For many years, there have been two distinct types of direct selling companies. These two types of companies have often been called network marketing companies and party plan companies.
In this article, I see network marketing as “red” and party plan as “blue”. You will soon understand why there can be no purple.
Both network marketing and party plan companies have independent sales forces who earn commissions on personal sales and bonuses on the sales to and by others. That is why both are multilevel marketing companies, because each has a multilevel compensation plan.
While similar in many ways, however, there are important differences between them in naming conventions, sales techniques, pricing strategies, compensation, and productivity.
Party plan companies use terms like consultant, demonstrator, stylist, and advisor. These are feminine terms. About 98% of home party representatives are women.
Network marketing companies tend to refer to their sales representatives as distributors, associates, independent business owners (IBOs), and independent agents. These are male-sounding words with action implied. It’s no coincidence that the average network marketing sales rep is a man.
For 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 title that fits them.
Network marketing representatives typically sell products and services one-to-one, whereas party plan representatives primarily use a group selling approach. If your product sells best when it is demonstrated or explained, a 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 party plan format may not work as well for you.
Both types of companies each have multilevel 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.
Annually, network marketing representatives typically generate about $500 to $1000 per head in sales for the company. Party plan representatives, on the other hand, generate between $5,000 and $15,000 in sales per head each year. So, a party plan company with 1,000 representatives can generate the same sales volume as a network marketing company with 10,000 or more representatives.
For most product-based network marketing companies, the sales representative is the customer. In these companies, historically there was very little selling of products to non-participants, but this is changing rapidly as a result of reactions to the 2015 and 2016 FTC judgments against Vemma and Herbalife.
If you have 25 minutes available to learn the details of these two FTC orders, watch my Vemma and Herbalife video.
Party plan representatives are encouraged to sell their products and services to customers who are not representatives. These customers purchase products at retail prices and the profit earned by the sales representatives is typically 25-30% of the prices paid by the customers.
In the old days, network marketing companies encouraged everyone to join as representatives to be able to purchase products at the lowest price. This strategy, while common in the past, is a risky one today. If you’d like to know why, read New Problem: Joining For Product Discounts.
If you offer the “best” price to everyone or provide the option to get the best price by paying a one-time preferred customer enrollment fee which is less than the enrollment fee or starter kit price required to enroll as a representative, you will remove the reason to enroll just for product discounts. This is recommended for network marketing companies, but not for party plan companies since the primary source of income for party plan reps is retail profit.
I have just presented to you reason #1 why there can be no purple. Stay tuned, I have more of them.
The compensation plan budget of network marketing and party plan companies includes compensation upon personal sales volume and compensation upon the volume of others, but the compensation mix is different.
For most party plan companies, approximately 60% of all compensation plan earnings is paid in the form of a personal sales commission. That is because the retailing of products is the primary sales force behavior. Only 40% of total compensation plan earnings is paid to the upline.
Conversely, for network marketing companies, around 20% of all compensation plan earnings is paid upon the personal sales volume of its representatives. That leaves 80% for compensation paid to the upline.
This is reason #2 why there can be no purple.
All multilevel compensation plans should include minimum personal sales productivity requirements.
For network marketing companies, traditionally this requirement has been set to equal to the volume that an independent representative would spend on monthly personal consumption ($50 to $150).
Party plan companies most often set their personal sales productivity requirements at values equal to the average sales at a home party ($250 to $700).
The minimum personal sales productivity requirement is important when setting all of the group and downline requirements of a compensation plan. As you can see, these amounts are very different. This is reason #3 why there can be no purple.
The business model you select is important for each motivates and rewards different behaviors. The pricing, sales techniques and compensation plan design approach for each model is different from the other.
While purple is a beautiful color and a favorite of many, as a direct selling and compensation plan expert, I do not believe in purple direct selling companies. A direct selling must clearly select red (network marketing) or blue (party plan) as its business model.