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.