Your profitability as a direct selling company and the richness of your multilevel compensation plan each depend on your multiplier.
What Is A Multiplier
Your multiplier is the average number you get when you divide the retail price by your landed cost. For example, if the retail price for an item is $50 and your landed cost is $10, your multiplier would be five ($50 / $10 = 5).
The higher your multiplier, the more you can afford to pay out in-field compensation, and the more you will earn in pre-tax profit.
Sylvina Consulting recommends that network marketing and party plan companies have a multiplier of five or more. Many new companies struggle with this.
It Might Be OK
If your multiplier is less than five, but you know over time when you purchase or manufacture your products in larger quantities, you can get to having a multiplier of five or more, then you will be OK.
Don’t guess on this. The only way to know is to do the research now.
As with most rules, there are exceptions.
If your company is selling packaged food mixes or wine, their five is your four or perhaps only three and one-half. If your company will be marketing utility services where most customers buy again next month, your multiplier will be very small but the value of each customer is large over time.
No Real Retail Price
Some direct selling companies encourage retailing of their products by setting fair retail prices that people will pay if they are not interested in the income opportunity. Other direct selling companies set what we call “silly” retail prices that almost no one ever pays while encouraging everyone to join for product discounts.
While we recommend a minimum multiplier of 5 for companies with real retail prices, let’s examine what the minimum multiplier should be if it were to be based on wholesale price….
If a direct selling company’s cost of a product was $20, the retail price with a multiplier of 5 would be $100. The wholesale price, if set to 80% of the retail price, would be $80. The multiplier if expressed applicable to wholesale price, then would be 4, not 5.
Not The Minimum
Your goal should always be to work to have the highest multiplier you can get. While five is a good multiplier, you should always aim to do better. Set your end goal to have a multiplier of ten.