MLM Business Models; Mystery or Magic?

With over $110 billion in annual revenues, Network Marketing is a thriving industry, albeit MLM business models have historically been overlooked.

In this economy, people are looking for and realizing a way not only to supplement but to replace their traditional income streams.

MLM companies save billions alone in marketing and advertising costs with direct sales and multi-level compensation methods.

But there always seems to be a tug of war between these companies and their distributors, without whom there would be no sales.

And the company, owners, and top 2% of the distributors most often get the lions share of the profits.

What is usually difficult to see are the facts beyond the hype, smoke and mirrors in many companys’ pitches to draw new recruits into its MLM business models.

So let’s take a look at the basic MLM business model’s used in the last 30 years in most all network marketing companies.

Old-School MLM Business Models

In this most common model, the company keeps 60% to 70% of the profits and the remaining 30% to 40% is retained for the distributors. The largest portion of this 30 to 40% is paid to the heavy hitters, which are among the top 2 to 5% of the company’s distributor base.

In this model, you will typically need 2,500 to 5,000 active team members (meaning on auto-ship) to have an income of $10,000 per month on the back end (residual) part of the pay plan, or 1200 to 2500 to reach $5000 per month.*

New-School MLM Business Models

More recently founded companies have begun to split the profits more fairly with its distributor base, giving 50% of the profits to the distributors.  Still, most of this is reserved for the top heavy hitters of the company’s distributors.

You’d typically need 2,500 to 3,000 active team members to have an income of $10,000 per month on the back end, or 1200 to 1500 to reach $5000 per month.*

Next Generation MLM Business Models

This is a much newer model, whereby a streamlined company affords its distributors 50% to 60% of the profits. This allows the average distributor to make more money, and a highly ethical company will not reserve 98% of that percentage to the top 2% of its distributors.

In this model, you’d typically need 400 to 1,500 active team members to have an income of $10,000 per month, or 250 to 725 to reach $5000 per month.*

* Earnings representations are examples. Individual earnings potential depends on a variety of factors including effort, marketing, abilities and time spent working.

Taking A Closer Look

Can a company really afford to pay the largest share of the profits to the distributors? The answer is most definitely Yes.

That is, provided the company consistently trims the “fat” in the budget. The more “fat” a company has, the less the company can put back into the distributors compensation plan.

Some of the “fat” companies have (many of these may sound familiar) are:

• Private jets
• Lavish offices (maintenance alone is extremely costly!)
• Large number of salaried employees
• High-interest from outside funding sources
• Paid celebrity and national sports team endorsements
• Allegiance to stock holders vs the distributors
• Spending millions on convention props (including luxury buses for top distributors, etc)

Money spent on all of these things is what keeps most of it out of the hands of the distributors. This is what keeps the distributor payout percentage low as in the Traditional and New School MLM business models.

Keep your eyes peeled for a company bragging about these things, or making income claims!

When sales increase in a non-streamlined company the overhead increases at the same rate.

As the sales increase in a streamlined company, the overhead should remain consistently low, allowing the extra profits to go directly in the distributor pay plan.

And the pay plan should reward the average distributor who is working part time, and be less heavily weighted for the top 2% of the distributor base who are heavy hitters.

Determine Your Driving Force in Choosing MLM Business Models

As a distributor in network marketing, your driving motivation requires you to want to make money.

And your desire for freedom should have your desire for a residual retirement income

The time you spend building this business is ultimately for a reason other than owning money, a reason that would ultimately allow you to use and enjoy that money.

It is for that reason, that need for freedom from financial debt and constraints that you need to get to your target income as soon as possible.

You do not want to have to work ten times harder to reach your desired goal if you don’t have to.

Most distributors take most of the first year or even two getting educated, gaining confidence, and sponsoring their first few distributors.

It is usually after that first year or two that the momentum changes.

But sadly, many people give up before this point.

In order to avoid this pain, you want to be educated about a company before building a business with that company. And moreover, you should expect to be educating yourself in the required skills before you can expect real success.

Even with great and wonderful products, these are things you can buy as a customer of those companies, the company’s business model or product should not be what determines your own business plan.

It is a given that any success in network marketing does depend on the highest quality products, but this should be in combination with the best possible compensation plan.

Once you reach your desired level of success you can buy any number of high quality products!

Smoke and Mirrors

You want to be able to see past the smoke and mirrors that make up the hype about a company’s compensation plan.

Let’s face it. Most of us never considered this before joining our first MLM company, or even the next few.

But if you are seriously considering building a long term residual income, one on which you really can retire, it behooves you to consider the company’s business model.

Although you have no control over the MLM business models that companies use, you do have control of deciding whether to work for that company or not.

And if you realize that there are people who can offer the next generation pay plan while you are offering one that would require a distributor to work ten times harder, wouldn’t you have difficulty competing for the sponsorship of that distributor?

So, if you want to build fast, and retire big, the first thing you want to do when considering a network marketing company is to find out which business model a network marketing company is using, and what rewards are available to those who are in their first or second year of actual growth.

Don’t let the MLM business models of the past slow down your retirement with attrition as people leave to join the next shiny object.  Give yourself and your team a company that has no debt, invested over $100M in a 400,000 sq. ft manufacturing plant and makes money producing product for other companies such as GNC, Vitamin Shoppe, Costco, and over 40 other network marketing companies, one that does not need to make its money from selling its own products or off of the backs of its distributors.

If you are interested in a company that pays out 67 cents on the wholesale dollar to it s distributors, and knows how to beat the competition in product quality, then see what Sisel International has to offer.