Do Levels of Commission in MLM Add to the Price of the Product?

If MLM companies pay commissions on multiple levels of distributors, does that raise the price of the product?

Of course it does. But there are two things that should be factored in when looking at this:

  1. Whether those levels add more cost than the traditional advertising budget does.
  2. Whether those levels add any value to the consumer.

Open and review this image. You see, all businesses have an advertising budget because each must find customers. For a company to “tell the world” about their products, they advertise on TV and/or radio and/or billboards and/or shelf space in a store and/or direct mail, etc. Each of those can be viewed as a “level” of expense that raises the price of their product.

In 2006 Nike paid out $702.4 million to 25 athletes to endorse their brand. So if someone claims that “MLM’s products are expensive because levels of commissions add to the price of the product,” what do they think $702.4 million dollars does to the price of Nike products?

MLM companies simply pay people like you and me the advertising budget instead of the popular method of paying celebrities.

Let’s pretend we have a company. We’ve set aside 50 million dollars to advertise the products. How should we spend that 50 million? In a traditional company we would pay some of those 50 million dollars to a celebrity to appear in our literature or in a television, radio or Internet ad.

By contrast, if we were an MLM company we would pay those 50 million dollars to people like you and me to advertise the product.

Which is better for the customer? If the distributor for an MLM company is a professional and builds their business in a first-class way by knowing their product and competing companies’ products, MLM is much better for the customer.

I’d be willing to bet that Catherine Zeta-Jones doesn’t know how T-Mobile is better than AT&T – yet T-Mobile paid her 20 million dollars for promoting their phone service. This adds no value to the customer whatsoever. But a knowledgeable sales person who can “un-confuse” a customer IS very valuable.

Recommended next page: Do MLM companies collapse?

Tim Sales

About the Author

Tim Sales

Tim’s experience in building his own downline of 56,000 network marketers helped him develop his signature training series. A public relations ambassador for the network marketing industry, Tim has also dedicated his time to debunking the false information spread about the network marketing industry.

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Robert Lefebvre

This is a very important and well written article to my view. There is sometime a perception about the relationship between the price of the products versus the commission that is being paid to distributors. The fact that the “marketing budget” is spread over multiple people (distributors) rather than going into the pocket of one celebrity makes the marketing efforts more effective. Since they are real users of the products, they can honestly talk about their benefits. We all do that anyway with restaurants, movies, etc., it is the human nature..
Thanks!

Patti Roney

As a single mother, I’m so happy that my company pays the “individual” rather than the super-star these advertising dollars! Hopefully everyone will open your image as you have done an excellent job of giving a visual of this!

Kathy C.

What a great explanation! Commissions are like getting thank you checks from the company for you doing the advertising. It is a win – win. The company gets advertising and I get paid for doing the advertising. Second, the person promoting the product to you in M.L.M. actually uses the products. They could not be passionate about them otherwise. How many times do you think all those celebrities use the products they promote, but yet they get paid millions to convince us they do? I would be amazed if Heather Locklear actually uses Preference on her gold mane, doubt it!!!

Helen Wenley

And isn’t it fairer to spread the advertising dollars amonst the many promoting the products rather than just give it all to one super-star???

Carmen

I love the Nike analogy – I cracked up when I read it. How true!

Steve Stearns

Answering this question “Yes commisions add to the price of the product” upfront allows people to hear what you have to say later about the efficiency of this industry. Goes back one of your 14 covenants of a first class MLM — tell the truth.

Albert Watkins

Great Talk.

Patty Jones

The more I read the more I get excited about this site. So much good content. All the right answers in the right places. Thanks again. Patty

ian Stewart

With MLM there is no Rent,no Insurance, no shop fittings, no stock, no book work you just get a statement each month, no power bills and you also get paid for advertising.
MLM is the most efficient way of selling a product, as the distributors do not get paid unless product is sold.

Alice McCarthy

Great explaination!

Rimon Nuhi

So true. I think that one of the biggest evidence to claim, is the success of the telecommunication companies, since this is a completely price competitive environment. Unless this claim was true, the MLM companies could never reach to their enormous amounts of sales. Moreover, Tim has mention a VERY important issue here. Let’s say you want to buy multi-vitamin. If you go to the store, in the best case ceneraio the seller would give you 5 minutes of helpful information. With First-Class MLMer, the customer would get tons of valueable information, help and “dis-confusion” guide, and consistent, day-to-day support. That’s alone worth AT LEAST 30% higher price, but in reality it is not (in a First-Class Company, of course). Moreover, most customers get to the preffered customer plan, so actually they get the WHOLESALE PRICE. Isn’t it brilliant?
Thank you Tim!

Kelly S.

Allowing consumers to participate in the marketing budget seems very reasonable.

Dee Austring (Aotearoa/NZ)

When you have high-quality products, it’s the associates who are trained in the knowledge about why their products are better than the ones on the supermarket shelf. The products can only speak for themselves after they’ve been purchased, so it’s our job to speak for them to prospective purchasers to encourage them to try the products for themselves.
And, BTW, a company’s promotional budget can go to give a few people (who are already rich) millions of dollars, or to make thousands of people thousandaires!

Gavin Chapman

I’m sure most people presented with MLM don’t think with this kind of commercial logic – yet it’s obvious if they’d just pause to stop and think for a minute or two. Tim’s clear and graphic explanation means they barely need to pause.

Jacob Camacho

Thank you for explaining how just by shifting their advertisement money, some companies offer average folks the chance of living extraordinary lifestyles.

Rolf Hefti

Simply terrific explanations, Tim!

Rolf Hefti

Another very clear explanation!

JIMMY PHILIPPINES

I am overwhelmed by the simplicity of your explanation.
You have help me a lot in this

Thank you Tim!!!

John Szydlowski

Nice article and I think I agree but the crux of matter is (as you stated) whether Network Marketing comp plans add more cost than the traditional advertising budget does. This is impossible to answer without being on the inside and consequently a difficult objection to overcome.

Siber

Fascinating site and well worth the visit. I will be back

judy

A fantastic site, and brilliant effort. A great piece of work.o

Robert

This site is really superb!!! Thank you for you work! Good Luck

Kyle Crookston

What a great way to look at it. The basic structure of the business and the corporate budget are essentially the same. The main question is which marketing structure is more effective? Take a look into it as each person in the marketplace decides for themselves.

Siber

Hi, all. Nice site…I really like your site ! Good job man.k

Melissa

These prayers help me to keep God in my life, especially with the many distractions I encounter.

john

i love this site.

Albert

Excellent site, added to favorites!!r

Willem

I like it and the background and colors make it easy to read/

judy

I enjoy your site very much! THANK YOU

Rosina

Pretty nice site, wants to see much more on it! 🙂

Jesper Seest Mogensen

Hi Tim,
Just wanted to say thank you, for the great tools that you are providing us with.

Kathy

Nice site! Big thanx to webmaster!o

Hannes

Your work is marvelous!!d

john

Very good web site, great work and thank you for your service.<

Robert

i love this site.e

md Aslam

MLM is a future Industry amd our new generation need this education . So this website training thousands of people to change their lives. THANKS ……

Willem

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Kathy

I browse and saw you website and I found it very interesting.Thank you for the good work, greetingsb

Ron

Thanks so very much for taking your time to create this very useful and informative site. I have learned a lot from your site. Thanks!!

Kathy

Hi, all. Nice site…I really like your site ! Good job man.n

Kathy

I enjoy your site very much! THANK YOUn

Basaant

thanks a lot it was very informative

Kanana

Hi Tim,
Thankyou for the websight, its making me understand MLM. A great business concept. I hope to help many people in my country understand the power behind MLM. be blessed.

sandrar

Hi! I was surfing and found your blog post… nice! I love your blog. 🙂 Cheers! Sandra. R.

internet work from home

Absolutely fantastic post. You hit the nail right on the with this post. I see too many people come into this industry think its going to happen overnight. Its systemic in the approach if they really think about it. They must grow themselves, discover the solutions to their problems and in their will be able to solve the problems of others. Only through dedicating their time to learn through the various mediums you noted above will they gain this knowledge.

fantastic post,power full staff .tks

grate job thanks.i will continue reading all the info.

neal

am from the philippines and am thankful my downlines are learning true mlm in your website.

Michael

Great article as always. I’ve learned a massive amount about Network Marketing from you and the information has continued to propel my business forward. I did want to point out that the $702.4M for Nike athletes which was mentioned isn’t exactly accurate. According to the Forbes article, the top 25 athletes in 2006 earned a collective $720.4M from all sources (not just endorsements), and only 12 of the top 25 athletes were Nike endorsers. Nike won’t say exactly what they are paying their athlete endorsers but obviously it isn’t cheap. I thought I would point this out in the spirit of remaining as accurate as possible in trying to make a point. Here’s the link to the article if you want to read it all. https://www.nbcnews.com/id/11961246/ns/business-forbes_com/t/worlds-best-paid-athletes/#.UQqq5fLjOC-

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