Why Price Markup is Essential For Your Long Term Profitability in MLM

Long term residual income is the big promise of MLM. It can’t achieved if you have to build it over and over again. It can only be achieved if you are in a company that will be here for the long haul.

There is a saying that goes “Lies, damn lies, and statistics”… I don’t know if this is true but I have heard that 90% of new network marketing companies will not last two years, and 90% of those remaining will not last for four years.

That’s a 99% failure rate for new network marketing companies in the first 4 years!

The recent iLearningGlobal termination of its MLM pay plan is a classic example. It did not last 2 years as a network marketing company, and it was one of the biggest companies in recent history to fail in such a short period of time.

Still think joining a ground floor opportunity is a good idea?…

So what makes an MLM company last the distance?

You may be surprised, but price markup is one of the most important factors in regards to company longevity.

Nearly all companies with longevity and high revenue all have one thing in common – their products all serve the same markets.

In September 2009, Direct Selling News published a list of the top network marketing / direct selling companies. Here are the top 10 MLM companies in terms of yearly revenue.

1. Avon – Est. 1886 – $10.9 Billion
2. Amway – Est. 1959 – $8.2 Billion
3. Vorwerk & Co. – Est. 1883 – $3.4 Billion
4. Mary Kay – Est. 1963 – $2.6 Billion
5. Herbalife – Est. 1980 – $2.4 Billion
6. Primerica Financial Services – Est. 1977 – $2.2 Billion
7. Tupperware – Est. 1946 – $2.2 Billion
8. Natura Cosmeticos – Est. 1969 – $1.9 Billion
9. Oriflame – Est. 1967 – $1.9 Billion
10. Forever Living – Est. 1978 – $1.7 Billion

With the exception of Primerica Financial Services, all of these companies sell mass produced consumable products to their distributors.

Eight of the 10 have cosmetics and skin care as a major part of the their product line, and three also specialize in weight loss and health products.

I’m not involved in any of these companies, nor do I necessarily endorse them. But I found it very interesting how these companies (the youngest of them being 30 years old) all have products that are very cheap to produce but sell for a premium price.

You’d be amazed at the markup from the cost of manufacturing their products to the prices they sell to their distributors. A 1000% – 5000% mark up would be very common place among these companies.

So inherently these are very profitable companies. And that’s why they’ve been around for a long time, and will be here for a long time to come.

And companies that have such high margins are able to pay out more money to the field.

One of the reasons why companies that sell health, weight loss and cosmetics dominate the network marketing industry is because they reward distributors better for their business building efforts.

So what of the companies who do not have very high margins on their products or services?

Invariably, companies with low margins on their products are very recruitment driven.

Recruitment driven companies are often marketed with a lot of hype, they typically don’t survive for the long term because it’s not a sustainable business model, and they also attract the attention of the law.

One of those companies was Excel Communications.

Had Excel not filed for bankruptcy in 2004 and terminated all distributors, it was going to get shut down by the Federal Government anyway because it was a pyramid scheme.

The product was cheap long distance phone calls.

Well, here’s a question… How many distributors or customers would be required to make a decent income if long distance calls are only charged at a few cents per minute? My guess is LOTS!!

Residual income from Excel was just crap. So to make up for it, they had a “coding bonus” that rewarded distributors for recruiting more reps.

I’m not against having a coding bonus if it’s based on products. But what Excel did was package up some training kits and manuals and sold them to distributors in order to pay out their coding bonuses.

Now, network marketing law clearly states that you cannot pay multi-level commissions on tools! Excel were paying out massive commissions on these tools.

If the recruiting stopped, the income stopped. This is what got Excel into trouble.

I know I’m going to upset people with this, but the same things are still going on today with the multitude of travel MLM companies who cannot possibly make money selling travel.

They make their money, and pay commissions by charging you for access to a travel booking website. A website is a tool!

Something very similar is also happening with a new company (less than 2 years old) selling collectible coins.

The product is numismatic gold and silver coins, but coding bonuses are paid out from a “Fast Start” pack that contains a training video and other ancillary items (however necessary they are) that can be considered as tools.

In such a market, it is difficult to sell these coins at a significant markup from the market value. There’s simply no way of injecting any significant cash into the pay plan for the distributors to earn residual income.

Therefore, the plan is geared toward recruiting, which is why it’s such a “hot” hyped up opportunity right now.

To your MLM success,

Wayne Wu

 

P.S. I would love your input! If you have an opinion that would contribute to this discussion, please leave me a comment below.

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Tagged as: Amway, Long Term Residual Income, Longevity, Network Marketing Companies, Price Markup, Top 10 Mlm Companies