “so our reps can sell it at a reasonable price and make a retail profit]
2. So your reps have a retail customer base that you have tracked or accounting for in some way based on their additional orders? duh? No answer, ever. More than half let customers buy at rep pricing… good grief [lies 2 & 3] about commish/numbes and accounting.
Hey, I get it. The sad part for me is new or inexperienced people bragging about the % a company pays out and it being a lie… in essence, they [companies] subtling turning good, anxious to succeed people into … well, liars… after all, liars figure and figures lie 🙂
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