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You are here: Home / Business Plans / Red And Blue, But No Purple

Red And Blue, But No Purple

July 6, 2018 By admin Leave a Comment

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.

Naming Conventions

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.

Sales Techniques

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.

Pricing Strategies

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 are 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 that 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.

Compensation

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 are 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 are paid to the upline.

Conversely, for network marketing companies, around 20% of all compensation plan earnings are 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.

Productivity

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.

Conclusion

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 are 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.

Filed Under: Business Plans, Compensation Plans

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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