By Jay Leisner, Sylvina Consulting
As business consultants, we are often asked about the differences between network marketing companies (also known as MLM companies) and home party plan companies.
Both types of companies have independent sales representatives who earn commissions on personal sales and bonuses on the sales of others.
However, there are important differences between them in naming conventions, sales techniques, compensation, productivity, and characteristics of customers.
Naming Conventions
MLM Companies tend to refer to their sales representatives as distributors, associates, IBO’s, and independent agents. These are male-sounding words with action implied. It’s no coincidence that the average MLM sales rep is a man.
Home party plan companies use terms like consultant, demonstrator, stylist, and counselor. These are feminine terms. About 98% of home party representatives are women.
In creating 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 name them fits them.
Sales Techniques
MLM representatives typically sell products and services one-to-one, whereas home party plan representatives use primarily a group selling approach.
If your products sell best when they are demonstrated or explained, a home 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 home party plan format may not work well for you.
Compensation
Since most of the sales of an MLM company are made to its sales representatives, activity requirements of MLM companies are most commonly set using amounts appropriate for “personal consumption.”
However, since most of the sales of home party plan companies are made to others, activity requirements are usually set based on the sales volume generated by an average-sized home party.
MLM and home party companies each have 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.
Productivity
Annually, active MLM representatives typically generate about $500 to $1000 in sales for an average company.
Home party plan representatives on the other hand generate between $5,000 and $10,000 in sales per head each year.
So, a home party plan company with 1,000 representatives can generate sales volume comparable to an MLM company with 10,000 representatives.
Customer Characteristics
Within most MLM companies, the sales representative is the customer. In these companies, generally there is very little retailing of product to non-participants. Instead, the sales rep is encouraged to sign-up for an AutoShip program to create residual income for upline participants.
Conversely, home party plan representatives are encouraged to sell their products and services to customers who are not representatives. Personal consumption by reps is a very small portion of a home party plan company’s sales.
Income
Since most MLM companies don’t have a strong base of customers who are not sales representatives, the only way to earn money as an MLM rep is to recruit others who buy products from the company for personal use. Simply put, without a viable retailing component, if you don’t recruit, you won’t earn any money.
Home party plan representatives can earn significant income by selling without recruiting. In fact, the average home party plan participant who earns $300 to $500 per month earns little on the sales of others.
Conclusion
The business model you select is important, for each motivates and rewards different behaviors.
Jay Leisner jay@sylvina.com is the president of Sylvina Consulting (www.sylvina.com).
Sylvina Consulting provides business consulting services to home party plan and network marketing companies.
Jay’s in-depth experience working with major companies and new enterprises, his broad knowledge of this marketing channel and his understanding of many types of businesses, have earned Jay the respect and admiration of direct selling companies, peers, and employees alike.