By Jay Leisner, President, Sylvina Consulting
As a business consultant, I am often asked about the differences between an MLM company and a home party plan company.
Both types of companies have an independent sales force who earn commissions on personal sales and bonuses on the sales of others.
However, there are important differences between them in naming conventions, sales techniques, compensation, productivity, income and customer characteristics.
Naming Conventions
MLM Companies tend to refer to their sales representatives as distributors, associates, IBO’s, and independent agents. These are male-sounding words with action implied. It’s no coincidence that the average MLM sales rep is a man.
Home party plan companies use terms like consultant, demonstrator, stylist, and counselor. These are feminine terms. About 98% of home party representatives are women.
In creating your company, think about the composition of your sales force. If most will be men or most will be women, it would be wise to give the representative a name them fits them.
Sales Techniques
MLM representatives typically sell products and services one-to-one, whereas home party plan representatives use the group selling approach.
If your product sells best when it is demonstrated or explained, a home party plan format may be a good fit for you.
However, if in an average group of potential customers, less than 80% will buy at least one item, then the home party plan format may not work well for you.
Compensation
MLM and home party companies each have compensation plans by which their sales representatives are compensated. The compensation plan for either type of company should be built with consideration for the company’s margins and the types, pricing, and consumption patterns of the products.
Productivity
Annually, MLM representatives typically generate about $500 to $1000 per head in sales for the company.
Home party plan representatives, on the other hand, generate between $8,000 and $15,000 in sales per head each year.
So, a home party plan company with 1,000 representatives can generate the same amount of sales for a company as an MLM company with 10,000 representatives.
Customer Characteristics
Within most MLM companies, the sales representative is the customer. In these companies, generally there is very little retailing of product to non-participants. Instead, the sales rep is encouraged to sign-up for an AutoShip program which will create residual income for upline participants.
Conversely, home party plan representatives are encouraged to sell their products and services to customers who are not representatives. Personal consumption by reps is a very small portion of the company’s sales.
Income
Since most MLM companies don’t have a strong customer base, the only way to earn money as an MLM rep is to recruit others who buy products from the company for personal use. Without a retailing component, if you don’t recruit, you won’t earn any money.
Home party plan representatives can earn significant income by selling without recruiting. In fact, the average home party plan participant who earns $300 to $500 per month earns little or nothing on the sales of others.
Conclusion
The business model you select is important, for each motivates and rewards different behaviors.
Jay Leisner is President of Sylvina Consulting, a business and software consulting firm with more than 19 years of experience working with over 200 direct selling, home party plan and multilevel marketing companies.
To request success tips on launching and growing a direct selling company, visit www.sylvina.com or contact Sylvina Consulting directly at 503.244.8787.
