I was in bed dozing off when I remembered my days in the MLM newsletter world and I though this topic would make a good blog post.
I remembered - for some reason I can’t figure out - a company that attracted people by saying their pay plan paid out 110%
Really.
So I made the headline “MLM Pay Plan Pays 200% Commission” to discuss how this is possible.
Just because it’s possible doesn’t mean it’s ethical… just possible.
As my friend Tom Schreiter tried to hammer through my thick skull … MLM companies can only pay out a percentage of what they take in.
On average, a companies pay out about 50%. They have to keep the other 50% to 1) pay for the product and 2) cover their expenses plus profit.
So how does my imaginary company pay out “200%”?
Do you ever see MLM products with “Point Value” or “Commissionable Value”?
That’s the little detail that makes this all possible, however deceptive.
Since - in reality - companies cannot pay out more than their product cost and operating expenses unless they are a charity the answer must have been in the PV or CV.
That company supposedly paying out 200%, 110% or whatever was paying out 200% of the COMMISSIONABLE VALUE at best.
(There’s actually breakage in compensation plans that make this even more unlikely, but that’s another post).
Example… Which MLM company is paying out more to the “field” for the same product? For this discussion, the product, distributor price, product cost, and operating expenses are all the same. The only difference is the compensation plan. We assume there is no “breakage” and each plan pays out the maximum.
Company A pays out “200%” through it’s distributor lines. Their product costs $50 with a $10 “Commissionable Value” per bottle.
Company B doesn’t have a “commission value”. They have a 50% compensation plan based on the distributor cost.
Answer: Company B pays more overall to the field.
Company A paid out 200% of $10… $20. This left $30 for the company to cover product cost, overhead, and profit.
Company B paid out $25. This left $25 to cover the same product cost and overhead expense and produced less profit for the company and more for the distributor force.
That’s how a company can “claim” to pay an unrealisitcally high percentage through a compensation plan.
Note: There is a legitimate purpose in having a commissionable value. It allows the distributor price to be kept in a competitive range. It’s not always there for a nefarious purpose!
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