Wednesday, October 10, 2007

Network Marketing Distributors: How to Discover if Your MLM Compensation Plan Has Breakage

Network Marketing Distributors: How to Discover if Your MLM Compensation Plan Has Breakage

All network marketing distributors want to be involved in a MLM opportunity they can build right and big the first time and then retire. However, for many people, this dream seems to be quite elusive. They struggle and fall so much that they give up. The truth is, if the cards are stacked against you in the first place, you’ll just not be able to make it.

You see, you very well could be involved in a company’s whose negative business model drives negative and unsuccessful results in the field. You probably are wondering what I am talking about. Let’s take a close look at how a compensation plan can be a huge factor in this.

One thing you want to make sure of is that you NEVER have any breakage in your compensation plan. Breakage is simply money that is supposed to go to you, the distributo per the plan, but somehow reverts straight back to the company.

Here’s how it works. Let’s say there are three companies:

Company X: huge and publically traded

Company Y: huge, many years in business, but not publically traded

Company Z: been around for 5 years, but much smaller in dollar volume and number of distributors when compared to X and Y.

Keep in mind that one thing we do know is that the most experienced, successful, and proven companies which sell identical products with identical ingredients, the wholesale costs should be within nickels of each other.

But, for some reason, check out what happens:

Company X: product sells for $116 retail

Company Y: product sells for $104 retail

Company Z: product sells for $40 retail

Hmmmmmm. Not looking too good is it? As a matter of fact, it looks like companies X and Y’s distributors are going to have a difficult time selling their pricey products. Herein lies the problem. If you ask any network marketing distributor if they have ever sold a product at retail price, many times the answer is “no”. This is because of the steep price. So, the reps for these two companies have no choice but to keep signing up distributors (who catch a break with a wholesale price) because most average folks can’t afford that ridiculously high retail price!

You might be asking, why such a huge price disparity? Well, let’s see. Company Y, while not publically traded like company X (set up before the internet) has excellent customer service. Company Z, formed just a few years ago, has an automated model without tons of phone operators. As a matter of fact, about 97% of their orders are placed online.

The end result is that company X and Y have huge overhead costs such as personnel, salaries, training, insurance policies, workman’s compensation, vacation time, etc. As you can imagine, this can be quite expensive!

So, how can company Z retail the EXACT same product for $40? Well, it is simple. The overhead is thousands of dollars lower. Unfortunately, since the network marketing distributors in companies X and Y can’t retail products, they constantly have to recruit so that people can join and get the wholesale deal.

Are you beginning to see why there is so much frustration and failing going on in many mlm companies? The breakage is sucking the life out of network marketers distributors paycheck and going straight back to the companies to cover costs. They are forced to recruit, recruit, and recruit more instead of having a plan where there is a nice balance between retailing and recruiting.

So, do some research. Compare you compensation plan with other companies. Make sure there is NO breakage. If there is, it very well could be that it’s time find a new home.

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