We took a brief look at various direct selling companies’ costs and profits last week. Analyzing their figures brings us to this industry-wide well-known concept. For those who are not that familiar with this concept, it is a numerical value showing how much retail sales is to be achieved with “one unit” of product cost.
Traditionally, this has been one of the first things that entrepreneurs look at when planning a network marketing company. Direct selling consultant Jay Leisner recommends that network marketing and party plan companies have a multiplier of five or more. That is, if you have a product cost of say $100,000, you are recommended to aim at generating at least $500,000 retail sales.
In my opinion, the “multiplier”, if it is really needed, should take into account the wholesale price instead of the retail price. My reasoning behind this:
1) In many countries, direct selling companies cannot impose the prices that individual direct sellers will sell at. They can only “recommend”.
2) In a lot of cases, direct sellers choose either to sell the products at cost or even give them for free to start a relationship with the customer that could end up with recruiting that person.
3) Last but not least, we know that in most larger direct selling companies, there is a huge crowd who sign up as distributors merely to be able to purchase the products they like at discounted prices.
This is a controversial issue, on the other hand. The industry has for a long time been criticized for using high mark ups to be able to offer higher commissions to network marketers.
Getting from here to the 11 direct sellers analyzed last week, the below chart shows how these companies mark up their products to reach wholesale prices:
Symbols: AVP= Avon, HLF = Herbalife, MTEX = Mannatech, NATU3= Natura, NATR = Nature’s Sunshine, NHTC = NHT Global, NUS = Nu Skin, ORI = Oriflame, TUP = Tupperware, USNA = USANA, YGYI = Youngevity