Friday, November 11, 2016

MLM Basics: Numbers Needed To Profit

One of the hardest things to analyze in a MLM is "How Much Money Will I Make".

The stupid ones recite the slogan: "As much as you want!"

The weasel ones add a disclaimer, "As much as you want (don't blame us if you fail)"

The realistic ones don't feed you BS, "Your success is dependent on your ability to sell, your ability to form a sales team, your effort and willingness to dedicate yourself and a whole lot of luck."

But none of them will be able to quote you a number, except what *they* have personally earned, or what someone in their team earned. And that doesn't say whether they do this every pay period, or where did this money come from: "personal volume" (retail sales by oneself), or commission from "group volume" (i.e. team total sales volume)

Amway is one of the few companies that even calculates what average member earn via retail.

The average monthly Gross Income for "active" IBOs was USD $183 (in the US) / CAD $206 (in Canada) in 2014. 
53% of IBOs in the US (and 49% of IBOs in Canada) were considered "active" (in 2014)
source: Achieve Magazine, published by Amway, August 2014 issue, from AchieveMagazine website
Amway calculate "gross income" from retail sales, minus the cost of the goods sold, which basically means they ASSUMED that product purchased by the IBO (independent business owner, i.e. participant) will be sold at MSRP and thus profit can be calculated. While they did not include any commissions (most MLMs report ONLY commissions), it also (and quite understandably) did not attempt to estimate business expenses, such as time and effort to attend meetings, demonstrations, seminars and events, and so on.

According to the Amway Bonus System PDF, the "retail profit" varies between 25-30%. Calculate backward from this, you can estimate that average retail revenue per active IBO per month is $732 (assume 25% retail profit). That's not much in terms of Amway's "BV" or business volume, in dollars.

Bonus (i.e. Commission in Amway speak), however, is based on PV, which is a separate value from BV, and the value varies from product to product, and from region to region and season to season to season. And the problem is this number depends on the number of downlines AND their BV / PV.

You can see that this makes the "average" income for a MLM being practically IMPOSSIBLE to decipher, as there are just too many variables, and that's why most compensation plans takes a dozen pages to explain, with a dozen different examples. And those with fancier examples like trees, balanced branches, loops/cycles, and so on? Even worse.

So how do you know you'll make money in a MLM?

You don't.

But here's a question for you to really think about:

Are you sure the efforts you put in will result in a commensurate amount of compensation?

After all, think about it... most of your money comes from OTHER people's sales, for those that made it into the big times.

But how do you know those are really SALES (i.e. they sold stuff), vs. they just buy stuff every month?

You are their upline. You are making money off THEIR backs. Is that really SHARING success?

What does that make you? A leader... or an exploiter?

1 comment:

  1. Amway's gross profit does NOT come from retail sales, it's mostly from self-consumption and downline self-consumption.