Empower Network: 37% sales are retail, not revenue
You run an MLM company and offer two products, a WordPress installation for $25 and affiliate training for $1000.
Affiliates pay $19.95 to join as an affiliate, and must either purchase or sell both products in order to receive commissions on the sale of said products to newly recruited affiliates, or retail customers.
And when I say commissions, I of course mean those customers or affiliates directly pay you.
Now naturally there’s an inherent danger within this business model in that if your company mostly consists of affiliates, there’s a good chance revenue wise, all that’s happening is the shuffling of new affiliate money to existing affiliates. Your company takes its $19.95 affiliate fee each month and those in the company just gift eachother.
How is this danger measured? Analysis of the company’s generated revenue.
Simply put, using the above model, if a company’s revenue is 51% or more sourced from affiliates, its functioning as a pyramid scheme. Due to the fact that affiliates are paying eachother directly, it also qualifies as a gifting scheme to boot.
After analysing your business and realising that well below 51% of your revenue is from actual retail customers, what do you do?
Well, if you’re David Wood from Empower Network you put out a series of statistics that you know are probably going to be misread and parroted by the majority of people reading them.
In Wood’s Facebook update, published roughly ten hours ago, he begins by revealing the company’s revenue figures for May 2013:
Some people have question whether Empower Network is actually 100% commissions, because we pass up sales. I wanted to show you our revenue/payout numbers for May:
—————start of numbers————
Less: Non-Commisionable Items:
Total Commissions Paid:
————–end of numbers————-
Looks good so far. Empower Network generated $5.7M USD in for the month of May and sans non-commissionable items (fees) paid out 5 million in commissions. Good job guys.
Then, as all legitimate MLM companies feel the need to do, Wood continues, stressing that
Empower Network is not a pyramid scheme.
Commissions are paid on product sales only, and have nothing to do, at all, with recruiting. Most people assume Empower Network has no customers, when actually, 37% of all of our sales are customer only (non affiliate) sales volume.
37% of Empower Network’s sales are retail customers? That, to put it bluntly, means dick.
Remember that hypothetical example I walked you through at the start of this article?
I put out a Facebook update informing readers that 60% of sales are to retail customers. What I don’t tell you is that the 60% of retail sales is only our $25 product.
The other 40% of our business is sales to affiliates and includes primarily our $1000 product.
On paper we can state quite succinctly that 60% of our sales are retail, but revenue wise, quite clearly we are still a primarily affiliate-funded company.
If we have 1000 sales generated within the company, that equates to $15,000 (600*$25) in revenue generated from retail activity and $400,000 (400*$1000) generated from affiliates.
$15,000 in retail revenue and $400,000 from affiliates, see the problem here? You can substitute “1000” for any number above 10 (to keep things neat) and given the obvious unlikelihood that a retail customer is going to pay for affiliate training, every time you wind up with more affiliate revenue.
Does the above make us a recruitment-driven cash-gifting scheme? Absolutely. Even though we can still accurately state that 60% of our sales are to retail customers!
Well duh okay Oz, so what did Dave Wood reveal was the affiliate-funded revenue ratio of Empower Network’s $5.7M USD of generated revenue for March 2013?
Well that’s just it, isn’t it. The revenue ratio showing exactly how much of the $5.7M USD Empower Network generated in May 2013 was affiliate-funded is conspicuously absent from Wood’s update.
Nevermind the fact that even if Empower Network was 37% retail revenue it would still be primarily affiliate funded, thus fitting the FTC’s definition of a pyramid scheme:
Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan.
If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme.
You can’t generate affiliate revenue without recruitment, ergo if the majority of your revenue comes from affiliates, indirectly it is sourced via recruitment (newly recruited affiliates recruit new affiliates to generate commissions).
Wood closes out the update by answering a question nobody asked:
Why am I sharing this?
Because I LIKE being honest, and open about what is actually going on.
Fair enough. Now I have no idea if I’m one of the “3 un-informed critics” Wood refers to in the update (who “just don’t get it”), but nonetheless I’m going to call Wood out on his provided figures and statistics:
Dear David Wood,
If you’re genuinely serious about being honest and open then please reveal what percentage of the $5.7M USD in revenue that was generated in May 2013 by Empower Network was sourced from affiliates.
No marketing BS or waffle hype, just a straight-up percentage number will do.
If and only if Empower Network’s generated revenue is being primarily (majority) generated via retail customer sales is the company not simply an affiliate-funded recruitment scheme. No ifs or buts, that’s the bottom line.
We’ll keep you updated if Wood makes any follow-up announcements. Till then, please don’t waste mine or anyone else’s time running around the internet proclaiming that 37% of Empower Network’s revenue is retail, when it clearly isn’t.