MLM Analyst

Lately I’ve been looking at how MLM companies balance three critical types of costs:

• Distributor commissions
• Product & development costs
• Company operations & profit

Here’s basically how these three types of costs interact.

If an MLM company is generous with its distributor/sales commissions (paying, let’s say 40-45% of its total gross revenue) that leaves less money for paying for a quality product (along with investing in new product development) or maintaining the company’s overall viability.

Likewise, if a company pays too much to produce its current and future products, it won’t have enough to profitably run the company or incentivize its marketing & sales organization (distributors).

And finally, if it costs a company too much to run itself and pay its owners, the other two critical areas suffer: distributors are not motivated and the product isn’t good enough to keep people buying.

So, history has shown that MLM companies that thrive over the long haul are those that carefully balance all three critical costs. From my observations a company can flare and grow dramatically by over emphasizing one of the three critical costs, but they end up paying for it later.

If you are involved with a network marketing company, I would suggest you carefully examine how your organization balances these costs. Here are some external clues to look at:

• You may be excited that they claim to pay more than any other MLM opportunity. If they don’t put enough into maintaining the company and product, will it still be around in a year?
• Does the organization spend extravagantly for almost everything it does, including owner profit? If so, could you be making more elsewhere? Are the products really superior or just marketed to you that way?

Taking a page from some of the most successful non-MLM companies in the world, you want to be sure your company is managed by world-class executives who understand how to run an extremely tight ship. That typically means the company will be able to operate and grow effectively while requiring less of the overall revenue. That leaves more for distributors and product development.

It can be difficult to get to the bottom of how well a network marketing company is being run or how truly beneficial their product is or how generous their compensation structure is. But ask a lot of questions anyway and be sure to compare companies and products.

You can now find a summary of my ongoing research on MLM top earners lists on a dedicated page: MLM Top Earners. You can find the page link up on the navigation bar between “About MLM Analyst” and “Contact MLM Analyst.”

I recently finished a post on why you should be nervous about MLM companies that release distributor earnings. I finished that post suggesting that if your MLM company shows some distributors with massive monthly income numbers, there’s a great chance that its compensation program is unfairly top-heavy.

Fair vs. Unfair MLM Compensation Models

What makes a top-heavy MLM comp plan imbalanced & unfair? If you aren’t one of a few dozen of those top earners you may never see a decent income no matter how hard you work at it. Wouldn’t you rather be part of an organization that gives a fair chance for everyone to prosper?

MLM comp plans can be pretty complex and in the near future I’ll do some more detailed comparisons. But for now, bear with my over-simplifications and let’s graphically compare a top-heavy comp plan to a more balanced comp plan.

Comparing MLM Compensation Models

Choosing the Right MLM Compensation Model

…of course the plan would need to be complex enough that the rank-and-file members wouldn’t understand that they just got jacked…

OK, yes, I realize I’m exaggerating a bit on both sides. But I’m trying to illustrate an important point (that, and I don’t have all day to make graphics, I have a business to run). At least you get the picture, right? Which one would you want to belong to; the one that lets a few dozen people make a few extra million per year at the expense of everyone else who is working hard to support them, or the plan that spreads those millions around? Wouldn’t an ideal plan be easy on initial participants, rewarding to the middle-class distributors and still very motivating to the top leaders?

Look at it this way. What if you were starting an MLM company and you wanted to poach a few huge distributor organizations? I’ll bet you’d be tempted to implement a top-heavy plan that convinces some top guys to move their groups to you. Of course the plan would need to be complex enough that the rank-and-file members wouldn’t understand that they just got jacked. Are you sure you understand your network marketing company’s compensation plan?

Are You Excited About Your Guys at the Top of a High Earners List?

…go ahead and milk that warm fuzzy feeling for all it’s worth. It’s likely to be the highest compensation you ever see…

So, let’s go back to the topic of “top earners” and think about all of those mid-to-low-level distributors that are so excited to show off the fact that their upline leader is on top of the list. Pal (yes, I’m speaking to you, confused MonaVie guy), if you’re proud that some top earners list shows your guys at the top, go ahead and milk that warm fuzzy feeling for all it’s worth. It’s likely to be the highest compensation you ever see.

Everyone else who actually understood this argument should be asking themselves, “How do I identify the best possible network marketing company to join?” Lucky for you there are quite a few equitable MLM companies. To identify which one is right for you, you’d want to find out about their upline support, product quality, company support, compensation plan, cost, etc. And if the business opportunity was your primary concern, you’d definitely want to look at what companies are growing – and on top of that, which are experiencing momentum? Those are the ones who probably got the overall mix “right.”

As always, there’s more to come…. And, please feel free to comment anytime if you agree or disagree or if you have any questions or subjects you’d like me to cover in the future.