Party Plan & MLM: Two Different Animals

It’s important to note that there are two very different business models used in the network marketing industry-Party Plan and MLM. A Party Plan company is quite different from the ground up than its MLM cousins. Here are some of the basic differences.

For a long time, traditional party plan companies didn’t pay multi-level commissions, and therefore, were not considered network marketing companies. In 2001, the oldest Party Plan company of all, Avon, added multi-level commissions to its commission plan.  Other Party Plan companies began to follow suit, and today, these companies make up a thriving segment of the network marketing industry.

Party Plan companies are known for their in-home, product demonstration parties. They tend to be quite product focused and typically showcase a suite of products. Why? Well, think about it. One, single “super juice” just wouldn’t make an exciting party, now would it? “M-m-m, that tastes good! What else can I say; uh, will it grow me a beard? No, well, I guess I’ll go home now.” Face it–that’d be one boring party—unless maybe you spiked the juice! The bottom line is Party Plan parties must be social and demonstration events. They require a special product mix.

General party plan characteristics:

• Product first, opportunity second.
• Demonstratable.
• Broad Line of Products.
• Barrier-to-sign-up Strategy – Only people who are serious about selling product become distributors.
• Commission plan focuses on paying salespeople.

Barriers to Signup

Companies use this strategy to keep consumers from becoming distributors by limiting distributorships to those people who are actually going to sell their product. A company can create barriers that make it unattractive for a consumer to sign up as a distributor. Creating these barriers means that people who aren’t salespeople simply won’t sign up as distributors just to get the wholesale price, hence creating “barriers to signing up” as a distributor to the company. To get the product, they must buy it from authorized distributors, who typically marks it up from the distributor wholesale price to a reasonable retail price. This approach allows for legitimate retail markup that the distributor earns as soon as the product is sold, with no need to wait for a commission check from the company.

This strategy plays an integral part in the Party Plan Business Model. The reason is that, as you work through the whole business model of salesperson-hostess-attendees, it’s difficult to make the traditional open-enrollment strategy work. Some Party Plan companies have made open enrollment work, but the barriers-to-signup model tends to fit better with the Party Plan Business Model.

Common barriers that are employed include:

1. Relatively expensive sales kits.

2. Required training.

3. Monthly or quarterly retail sales requirements.

Party Plan companies typically pay a higher percentage of commission money to the salespeople than network marketing companies because with this business model, more work is required to sell the product. The party is the focus, and this is reflected in the commission plan. In barriers-to-sign-up companies, the sales commission is easier to pay because the distributor gets the retail profit on any product he or she sells, thus earning that sales commission money directly.

MLM

MLM actually refers to a compensation type within the network marketing industry. An MLM company uses a method of distributing product that allows its distributors not only to sell product, but also to recruit other distributors and then receive commissions on at least two levels of their downline distributors.

These companies are built on products that are demonstrated one-on-one, or in very large meetings rather than in small groups at in-home demonstrations. One of the strengths of MLM is that distributors can participate in remote sponsoring.

General MLM plan characteristics:

• Opportunity first, product second
• More trial, less demonstration.
• Handful of “killer products.”
• Open Enrollment Strategy – Most people who become regular consumers of product sign up as distributors.
• Commission plan focuses on commission sales.

With a network marketing business, more of the commission money is built on commission sales. “What can I make building my organization?” For the company to be viable, you have to have a product where the majority of people buy it  with no hope of financial gain. Because almost everyone who buys product on a regular basis signs up as some form of a “distributor” and purchases product directly from the company, virtually all commissions earned by the distributor are paid out by the company.

So, there are two key differences in how party-plan companies use commission plans and how MLM companies use the same commission plans:

1. Party Plan companies devote much more of the commissions to paying the salespeople and less to paying sales management than an MLM company does.
2. Party plan companies use the barrier-to-sign-up strategy, so a distributor  can make retail profit in addition to commissions earned in the commission plan.

Even though a Party Plan commission plan may look much like a traditional commission plan, there are usually rules designed around the Party Plan dealing with such things as hostess gifts, party order gifts, and so on. Typically, the percentages define what a leader earns, but the character of a plan is created by the rules the company creates. So, the character of a Party Plan is not defined as much by the percentages as it is by rules—the barriers to signup, qualifying volume, the party gifts, etc.

As a result of the Internet revolution, in past years, these two business models have undergone some merging and crossing over. Companies began to take the best concepts from both models. What I call the mini-barrier company was born, which is kind of a combination of the open enrollment and barriers-to-signup concepts. Everyone signs up as a “preferred consumer” and purchases product at the preferred consumer price—between the distributor and retail price. Then at some point, those who meet certain qualifications are allowed to start purchasing product at the distributor price, and they receive the retail profit of the preferred consumers they have recruited, in a commission check from the company.

In conclusion, both the MLM and Party Plan business models are viable and powerful vehicles for success in the network marketing industry.  It is important to remember, however, that they are truly two very different animals with unique rudiments.