How Much a person can earn in multi-level marketing?

Here we taking an example of any product whose Maximum retail price is 1100/-. Most of MLM/Direct selling companies provides products to its distributor at DP (distributor price)/Minimum monthly Purchase Value(PV) which may be certain percentage to MRP or any value fixed by company. 

Here we are supposing company DP/PV is 1000/- for it. We will calculate amount of money a person can earn in MLM business but first you need to know about legal and illegal MLM businesses so you would be careful while joining mlm business or starting own multi-level marketing or direct selling company.

Difference between legally and illegally working mlm business:
  • Legally working businesses clarifies that you need to work hard at least 8-10 hours/week and 3 to 5 years to make handsome money in business whereas illegal businesses propose quick and easy money in short time. 
  • Legally operated business has simple and clear compensation plan whereas illegal businesses have illegal pyramid structure 
  • Legally operated business sell significant products that could be purchased at retail market and provide compensation at sale of products whereas illegal business don’t have any significant product or have product which is either false or misleading and provide compensation at joining of new members 

Now come to compensation:

Suppose a mlm business provide compensation upto 5 level. If you sell personally(first level) then you get 20% compensation. If your recruit further 4 persons then you get compensation of 10% of sale done by them. These four persons further recruit four persons each i.e. 16 persons. 16 will recruits 64 and reaction starts upto 5 levels. (at least in theory, practically that not possible. Few persons will not make any further sale)

Suppose company provides 5 Level commissions:
  • First Level: 20% 
  • Second Level: 10% 
  • Third Level: 5% 
  • Fourth Level: 3% 
  • Fifth Level: 1.5% 

MRP: 1100/- DP/VP: 1000/-

First Level:
  • 4 Person’s sale: 4000/- 
  • Commission 20%: 800/- 

Second Level:
  • 16 Person’s sale: 16000/- 
  • Commission 10%: 1600/- 

Third Level:
  • 64 person’s sale: 64000/- 
  • Commission 5%: 3200/- 

Fourth Level:
  • 256 person’s sale: 256000/- 
  • Commission 3%: 7680/- 

Fifth Level:
  • 1024 person’s sale: 1024000/- 
  • Commission 1.5%: 15360/- 
Now add all commissions and compensations i.e. First Level + Second Level + Third Level + Fourth Level + Fifth Level

If this chain works like this each month then you can earn 28640/- amount per months.

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