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You are here: Home / Compensation Plans / Direct Selling: How To Sell Less Profitable Products

Direct Selling: How To Sell Less Profitable Products

October 4, 2016 By admin Leave a Comment

As compensation plan experts, we always ask our clients about the costs of their products and services relative to retail or wholesale prices.

We’ve written extensively about the importance of the multiplier, the ratio of retail price divided by landed cost. The multiplier and the targeted pre-tax profit for the company determine the funds available in the budget for total field compensation.

These are important topics for MLM startups and party plan startup companies.

Varying Costs

For some direct selling companies, there is great variability in their multipliers.  Some of their products are able to be marked up significantly more times than others.  In this post, I will suggest several strategies you may wish to consider if your company also has varying multipliers.

First, let’s begin with three definitions:

  1. Price – this is the price that a customer will pay for a product
  2. Commissionable Volume (CV) – this is the basis upon which compensation will be paid to independent representatives
  3. Qualifying Volume (QV) – this is the number of points for qualification purposes that will be generated when the product is sold

Strategies

Here are the strategies we suggest for consideration to our clients with wide-ranging multipliers:

Reduce Commissionable Volume

Set the Commissionable Volume to a percentage of the price, based upon the multiplier.  The higher the multiplier, the higher CV will be as a percentage of the price.  Calculate these percentages either on individual products or by product classification using the average multiplier per product class.

Average Multiplier

Calculate the expected average multiplier for all product sales, and use this average multiplier in calculating the CV of all products the company will sell.  This is an option if you have a high degree of certainty in predicting your sales mix by the multiplier.

Bundling

Don’t sell lower multiplier items by themselves.  Only sell lower multiplier items together with higher multiplier items as a package.  Calculate the CV for the bundled items based upon a multiplier calculated using the total bundled costs and the price set for each bundle.

Make Lower Multiple Items Non-Commissionable

If yours is a party plan company and you have just a few lower multiplier items, make them available only as hostess special items in which case no QV or CV could be generated when they are purchased.

However, if yours is a network marketing company or you have many lower multiplier items, this strategy is probably not an option.

Raise Prices

Increase the prices of these less profitable items to make them more profitable with the expectation that you will sell fewer of them at higher prices.

Don’t Sell Lower Multiplier Items

Make the decision that these items aren’t a good fit for your direct selling business, and either sell them in another business or choose not to sell them at all.

About Qualification Volume (QV)

When you set the Commissionable Volume (CV) of a product, in addition to setting the price, you will also need to make a decision on how you will determine the Qualification Volume (QV) for each product.

QV is the measurement of how much each product or package counts towards compensation plan requirements (personal sales volume, group sales volume, leg volume, organization volume, etc.).

These are the strategies we suggest for consideration to our clients with wide-ranging multipliers:

QV = Fixed Percentage of Price

You may choose to set the QV equal to a fixed percentage of the price of each product.  The percentage could be 100% or less.  Taking this approach will not discourage representatives from buying or selling lower multiplier items.

QV = CV

Another option is to set the QV equal to the CV for each product.  While this would make your compensation plan easier to understand, it will cause your independent representatives to be discouraged from buying or selling these items because they will count less toward meeting qualification requirements.

Vary QV

Set the value of QV of each product independently.  For the products you wish to sell more frequently, set the QV as a higher percentage of the price as compared to other products.

You Have Choices

While having less profitable items is not ideal, the good news is that you have choices.  For help making yours, contact Sylvina Consulting.

 

Filed Under: Compensation Plans, Hostesses Tagged With: compensation plan, direct selling, less profitable

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 network marketing, party plan and referral marketing companies across the globe.

Direct Selling Startup GuideJay Leisner and Victoria Dohr authored the top-rated book for new and young network marketing, referral 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.

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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