The following is a guest post from David Taylor, friend to the firm and direct sales industry expert.
by David Taylor, Co-Founder & CEO, Launchsmart
In our practice we often notice confusion among new entrants to the industry about how party plans and multi-level marketing (mlm)-style companies differ, especially with regard to compensation. Often it is a company just starting out and seeking to become one of these, but not really knowing how to differentiate from the other.
Here’s a handy list we put together that may shed some light for newbies and a good refresher for those more experienced. Enjoy.
|Product / Income||Distributors are often less focused on the features and benefits of the product and more focused on the income opportunity. Reasons they join and reasons they will stay tend to align accordingly. This model demands careful market segmentation and understanding of the differences in categories of people who join.||Consultants show a tendency toward product features and benefits and social circles and less marketing focus on the income opportunity. In fact, many will do parties to support their “addiction” to the products and their enjoyment of social settings and interactions. Reasons they join and reasons they stay tend to align accordingly.|
|What is REALLY being sold||What is REALLY being sold is an income opportunity combined with the conviction that unique products can reach faster market penetration through consumer-direct marketing.||What is REALLY being sold is a social experience – a new group of friends, nights out from home, the fun of the party, and the joy of the product.|
|Retail versus downline building||Distributors tend to focus on building large downline organizations that result in commissions that flow from product margins. Good compensation plans reward selling, recruiting, managing, leading and retaining.||Consultants tend to focus more on profit margins of retail sales at their parties, and less on building large downline organizations, with smaller profit margins shared among consultants. Hostesses are rewarded with discounts and free products.|
|In-home experience||Distributors will use in-home experiences to introduce prospects to their business opportunity and to demonstrate their product. These demonstrations tend to be simple and require less training for the distributor.||The in-home experience (the party) is central to the entire concept. It has to be done right to be successful and has to be fun and entertaining for participants to attend. This often requires detailed training for consultants and significant hostess support.|
|Men vs. women||The majority of the “big builders” are men or couples working together – although this is changing, with more women achieving top-level income.||Direct Selling Statistics place the number of women working in direct selling overall at 85.2% and men at 14.8%. In Party Plan companies alone, women comprise more than 90% of all sellers.|
|Compensation plan elements||No hostess reward program required.||Hostess reward program is required – and is vital as a competitive differentiator.|
|Recruiting and duplication||Distributors must work with large prospect pools and realize that very few will emerge as true income earners – most will be product users only.||Consultants work carefully at each party to identify at least two additional hostesses and one potential consultant. The growth model occurs more slowly than an MLM but is also more natural and steady.|
|Relationships||Distributors tend to have a much broader downline family and maintain close working relationships with only a few who demonstrate earning potential.||Successful consultants maintain long-term relationships with hostesses, customers, and consultants they recruit. There is much more personal mentoring as a general rule and more repeat business transactions.|
|Retention||Retention rates in Multilevel marketing companies are 20% average annual retention. In other words, out of 100 distributors who join in January, only 20 will still be active in December.||Retention rates in Party Plan companies weigh in much better than MLM at 40% annual retention on average.|