My MLM Dream Team

MLM means Multi-Level Marketing. It is also called Network Marketing. The idea with MLM is to build a marketing organization in a viral manner. The marketer is compensated for recruiting more marketers into the organization.One can even claim that the traditional distribution chain is a kind of network marketing.
When we talk today about MLM we mainly mean recruiting a lot of novice marketers fast. Why fast? The answer to this lies in the dynamics of the MLM plans. In an MLM compensation plan the incentive of a marketer is propotional to the number of direct and indirect referrals he have. This creates an exponential phenomena. Lets say every marketer brings in only 2 more marketers. This means that after n iterations you will have (2 to the power of n) minus 1 marketers (i.e. (2^n)-1), a number which explodes exponentially.

Because of this exponential explosion, it is very hard to control such a plan. Our mind as human beings is used to think linearly, but when we encounter an exponential phenomena we loose most of our intuition and it is very hard for us to come to conclusions and predictions. Due to this difficulty many people are trying to learn MLM marketing tricks from the MLM veterans.

I would like to try to analyze the MLM plans with some traditional economic tools. As a first try, lets see what is the break-even point of a MLM marketing organization. So, how much money should the marketers make in order to sustain the marketing organization? There are two kinds of marketing organizations here, one is the company marketing organization which contains all marketing people for the company. The other is the local marketing organization for each marketer, which contains the marketer and all his referrals. I am not counting the staff of the company that makes the products as part of the marketing organization.
There are many MLM plans in the world, each with its own characteristics and “break-even” point. As an example, lets analyze an MLM strategy that is called “MLM Matrix plans”. In these plans there is a limit to how many marketers each marketer can have directly under him and also a limit to how many levels under the marketer he is making money from.

Lets have D as the number of marketers allowed to be directly under each marketer, and L as the maximum number of levels the marketing organization can be for each marketer. In most MLM plans the marketer is required by the company to buy a minimum amount of its products or services. So, lets also assume each marketer is required by the company to pay C dollars to get its products or services. In that case the break-even point of a local marketing organization is: (D^L-1)*C.

That means that if the marketing organization of each marketer is earning that amount then the company marketing organization will be stable. Since not all marketing organizations will be full matrix in an MLM, we might have a lower break-even point in reality, but this will need a deeper and more complicated mathematical model. This means that the break-even point for the company marketing organization is smaller then (D^L-1)*C*M where M is the number of marketers.

For further discussion you can visit read my mlm Blog posts.

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Tags: MLM