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Dorothy Neddermeyer
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Dorothy Neddermeyer   My Press Releases

Everyone Reaps the Benefits of Multilevel Marketing Business vs Paying The Price At the Register

Published on 12/22/2017
For additional information  Click Here

Three levels of businesses are reaping the profits of the products or food you buy.  The details of each level and function is listed below.  As you will note the middle level and functions add a big increase in the price of the product.  And of course, the consumer pays for each level of increase. Along comes Multilevel Marketing (MLM) Distribution--i.e. YOU. You reap the benefit of a wholesale price from the manufacturer, because as a MLM distributor there is little overhead thus, you the Distributor and consumer benefit.

For Example:

?Product Manufacturer  ?Associate (YOU - equivalent of box store)    ?? Consumer        

 

Traditional Product Distribution:

Manufacturer - Distributor (Wholesaler) Distributor - Dealer (Retailer)

Levels and functions:

There are three classical distribution levels that provide needed functions. They are commonly called the (1) Manufacturer; (2) Distributor (Wholesaler); and (3) Dealer (Retailer) levels, or functions.

  1. Manufacturers are willing to make products so their customers don’t have to make their own. The idea is that end buyers (these can be consumers, businesses, or governments) can save considerable time and money buying products made by others and investing the time and money savings in whatever they choose. Manufacturers are willing to do this because they can earn profits to improve the lives of their owners, executives, customers, and employees. To earn the money they need to pay their costs and expenses and earn a reasonable profit, manufacturers typically sell their products for twice their costs, or a Gross Profit Margin of 50%. While gross profit margins can vary from this “typical” number, manufacturers need to understand the justifications for deviating from this target. To be efficient and keep their prices at “affordable” levels, most manufacturers need to make products in large quantities. There are manufacturers that do custom or small quantity work, but they have to charge custom prices to survive and thrive.
  2. Distributors. Since only the largest dealers and end buyers can buy products in the quantities manufacturers need to profitably sell them, an opportunity is created for distributors. Distributors typically acquire inexpensive warehouse space in industrial areas that are near transportation centers so they can easily receive goods from manufacturers and ship them to dealers. They also like to sell items in quantity, but exist to sell smaller quantities to lots of dealers that either cannot afford, or do not have the space for, the large quantities retailers would have to buy directly from manufacturers. Therefore, distributors perform a “warehousing” function where they become the warehouses for manufacturers and for their dealer customers. That is their reason for existing. To do this work, they typically need Gross Profit Margins (GPM) of 10 to 15%. The price they need to charge dealers to earn a 15% GPM is 1.18 times the price they pay for products from the manufacturer (1.18C-C)/1.18C = 0.15.
  3. Dealers. Unless they are very big retail chains that can afford to have their own warehouses and distribution systems, dealers tend to buy smaller quantities than manufacturers need to profitably sell, but larger quantities than end buyers want to buy. They add value by locating their stores or offices near where end buyers live, work, and travel. Convenience is their overwhelming added value function. For example, if prospective buyers want to buy a washer or dryer, they can go to a local store that may have some models to show them, but that store typically does not have the space to carry all the inventory of products they sell. They can get these on short notice from distributor warehouses. Depending on the after-sale support they have to provide their customers, dealers often need 30 to 50% Gross Profit Margins. A very typical dealer GPM is 33%. To realize that margin, Dealers sell products for 1.5 times the price they pay the Distributor.

Big Dealers or “Big Box” stores:

A combination of distributor and dealer has evolved over time. It is often called a 'Big Box' store, or a big dealer. It usually occupies a very large space to perform the distribution (warehousing) function and has cash registers and staffed locations to provide the dealer (convenience) function. It is usually not quite as convenient as a local store (unless one is located near where you live or work). Examples include Target, Wal-Mart, Costco, Lowes and Home Depot. Buyers are willing to sacrifice some convenience (by traveling longer distances) to save money since most of the Big Box stores sell products at lower prices than local stores, and buyers can get most of what they want from one place during a single trip.

Channels:

While there are many channels through which products can be conveniently sold, four basic channels dominate the flow of products from manufacturer to end buyer (consumer).

  1. Direct Marketing direct channel. Manufacturers can sell direct to end buyers using direct marketing methods such as Direct mail, Telemarketing, Direct Response Advertising, and Web sites. Direct marketing involves no in-person, face-to-face interaction between buyer and seller.
  2. Manufacturer’s Sales Force direct channel. It is quite costly to sell products direct to end buyers using a sales force. The latest data from McGraw Hill, pegs the cost of an industrial sales call at just over $589. And it takes 5 calls, on average, to close a sale (it’s actually 4.3, but it is not possible to make a fraction of a call). Therefore, unless you are selling Boeing 787 aircraft and communications satellites or truckloads of Hostess Twinkies, this channel is quite expensive and cries for a good return on investment for justification. Since manufacturers typically need a price of twice their costs to make money, the end buyer price through both direct channels is typically 2 times their cost of sales, with variations for mitigating factors.
  3. Two middle people indirect channel – Distributor and Dealer. To support a distributor and dealer selling products, this channel typically requires an end buyer list price of 4 or 5 times the manufacturer’s cost of sales.
  4. One middle person indirect channel – Big Box Store, Value-Added Dealer, or Franchisee. To support one middle person reselling a manufacturer’s product, the price required is typically 3 times the manufacturer’s cost of sales. Franchise operations, or any operations that have one middle person, follow this model.

Multilevel Marketing:

Multilevel marketing shares the wealth in a network of people bringing the product or service to the consumer. There are four (4) most popular MLM Compensation Plans:
 
  • Stairstep Breakaway Plan. The Stairstep Breakaway Plan is the oldest multilevel marketing compensation plan.
  • Unilevel Plan. The unilevel compensation plan is one of the most basic MLM compensation plans available today.
  • Matrix Plan. 
  • Binary Plan.
 
You are probably wondering which MLM compensation plan is best. There is no one-size-fits-all answer. It depends on your personality and what you desire to achieve from your MLM? business.

Remember apart from retail profit where applicable, an MLM  compensation plan pays you for a combination of product sales and sales management. Thus, if you are more of a traditional salesperson who can move tons of products, it may be advisable to go with the company that pays more for product sales than for managing sales teams.

If you want to make it big study the compensation plan of any company to find the plan that suits your style before joining.

Remember that deciding to join a network marketing company solely on the basis of its compensation plan can be disastrous. 

Consider these factors.
 
  1. The History of the company
  2. Management integrity and experience
  3. Membership of the Direct Selling Association (DSA)
  4. Company capitalization - Is capitalization adequate?
  5. Availability of the product or service
  6. Demand for the products or service
  7. The nature of the product or service
  8. Replacement buying - Are you currently using the equilavent  product offered by the company you are evaluating?
  9. Belief in the product or Service - Are you a strong believer in the product or service?
  10. The company's compensation plan - What aspect of this product or service pays the most--recruiting or the sale of products/service?
      
  11. Technology - Does the company's marketing system take full advantage of technology?
      
  12. Is your potential sponsor committed to your success? - How many people does he/she recruit per month?
      
  13. Can I meet my goals working part time initially? - The plan needs to fit your needs.
     
     
    This list is by all means not exhaustive.  What factors not listed here are important to you? BE diligent to find the answer to your questions. If you take these factors into consideration when evaluating a network marketing company, you will be able to come to an informed decision.
 
The final decision, of course, is yours, so do make sure you look at as many factors as you can. Then in the end and without fail nothing is perfect all the time. 

Related article:

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