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You are here: Home / All Videos / How Do You Calculate Landed Cost?

How Do You Calculate Landed Cost?

February 3, 2023 By admin Leave a Comment

For a direct selling business to be profitable, it must have healthy gross margins.

While margins can be calculated in several ways, at Sylvina Consulting we like to use what we call the “multiplier.”  The multiplier is a ratio calculated as the suggested retail price of an item divided by the landed cost of the item to the company.

What You Need To Know

In this video, we will teach you how to calculate your landed cost, how to increase your multiplier (hint: there are two ways), and how to set good pricing strategies.

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 wait until later to find out if a multiplier of five will be possible.  The only way to know for sure is to do your research now.

Exceptions

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.

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.  If you do this, too, be careful.  You definitely want to have lots of customers who are not representatives of your company.

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 the wholesale price, then would be four, not five.

Conclusion

In our 250-page book Start Here:  The Guide To Building And Growing Your Direct Selling Company, in the Products/Services chapter we explain what you should be thinking about as you set the pricing strategies for your network marketing or party plan direct selling company.  Did you know our book is available in both English and Spanish?

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Filed Under: All Videos Tagged With: landed cost, multiplier, pricing strategies

About Jay Leisner

P15Jay Leisner, the President of Sylvina Consulting, is a top compensation plan and direct selling expert, a trusted adviser to new and established network marketing and party plan companies. For more than 30 years, Jay has enjoyed assessing and improving party plan and network marketing companies across the globe.

Direct Selling Startup GuideJay Leisner and Victoria Dohr authored the top-rated book for new and young network marketing and party plan companies, "Start Here: The Guide to Building and Growing Your Direct Selling Company".

Available in English and Spanish. This startup guide contains 250 pages of wisdom that will guide you through the right steps to start and continue on your journey to build a successful direct selling company.

You will save thousands of dollars and hundreds of hours of your time using the information you will read in our book.

Direct Selling Edge ConferenceSylvina Consulting and Thompson Burton sponsor the pure education "Direct Selling Edge Conference Webinar" for new and young direct selling companies. The wisest direct selling executives never stop being students. They seek out opportunities to learn more. They understand that the long-term success of their companies depends on how much they know, so they make efforts to keep learning.

Broadcast live and with recordings included for later viewing, this powerful webinar will give you buckets of wisdom and guidance to help you on your journey.

In 1986, Jay began his career in direct selling by working for a major direct selling software provider. First as a software developer and later as a project leader and a business analyst, Jay worked closely with new and established network marketing and party direct selling companies to provide them with software solutions to meet their unique requirements.

Jay contributed in many ways to the success of large implementation projects for many companies. Jay also worked with dozens of smaller companies to assist each of them in various capacities to provide them with the systems they needed to help their businesses to grow faster.

Along the way while working with them, he learned the secrets of successful direct selling companies and the challenges faced by them. In true entrepreneurial spirit, Jay’s decision in 1999 to start Sylvina Consulting as a direct selling consulting company was driven by what he saw was a need for answers, advice, and solutions.

In 2004, 2006, 2009, 2014, and 2018, Jay gave presentations on compensation plans, recognition, and field leadership development at conferences held by the US Direct Selling Association.

He traveled to South Africa in 2015, 2016, and 2017 to conduct workshops on compensation plan design and recognition programs for member companies of the South African Direct Selling Association.

In 2017, Jay spoke at the Canadian Direct Sellers Association Meeting on the importance of recognition.

More than just a compensation plan expert, Jay is exceptionally skilled at advising new and established companies on business strategies. Before offering advice or solutions, he asks important questions to understand each client’s specific concerns and goals.

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