People increasingly choose the MLM type of business to become successful or initiate a startup. This tendency has its own reasons for this. For more than a century of MLM’s existence, it has taken a worthy and significant place in the global economy. After all, MLM business is a model with many advantages over traditional retail sales. MLM giants with a long history have earned the trust of consumers and partners who have become part of these business systems. However, along with MLM’s good standing, some false beliefs have taken root in the public consciousness.
Examples are that an MLM business is a pyramid scheme that is simply a game that inevitably fails. But most often, pyramid schemes are systems with no product; all it takes is a money investment. Although some pyramid schemes do have a product, they are used to disguise the money game. To avoid becoming a victim of scammers, one should thoroughly research the company that they plan to work with. This is also necessary to make the right choice and select the most advantageous offer in the market that corresponds to your demands, development plans and intended financial prospects.
According to 2018 financial metrics, for instance, a company such as Amway ranks third on this list with $8.8 billion in revenue. Fifth place is taken by the network giant Herbalife with $4.9 billion in sales. What are the main aspects to focus on when choosing an MLM company to avoid disappointment and achieve the desired result? Here are three main parameters that we recommend considering:
-the age of enterprise;
-marketing plan;
-manufactured products.
Any company goes through several stages of its development, which is why the number of years it has been on the market plays a role. Experts say that about 50% of companies disappear entirely from the market in the first three years. The 12-year mark is not passed by about 95% of companies. Thus, companies that have been operating in the market for less than that period fall into a risky category. Those companies that have managed to stay afloat for 20 years will continue expanding. Certainly, there could be crises, but they are less affected because the company has developed a strategy over a long period to get out of difficult situations. There is another opinion, according to which the age of an enterprise, i.e. the longstanding of the company’s activity on the market, may lead to oversaturation. It is extremely difficult for distributors to develop a network in this case. In terms of this criterion, Amway stands out in the global market. Amway is an international manufacturer of personal care products, household chemicals, cosmetics, dietary supplements and household items. The company was founded in 1959 and has been on the market for over 60 years. It operates on six continents, in 100 countries around the world. More than 3 million people earn money by becoming an Amway affiliate.
Companies such as Nu Skin and Herbalife are a little younger than Amway. Nu Skin was founded in Utah, the USA, in 1984 and Herbalife in 1980. These companies have long crossed the dangerous line and have been on the market for about 40 years. They have entered a phase of stable business development. During this time, they have gained credibility and international fame. As for Herbalife Nutrition, it is represented, like Amway, in almost 100 countries.
It is worth noting the companies that have not been on the market for such a long time but have crossed the 20-year mark. At this boundary, the business structure enters a period of expansive growth; the company begins to gain momentum and enter new markets quickly. One of the companies as such is the Coral Club. It was founded in 1998 in Toronto, Canada. The company’s production facilities are located in the five top countries of the world – America, Canada, France, Germany, and Japan. Thus, those who decide to become part of this business system will gain the potential of conducting international business.
It is much more challenging to analyze the other two criteria, mainly the products and the marketing plan. With regard to products, sometimes the announced and advertised quality of products does not match the factual qualities. It is not easy to comprehend a marketing plan of a company, and even if you succeed, some “pitfalls” will emerge during cooperation with the company and become an “unpleasant surprise”.
With all the seeming diversity of offerings in the MLM industry, companies in this field use four varieties of marketing plans or a combination thereof:
– The Unilevel Plan;
– “Grade – point of separation” Plan;
– Binary Plan;
– Matrix Plan.
A binary type of marketing plan is termed binary because no more than two teams or two branches are organized. That said, this marketing plan does not limit network development in depth, which means that each unit can have an unlimited number of levels. As the level goes down, the payouts also decrease. Therefore, this marketing plan could be unprofitable. This principle is often used in pyramid schemes, leaving most of the profit for those who join the company first.
The Unilevel plan is the most transparent one because it has a fixed depth of the structure, for example, 3 or 5 levels, up to 10 levels. It has no limits in width; the network of agents can expand to infinity. Each member has a fixed percentage of profits and the number of new agents.
“Grade – point of separation” Plan is one of the oldest marketing plans in MLM-business. Its main point is moving the agent to a different commission system once he has reached a certain sales plan. More sales – more payments. It has no limitations in depth or breadth.
The matrix-type marketing plan is a new phenomenon that emerged relatively recently. A matrix is a condition for its participants to fill in according to a pattern: 2-4-8-16. Members get motivated for sales and engagement only when it is entirely populated. One of the few drawbacks of this plan is it usually has a depth limit. To put it simply, payment is continuous only up to some level.
According to a sample of 180 of the most thriving MLM companies in the United States, the prevalence of these marketing plans is as follows, binary – 6%; matrix plans – 12%, unilever- 18%, “grade – point of separation” – 64%. Let’s look at the above MLM companies in terms of the marketing plan and products parameters.
Amway
Amway has a wide range of products on the market. It offers about 115 products in 5 different categories: personal care, home care, nutrition and wellness, cosmetics and gift catalog. Amway products are designed for a wide range of consumers; nevertheless, most consumers are women.
It is considered that one of the disadvantages of Amway products is its price policy, the products are costly. It is explained by the high quality of the products and that they are high concentrated. But similar products are widely available on the market, perhaps, not of such high quality, but much cheaper. Therefore, it is difficult to sell products with this pricing policy, only certain social categories of people can afford that.
The company’s strong marketing plan involves signing up partners in both depth and breadth without any limitations. As with other companies, the graded block of the marketing plan requires confirmation of monthly turnover. Also, once the partner reaches a similar rank as yours, you no longer receive a percentage from their turnover. This causes reluctance to help partners to move higher, given that the company has a low rate of passive income – 4%. As for the wholesale income (from 3% to 21%) starts at 200 points.
In the case of Amway, its long history in the market has both its advantages and disadvantages. The market is crowded with distributors, so it takes time to grow as an affiliate with the company, which certainly affects the amount of income. An upside of the marketing plan can be an opportunity to participate in the company’s profits, but it is available only to the upper level, which is about 1%. Disadvantages when cooperating with companies are hidden costs; in the case of Amway, delivery costs fall into this category.
Herbalife
Herbalife has been on the market for over 40 years. However, it is one of those cases when the company’s age does not mean much, and one should pay close attention to its reputation. After all, Herbalife has become a party to numerous lawsuits over this period and that does not add credibility to the company. Although, recently, the company has taken steps to reduce the negative reviews. This applies to both product quality and their marketing plan. At the beginning of cooperating with Herbalife, it is required to buy a mini package of the company or a more extended version, a standard package for Herbalife members.
The peculiarity of the company’s marketing plan is different discounts for products, depending on the rank of the partner. The minimum discount is 25%, which becomes available to a partner if s/he reaches 400 points turnover. With an increase in turnover, the product discount grows up to 50%. The supervisor gets this discount if he reaches 2,500 points turnover. These conditions how that the newcomer does not start on equal terms; higher-level distributors who receive higher discounts can sell the product cheaper, making it difficult to sell any product to an entry-level distributor. Also, the company does not disclose the number of distributors working on a particular territory. The company’s passive income or royalty is not high; it can go up to 5% on the first three levels of the network. It takes the supervisor level to start benefiting from this profit.
Nu Skin
Nu Skin’s range of products is very diverse. The company develops, manufactures and sells over 400 products. At the same time, they continuously expand the scope of their products. They are classified by anti-aging systems, equipment and supplies for spa procedures, skin, face, hair and mouth care products, and various cosmetics. With all the variety, the primary consumers of the products are women. Therefore, it could be somewhat tricky if you have decided to build a business with this company but do not use the products yourself.
Clearly, they produce high-quality products, but they are pricy. Therefore, it is not very easy to sell products, and it takes the skill of presenting them and keeping in mind that it is not only about cosmetics but also equipment. Nu Skin marketing consists of two classic schemes, the “Grade – point of separation” and “Peer-to-peer marketing – Unilevel.” The brand’s official website warns that it won’t be easy to make a lot of money. This is evidenced by the marketing plan blocks that must be met to earn a certain amount of reward.
For instance, to get leader bonuses which are 10% of the premium volume of 1st generation groups and 5% of all groups (up to 6th generation), you must close more than six blocks per month. If you have completed fewer blocks, the bonus size will be 2.5% of the premium volume of all groups up to the 6-th generation. A percentage of 5-10% is a pretty good level and the payment from six generations is also good, but there is a condition, the failure to comply with which significantly reduces income. To become an independent distributor, which allows you to create your own network, you must earn 2,500 points. At the same time, it is considered a good indicator that one point equals one dollar in the company. According to a review of the company’s premium compensation in the EMEA region, brand representatives have the largest share in the structure, with more than 55% earning just over $500. More than 20% of partners have an income of $800 and nearly 14% earn about $1,600.
Coral Club
As noted earlier, the company’s range of products greatly influences the turnover of the distributor. In this context, the advantage of Coral Club is that the products address all human needs in maintaining a healthy lifestyle. Coral Club offers a wide range of products, from improving drinking water quality to supplementing vitamin and mineral deficiencies. Their products are high quality, and they continuously improve the quality and introduce innovations on a scientific basis.
The upside for Coral Club distributors is in the absence of hidden costs, such as product delivery costs, for instance. The company makes the delivery and is organized well enough in most countries. The consumer usually pays delivery costs, but there are various options depending on the ordering method and the country.
Coral Club has been on the market for over 20 years, and it has earned the trust of customers and a particular market segment over the period. It is big enough with no market oversaturation, which is very lucrative for the new partners. It should be noted that the company’s marketing plan has both advantages and disadvantages. One of the advantages is a high fixed percentage for partners, up to 38%. This, in turn, eliminates possible reluctance of the upper-level partner to promote the ranks of the junior-level partner. It is advantageous for him that the network grows, respectively, and the rank of the partner, because the percentage of his volume will increase too.
In some MLM companies, but not in all, distributors begin receiving income from the first months of activity. It is not necessary to fulfill any requirements to perform the volume of turnover. Coral Club requires at least 500 points turnover (around $ 750) to start getting income. That is, you need to reach the rank of “director,” the first rank in the company’s hierarchy.
Coral Club’s marketing plan combines two types of programs, “Grade – point of separation” and “Peer-to-peer marketing – Unilevel.” To be able to separate into an independent network, the partner needs to generate a turnover of 500 points; in other words, all it takes is to reach the rank of “director.” The disadvantage is that the upper-level partner is deprived of this volume of turnover from that moment on. There are no perfect companies. It is all about choosing a company, marketing plan strategy that meets your ambitions, capacity, the ratio of effort expended, and the desired income level.