In the world of MLM or Multilevel Marketing you will come across two terms in some form or variation. This two terms are product points and business volume. When analyzing a product line and compensation plans you will see products usually assigned four sets of numbers. These four are as follows: Point Value, Business Volume, Wholesale Cost, and Retail Price.
Wholesale Cost is obviously what you as a distributor pays for the product and Retail Price is what your customers outside of the MLM program pay for the same product. But what about the other two what are they and why are they important?
Each product is usually assigned a point value (PV) and is used to determine the amount of volume you create in product. This is used to determine the level you reach in achievement which in turn effects your bonus pay level. The business volume (BV) is normally the amount you are being paid on for your bonus.
The theory behind points is that it makes a business inflation proof. Lets say each product averages 2.5 PV and you need to reach a 100 PV to achieve a level in the business you would need to move 40 products. Lets say the average whole sale price is $5.00 in 1211. To reach that 100 PV mark you would have 40 products X $5.00 there by creating $200.00 in volume. Now lets say 20 years from now the wholesale price is $10.00 each for the same 100 PV you would create $400.00
If the level in the business was based on a wholesale or retail price the amount of products needed to sell would be 1/2 as much in the above illustration. This would mean that the person who reached that level $20.00 years from now would make less than they would today. The actual dollar amount would be more but because of inflation the amount of purchasing power would be reduced. The theory is that by using points the money you would make after reaching a certain level would not erode away with inflation.
Business Volume or BV is what the volume you get paid on. For example lets say a product has 5 PV and 10 BV attached to them. they have a wholesale cost of $8.00 and a retail price of $12.00, lets also say you are entitled to 10% bonus on what you sold what would you make.
$12.00 (retail price) - $8.00 (wholesale cost) = $4.00 (retail profit)
$10.00 (business volume) X 10% (bonus level) = $1.00 (bonus received)
$1.00 (bonus) + $4.00 (retail profit) = $5.00 (total profit on product)
This is important to understand because this will have an effect on our evaluation of marketing compensation plans. If the average point value per product is low then you need to move more products then with a company that has a higher average point per product. Also we need to evaluate the ratio of points to business volume. A company with a 1 PV to 2 BV ratio is paying less than one paying 1 PV to 3 BV ratio.
So when you and I are reviewing the multitude of MLM or Multilevel Marketing plans please remember to keep PV/BV in mind because it has a lot to do with how much work is needed to achieve a level in a business and also how much we will be compensated for build an network marketing organization.
Wholesale Cost is obviously what you as a distributor pays for the product and Retail Price is what your customers outside of the MLM program pay for the same product. But what about the other two what are they and why are they important?
Each product is usually assigned a point value (PV) and is used to determine the amount of volume you create in product. This is used to determine the level you reach in achievement which in turn effects your bonus pay level. The business volume (BV) is normally the amount you are being paid on for your bonus.
The theory behind points is that it makes a business inflation proof. Lets say each product averages 2.5 PV and you need to reach a 100 PV to achieve a level in the business you would need to move 40 products. Lets say the average whole sale price is $5.00 in 1211. To reach that 100 PV mark you would have 40 products X $5.00 there by creating $200.00 in volume. Now lets say 20 years from now the wholesale price is $10.00 each for the same 100 PV you would create $400.00
If the level in the business was based on a wholesale or retail price the amount of products needed to sell would be 1/2 as much in the above illustration. This would mean that the person who reached that level $20.00 years from now would make less than they would today. The actual dollar amount would be more but because of inflation the amount of purchasing power would be reduced. The theory is that by using points the money you would make after reaching a certain level would not erode away with inflation.
Business Volume or BV is what the volume you get paid on. For example lets say a product has 5 PV and 10 BV attached to them. they have a wholesale cost of $8.00 and a retail price of $12.00, lets also say you are entitled to 10% bonus on what you sold what would you make.
$12.00 (retail price) - $8.00 (wholesale cost) = $4.00 (retail profit)
$10.00 (business volume) X 10% (bonus level) = $1.00 (bonus received)
$1.00 (bonus) + $4.00 (retail profit) = $5.00 (total profit on product)
This is important to understand because this will have an effect on our evaluation of marketing compensation plans. If the average point value per product is low then you need to move more products then with a company that has a higher average point per product. Also we need to evaluate the ratio of points to business volume. A company with a 1 PV to 2 BV ratio is paying less than one paying 1 PV to 3 BV ratio.
So when you and I are reviewing the multitude of MLM or Multilevel Marketing plans please remember to keep PV/BV in mind because it has a lot to do with how much work is needed to achieve a level in a business and also how much we will be compensated for build an network marketing organization.
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