Question: Will you explain the difference between MLM and Party Plan?  I think that MLM is the same as Network Marketing, but are these different from direct selling?  And how do I know which is best for our startup?

Answer: “Direct selling” is the generally accepted term the selling system that moves products and services directly from a company to its users and consumers.  The selling is performed by the independent representatives of the company.  Worldwide, companies sell an estimated $118 billion in goods and services through this massive distribution system of person-to-person marketing and sales, with as much as $28 billion of that in the United States.  (Sources: Direct Selling Association, www.dsa.org, and the World Federation of Direct Selling Associations, www.wfdsa.org)

Some MLM Consultants teach that there are three methods of person-to-person selling:

1. Direct Selling
2. Party-Plan Selling
3. MLM or Multi-level Marketing

The LaunchSmart MLM consulting team suggests a subtle distinction, which is that direct selling is the umbrella under which two methods of selling reside: MLM and Party Plan.  Direct selling is a generic reference to the movement of goods and services directly from company to consumer, where sales commissions are associated with the sales efforts of the company’s independent sales force.  Party-plan sales commissions are generated through group selling, often with retail commissions plus incentives for gathering a group together.  Party-plan compensation leverages a one-to-many sales presentation.

MLM compensation plans pay commissions for personal sales, accumulating commissions and bonuses on sales that are related through sponsoring lines.  Both MLM and Party Plan methods link individual sponsors and business builders, often paying compensation through, and/or as a result of, these connected lines.  These methods are sound and very legal since compensation is tied only to the sale of products and services, and not to the act of sponsoring someone.

Advantages that are common to MLM compensation plans and Home Party Plan compensation include the following:

• Sales representatives need not stock products other than those used for demonstration or samples
• The company ships directly to the distributor or customer who makes the purchase
• MLM presentations and Home Party Plan demonstrations are ideal for presenting products that require explanation
• MLM compensation plans, like Party Plan compensation plans, pay for sales personally produced, with commissions and overrides paid to those who train and manage individuals and groups in their sales organizations
• Distribution channels, once established, are the marketing channels through which information, goods, and services are moved
• Part-time to full-time selling, with incentives for immediate action, are characteristic of successful MLM compensation plans and Home Party Plan compensation systems

Through MLM (multi-level marketing, network marketing, viral marketing, referral marketing, etc.) the direct-selling process is duplicated by independent sales reps who sponsor and train others.  Through this basic system of selling, on which virtually all sales systems are based (from insurance to real estate, and from automobiles to men’s clothing) multiple levels of commissions are earned, paid directly from the company to the sellers, managers, and leaders.  This basic concept applies in both the MLM and Home Party Plan selling models.

For a Free MLM Consultation or Free Party Plan Consultation, contact the MLM Consultants at LaunchSmart.  We want you to succeed, since your success is our success.

You’re not just buying MLM software, you’re selecting a technology services partner.

“Choose the software company you will hate the least.”  This is a common theme, uttered in variations from one MLM conference to the next by MLM consultants as well as war-weary technology executives.  Savvy startup entrepreneurs will ask, “Gee, have I selected the right business?  Is this the best I can hope for in MLM software?”

The good news is that you are not automatically doomed to the hateful relationship with your MLM software provider that many would caution awaits you.  In fact, it’s possible to have a productive, cost-effective relationship with your technology services partner.  The key is to select the right fit for you, and to keep your expectations real.

As a young, wide-eyed executive at Melaleuca in its early years at the corner of Broadway and Memorial in Idaho Falls, Idaho, our technology services team consisted of a brilliant programmer who worked days for the DOE (Department of Energy).  At night, there were evidences that he would come to the office, pick up the work orders we left on his chair, sort through them and go to work.  In the morning, we’d discover his papers either with a big check-mark or a few questions scribbled.  In this manner, we started the journey to building our technology infrastructure.  We learned a lot together about priorities, availability, resources, and expectations.  The key was communication, respect, and . . . realistic expectations.

Over the course of months and years, we grew to hundreds of thousands of distributors and more than $20 million monthly in sales by 1993.  Our office setting was humble, our MLM software was always under construction, but the software always did what our programmer told it to do.  And that was fine by me.  From that, I gained an appreciation for prioritizing features and reports, functionality and patience.  But the partnership with our technology team (a team of 1 at the very beginning) was built on respect and communication.

The relationship between an MLM technology partner (and their MLM software) and the client (whether an in-house service team or a third-party team with an application that they have designed and which they support) involves a variety of dimensions.  For the client, the concerns line up with fear of no control at the front, followed by the small nag in the back of the mind that should something go wrong, they will always be second in control over the MLM software, their own database, and the destiny of their company.  Facing this fear is the first essential building block in an effective relationship with your MLM technology partner.  There are practical and honored methods for handling these valid concerns, and addressing them openly and candidly will help you to determine whether such a partnership will work for you.

Virtually all of the client relationships we have been a part of begin with an enthusiasm to get the MLM software project underway.  Most begin with a “two team” perspective – the MLM technology services provider and the client home team.  This perspective runs a high risk of inefficiency and frustration, easily resulting in an “us versus them” sport.  In this setting, someone inevitably loses something.  Thus, a change in perspective can produce a mindset that will improve the entire relationship.  Seek to build this bridge of trust and teamwork early in the MLM technology partnership by initiating, developing, and nurturing a genuine “same team” MLM software perspective.  Always keep the objective clearly in mind: getting the system launched and supporting the business through its various stages of operations and growth.

In the end, remember that business is not an exact science, and MLM software will do exactly what you tell it to do.  If an MLM software application is new on the market, be prepared for limitations that might not exist in an MLM software system that has been through hundreds of installations and refinements that come with maturity.  And then seek a “same team” approach which will reflect on how you support your MLM software services provider and how well their effort supports you.  Collaboration and cooperation are the key elements of a successful MLM software technology team.

Starting a new MLM company can drain resources, so when does outsourcing make sense?  Experts estimate outsourcing to be a $400 billion market in the United States and a $500 billion market in North America.  Sadly, not all services called third-party sourcing or “outsourcing” are adding value.  Some outsourced service -providers take on more than they can handle.  Others exceed their capabilities or they do it to generate business for their core business.  The end result is that the concept of outsourcing loses and so do the users of the services.  So, does outsourcing really make sense for MLM companies?

Yes!  Outsourcing makes sense.  Outsourcing with quality third-party providers gives new and growing MLM enterprises access to horsepower otherwise not available to them.  Independent, third-party providers of services continue to gain increasing attention—and service contracts—for a variety of reasons.

Outsourced Services for MLM Companies

It should come as no surprise that the important foundational elements of new and growing MLM businesses are the principal areas for outsourcing.  Typically, an MLM enterprise skimps on crucial business elements in the early years, planning on a change as the company becomes better situated to afford or justify the focus.  Ironically, the absence of foundational elements, whose importance in the success formula is typically underestimated or not known, becomes a chief contributor to the failure of most businesses.

Thus, the principal areas for outsourcing are usually foundational in nature.  Though business is not an exact science, all successful businesses are built upon fundamental principles, practices, and processes that have withstood the tests of time.  Effective outsourcing gives budding enterprises access to big business talent and systems, usually at a fraction of the cost.

Examples of areas to consider outsourcing are listed below:

• Manufacturing

• Fulfillment, Shipping and Distribution

• Back Office (Accounting and Tax Services, Payroll, Human Resources, Sales Order Processing, MIS / IT, Inventory Management, Printing and Publications, Report Processing, Commission Processing, Creative Services, Travel & Event Services, International Expansion)

• Front Office (Order Entry, Customer Service/Help Desk / Technical Support, Enrollment Processing, E-commerce Services)

Principal Benefits

The most obvious benefit of outsourcing is likely to be access to more “horsepower” in a critical competency.  By outsourcing various administrative functions, the client becomes free to focus on sustaining and growing their core MLM business.   Resources are better spent serving the field and expanding the business, adding confidence both internally (executives and staff can be mentored through growth cycles) and externally (the field becomes more confident in the infrastructure and the company’s ability to keep up with growth).

Benefits of outsourcing include the following:

• Access to more “horsepower” (relevant, timely information and seasoned specialists) that is either limited or doesn’t exist internally

• Allow company to focus on its core competencies and strengths

• Develop value-added capabilities to better serve customers and distributors

• Improve operations and customer service

• Flexibility to handle extreme changes in business sales/fulfillment cycles either monthly, quarterly or yearly.

• Improve processes

• Lay foundation for long-term growth

• Build long-term partnerships that spread the burden over multiple resources

Other reasons might include the following:

• Cut costs

• Avoid capital expenditures (Postpone costly commitments, i.e. lease agreements, phone systems, etc., until sales history is established)

• Avoid labor problems

• Avoid additional employee costs such as insurance and benefits

• Avoid costs of regulations

Some third-party service providers will tout cost savings as the number one reason in support of outsourcing.  We prefer to view the potential for cost savings as the result of a successful outsourcing decision; however, cost savings will only occur in a functional area of the MLM business if (1) the costs are known, measured, reported, and studied; and (2) through planning and management, the costs are managed.  This is true whether or not a service is outsourced.

That said, charges for outsourcing various services can represent as little as 50 percent of the cost of equivalent in-house functions.  Consider 25 different MLM companies; there will be 25 different enterprise and accounting systems, 25 separate computer systems, 25 sets of processes and procedures operated by hosts of individuals  atindividuals at 25 various office locations, locations, 25 separate telephone systems, scores of PCs, and a considerable investment in management.  By passing many of these functions to third-party providers, the client can focus its precious resources on its core MLM business.

Ultimately, as the base of sales and enrollments grows, so does the company’s ability to keep pace.  This, of course, assumes that competent third-party suppliers and service providers have been carefully selected.

How Does Outsourcing Work?

To make outsourcing work for your MLM business, remember that outsourcing is an option for designing and managing an important function within your enterprise.  The focus should always be on functions, processes, and systems.

We recommend a three-stage approach to making outsourcing work.  That approach is outlined below:

1. Understand, stabilize, and control
2. Design and implement the processes and systems
3. Outsource the management and maintenance of the processes and systems

It is often wise to invest in understanding, stabilizing, designing, and implementing processes and systems.  The best MLM business consultants are skilled in guiding a client through the initial phases.  Ideally, the best time to decide whether a function should be outsourced is once a process or system has been designed.  Typically, a cost / benefit analysis will be the most meaningful after the processes which support a function have been designed and the implementation and maintenance / management of the function can be quantified.

As in all effective management strategies, outsourcing should be justified on the basis of business factors, which are presented in the next section.

Self-Assessment

Given the vast differences in service providers and the differences in why MLM companies outsource, the decision-maker must look closely at the alternatives, both with regard to providers as well as to reasons for outsourcing.  The following self-assessment outlines the tough questions, which will help in the decision process:

•    What am I looking to outsource?
•    Am I considering outsourcing an entire function or a portion of it?
•    Why am I considering outsourcing as an alternative?
•    How do I describe the function or operation I am considering for outsourcing?
•    What are the costs of the operation to be outsourced?  Fixed costs?  Variable costs?
•    What are its capabilities?  What are its current strengths?  Limitations?
•    How well do I service my existing customers and MLM distributors?
•    If there are service problems, what are they and what causes them?
•    Are there proven outsourcing solutions available for this purpose?
•    What do I expect from the third party?  How will we know if it is meeting my expectations?
•    What about the management responsibility of the third party?  How will it be done and by whom?
•    How do I effectively transition from my own operation to an outsourced provider?  How long will it take to transition?  Are there problems during transition?  If so, what are they and how do we avoid them?
•    What if outsourcing doesn’t work for me?  What are the downsides?  How serious are the potential downsides to the MLM business?
•    If/when will it make sense to bring the operation in-house?

When you begin the selection process, these questions will help to evaluate candidates:

•    What does the candidate bring to the table?  What is its experience with the industry, with other MLM clients, with my MLM distributors?
•    What problems have they encountered in setting up third-party operations?  How did they navigate the challenges?
•    What are all the costs?
•    How will the system operate?
•    How long will it take to set up and to stabilize operations of the function?
•    How will we interface?  What reports will I receive?
•    What is required of my MLM company?  Is this requirement for start-up or is it also ongoing?
•    Why does the third-party want your MLM business?
•    Why should you select the third-party over another candidate?

If you consider outsourcing, and we recommend that you give careful and serious consideration to the benefits as well as risks, you must thoroughly understand what you are doing and what you want to do.  We know of no shortcuts, but there are real problems in doing it wrong.

The future of outsourcing is significant.  We are in the early stages of the new outsourcing paradigm.  How it all comes together is still formative, and there will no doubt appear segmentation in the market as providers continue to discover needs and to define roles.

It’s an exciting time to own or start an MLM business.  And when you find yourself in moments of decision, we wholeheartedly embrace the wisdom of Theodore Roosevelt, 26th president of the United States, who said, “The best executive is the one who has sense enough to pick good men [and women] to do what he wants done, and self-restraint enough to keep from meddling with them while they do it.”  To this we add, the good picks cannot only be found internally, but also externally.  Outsourcing in MLM business makes sense.