When evaluating MLM pay plans, you need to know more than just what the percentages are. You also need to consider what percentage of that percentage you are going to be paid on! Only then can you know for sure…
1. BV 2. CV 3. PV 4. HumVee Which of these does not belong?
While most might answer #4 (although one certainly does belong in my garage) many network marketers feel they all should not belong — at least as part of an MLM compensation system. NULL Bonus Volumes (BV), Commission Volume (CV) or the lesser used Point Value (PV, which is also used for the unrelated Personal Volume number) all typically represent a number applied to each commissionable product. This number — let’s use the slightly more common BV from here forward — is separate from the wholesale or suggested retail price of the product, although the amount might sometimes be the same. BV is the amount that the percentages in the compensation plan are based on when, as in most plans today, the wholesale price is not used. For example, a bottle of Unicorn Horn Powder* might have a distributor (wholesale) price of $29.95, a suggested retail price of $39.95, and a BV of 25. If someone on your third level, that pays 10 percent, orders a bottle of UHP to improve his, oh, let’s say memory… (I can think of a better marketing angle for Unicorn Horn, but this is a family publication), you would earn $2.50 (10 percent of 25) not $3.00 (10 percent of the actual $29.95 purchase price). *Think there’s no such MLM product? Give it time. That’s a rant for another article.
I would estimate that over 60 percent of the MLM programs in the U.S. today employ a BV system, and over 90 percent of all start ups over the last 10 years have adopted a BV component to their compensation plan.
On the surface this would seem to be a not so clever way of creating more “breakage” (unpaid commissions) in the pay plan, and as you’ll soon discover, often is. However, there is actually a very legitimate and honest economic reason for BVs. The BV system was originally designed to keep the selling price down on high cost, low margin products. Usually, tangible products rather than services. Some products are a lot more expensive to produce than others, and MLM companies typically require a 6-to-1 or 7-to-1 mark up to make a profit after covering costs, including the typical 40-50 percent commission pay out cost. So, for example, let’s say an MLM company wants to offer a bottle of shampoo that costs $1.00 to manufacture (it’s not unusual for the bottle to be the most expensive component of a shampoo product). They want to keep the wholesale price to a competitive $7.00. If the pay plan pays 50 percent they would pay $3.50 (50 percent of $7.00) in commissions, plus the buck to produce the product, and they are still left with a $2.50 per bottle gross profit. No problem here. They can afford to pay out on the full $7.00 — so the BV would also be 7. However, what about that Unicorn Horn Powder? Now that stuff’s expensive! One milligram of “Rare”, pharmaceutical grade UHP that has been certified by the Uniform Testing Service — that’s the highest qualify R-UHP-UTS grade — can go for as much as $10.00 (not counting duties and customs fees in and out of Atlantis). So let’s say the company wants to add a milligram of R-UHP-UTS to their shampoo because that’s how it improves you’re memory, you see. It has amazing trans-CRanial Absorption Properties (create your own acronym). But this would raise the production cost per bottle to $11.00 and the wholesale price to seven times that, or $77.00! After conducting several focus groups it was determined that the public was, for some odd reason, suspicious of Unicorn Horn’s efficacy, so they had to find a way to get the price under $20.00, which is the most the market would bare for a bottle of sham-poo. Because of the BV system, the solution is simple. By dropping the amount they pay on per bottle to 12 BV they would now be paying out only $6.00 in commissions (50 percent of 12). Add that to the $11.00 production cost, plus the $2.50 per bottle gross profit they need, and voila, the wholesale price of the product is $19.50. Had they paid out 50 percent on the entire $19.50 ($9.75) they would be selling each bottle at a $1.25 loss ($19.50 – ($9.75+$11.00)).
Besides keeping the price down on extra costly products there are other legitimate uses for BVs.
They help manage pricing consistency when the line is sold in several foreign markets (prices stay the same, but the BV is constantly changing). Or as a way of keeping the resale price down on products that are private labeled (not manufactured by the MLM company). Although the actual cost to produce the product may be minimal, a good chunk of the margin is eaten up by an extra middleman. That’s why you’ll sometimes see an extra wide divergence between wholesale and BV with things like Water Purifiers and other non-consumable hard goods, and commodity products such as cleaners, pet food and coffee. These types of common products have to be priced competitively with similar products, at least in appearance, the customer will find in stores. A $5.00 cookie won’t cut it — as MLM history has shown us too many times. As a distributor, the attitude you should take here is:
It’s better to make a portion of something rather than have the product be overpriced and earn all of nothing.
Unfortunately, BVs are not always used for good. BV abuse has been rampant throughout the MLM industry for years. There are actually several sneaky little BV tricks that can be played on uninitiated prospects. This BV bunk could easily be exposed if they just understood one simple formula. Introducing, the BV to Wholesale Ratio! Let’s say the average distributor price of every commissionable product in the line is $19.00. The average of every product’s BV is 15. Let’s also assume, for the sake of example, there are 18 products in the line and one lead product, a top seller, wholesales for $29.95 and has a 29 BV. So, we’ll give a little more weight to that product and assume the line averages a wholesale cost of $20.00 and a BV of 16 (this doesn’t have to be accurate to three decimal places, just try to come close). So this company would have a “BV to Wholesale” ratio of 8-to-10 (16-to-20 factored down), or 80 percent. Now, armed with this one simple concept, I’m going to show you how to expose all this BV bamboozlement. Like revealing the secret behind a magic trick, hopefully we’ll eliminate its power to persuade. Because BV totals are also used as the qualifier in most plans, rather than the actual distributor price, unsuspecting prospects are often lured into a program believing their personal monthly “$200 BV” quota will cost them $200. Notice how many plans place a dollar sign to the left and a “BV” or “CV” designation to the right of the number.
But the BV doesn’t really represent a dollar amount at all — at least not one the distributor will ever write on a check.
Here’s the part some companies don’t want you to figure out: using the above example as a basis, that $200 BV quota you’ll have to meet each month will really require you to purchase or sell about $250. That’s dollars, not BV. That is, since the BV runs about 80 percent of dollars, you’ll have to move $250 in actual sales to get to 200 BV. Not that there’s anything wrong with this either, as long as there’s full disclosure up front, or your BVs are almost equal to wholesale— which is rare in both cases. Just putting the dollar sign opposite the “BV” in itself seems to be an attempt to mislead the prospect into believing that’s the amount they or their customers will actually be paying to meet the qualification. It rarely is. It’s usually higher. Sometimes much higher. A simple solution to this would be to go ahead and base commissions on the BV amount, but base the qualifications on the wholesale amounts.
Ordering would also be a much simpler process, because distributors wouldn’t even have to be concerned with CV amounts anymore. However, a $200 monthly wholesale qualification might only contribute 160 BV (80 percent of $200 wholesale) to the pay plan.
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