How to calculate maximum retail price of a product in multi-level marketing?

If you are thinking to start MLM marketing or direct marketing company, then fixing maximum retail price is one of the critical and essential step. In this article, we will discuss about how to fix mrp for your products.

Read : How you can start Multi-level marketing company?

Here we are taking an example of any product at which you provide five level compensations/commissions. Suppose actual manufacturing cost for a product (including tax, transportation, packaging etc.) is 250/-. Now calculate cost you have bear for providing compensation to 5 levels. 

Suppose you are providing 5 Level compensations as follow:
  • First Level: 20% 
  • Second Level: 10% 
  • Third Level: 5% 
  • Fourth Level: 3% 
  • Fifth Level: 1.5% 
Compensation is provided at DP/PV basis. Now add your margin in product included office expenses, rent, office staff etc. A product MRP shouldn’t be as low as it can’t pay company’s bill or not as high as people have think before purchasing it.

Suppose you have manufactured 1000 pc of that product that cost you at the rate of 250/- per pc. Total investment in this product is 250000/-. Now you have planned your marketed strategy and you need 50000/- per month to pay office bill and staff salary at initial level. You need 25000/- as your salary to run your home successfully. You can sell 250 pc per months at initial level. You need to add four month expenses in it i.e. 50000*4 plus 25000*4.

Suppose Promotion and advertisement charges plus event cost for launching product will be approximate 100000/-. Now total cost of that product will be 250000 + 200000 + 100000 + 100000 = 600000. Now calculate per piece cost to you will be 600/-per pc.

Above calculation could be done according to your actual value. You can add or subtract any expense and costing factors.

Now come to compensation you will provide to your associates/distributors. Total compensation is 20+10+5+3+1.5=39.5% i.e. 40%.

Suppose MRP is X.

First Level compensation is 20% of X i.e. 20X/100 = X/5
Second Level compensation is 10% of X i.e. 10X/100 = X/10
Third Level is X/20
Forth Level is 3X/100
Fifth Level is 15X/1000
Actual Cost is 600/-
Now MRP X = 600+X/5+X/10+X/20+3x/100+15X/1000
X=600+395X/1000 = (600000+395X)/1000
1000X = 600000+395X
1000X-395X = 600000
605X = 600000 i.e. X = 600000/605 = 991.73 i.e. 992/-

You can calculate MRP by putting your values in It. 

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