Wednesday, May 21, 2008

Avon Compensation Plan - A Review

The Avon Compensation Plan

In our last compensation plan review, we took a look at the Herbalife Compensation plan. Today we are going to take a look at the Avon Compensation plan. I will go over how you get paid as a representative of Avon. I will then show you using my 3 point formula how Avon's compensation plan stacks up. For more information on reviewing a MLM or network marketing compensation plan, take a look at this post.

To get started in Avon there is a one time investment of only $10. This is one of the lowest start up costs that I have seen in the industry. Avon pays you 50% commission on your first four orders on all orders over $50 placed online. Considering the average order is $20 or more, you will make your full investment back on your first order!

After your first four orders, you will get paid anywhere from 20% to 50% on all orders at least $25. Now Avon says you don't have to keep any inventory on hand and that is true. However, let's look at this from a practical standpoint. Avon pays 50% on your first four orders. Let's say your goal is to make $200 a month, which is one of the pitches a lot of Avon reps use. With a 50% commission, you will need to sell $400 worth of products. Let's say your average order is $25. That means you will need to have 16 customers a month buying from you to make $400.

However...

You only get paid 50% on your first four orders. After that, if the average order is $25, you are only going to be making 20%. So on your first four orders of $25, you will make $50. However, every order after that, you are only going to make $5. So now instead of 16 customers, you are going to now need 34 customers to make $200.

So what do you think your sponsor is going to tell you? Your sponsor is going to tell you, "listen instead of just placing your orders one at a time, why don't you go ahead and order $400 worth of product?" You already know you want to make $200, so the easiest way to do that is to order $400 worth of product so you can lock that order in at 50%? I know if I was in Avon, that's what I would tell my reps. It's called buy wholesale, sell retail, it's the foundation of entrepreneurship.

So now, instead of a $10 initial investment, you are looking at an initial investment of $410. Now you have 30 days to move that inventory.

You can also make money by recruiting representatives into your organization. You earn $20 per recruit for each recruit above 2 during a campaign period. The campaign period is how long the current catalog of products are still available (usually a 2 week period). This maxes out at $200. In order to qualify to begin earning income on your organization's volume, you must reach the position of Unit Leader. A unit leader is a rep that has at least $250 in personal sales and at least 5 recruits who do a total of $12o0 in sales. This qualifies you to earn anywhere from 3-7% on any order made by your recruits that is at least $100. You can also earn 0.5 to 1% on any order made by one of their recruits that is at least $100. Thus another reason why your sponsor will likely encourage you to make a big order.

So now, let's see how Avon stacks up using my three consideration points for any compensation plan:

1. How easy is it to make $500 to $1000 a month?

To make $500 a month, you will need to personally sell $1000 worth of product. Considering the average order is $25, you will need to sign up 40 customers a month to make $500. Let's see how many prospects you will need to talk to assuming a 50% sign up ratio, a 25% sign up ratio and a 10% sign up ratio.

50% = 80 prospects a month (20 a week)
25% = 160 prospects a month (40 a week)
10% = 400 prospects a month (100 a week)

That to me is a LOT of people for a part time business. You better be at that 50% range, otherwise you can forget about making $500 a month much less $1000 with that type of average customer order. Therefore, in my opinion, the only way you are going to realistically make $500 a month is by recruiting. Anytime it's difficult to make $500 a month simply by selling the product, that's a red flag for me when evaluating a compensation plan.

2. How much does the product cost and how much does it cost to get started as a distributor?

The product cost is an area I believe Avon does a great job at. The products are all competitively priced and I know Avon has lots of people who simply use the products and aren't a part of the distributor force, which is always a good sign. The start up fee to become a representative is only $10 However, again, keep in mind that you are probably going to have to make a product order to maximize your chances of hitting your income goal for the month, so expect to invest double what you want to make your first month (i.e. If you want to make $500 a month, expect to invest $1000 your first month). There are a lot of other companies where you can easily make $500 your first month without anywhere near a $1000 investment. So don't be deceive by the seemingly low start up price here.

3. Is there competition for your products and services? Absolutely! Avon is in the cosmetics and personal care business. There are too many different product to count that all compete with the Avon products. Also keep in mind that once you've made 4 product orders, you will now have to make a minimum product order of $1550 to keep your 50% discount. Otherwise you are going to be competing with other Avon reps who get a bigger commission than you and can give their customers a discount and still beat you out in price.

Is Avon A Good Way To Make Money?

I think Avon's compensation plan is ok. They pay a good percentage of the sales of the products to the sales force, which is always a good thing. However, considering $20 being the average order on an Avon product, you have to be constantly moving lots of product in order to make decent extra spending money. I can't even imagine how much volume you will need to be moving if you are looking to make a full time career out of Avon.

I personally wouldn't get involved with Avon even if I was a woman. In Avon if I make a $20 sale, the MOST I'm going to make is $10. Also, with a business model like cosmetics because of the competition and the lack of uniqueness of the product, you are going to have to work almost as hard to get your customers to place re-orders with you as you do to acquire new customers. That just seems like too much work to me.

For example, with the company I'm with, if I made a $20 sale, instead of $10 in Avon, I make $120 on a $20 sale. So while an Avon rep would need to make 50 sales at $20 a sale to make $500, I only have to make 5 sales at $20 a sale to make $500. What do you think is easier, making 50 sales a month or making 5 sales a month?

If you are interested in more information about the company I am with, you can check out a link for the company I believe has the best MLM compensation plan.

If you are already in Avon or you are going to join and you are interested in learning how to sign up more customers or recruit more representatives into your organization, I highly recommend that you check out my web site and learn these recruiting strategies to supercharge your Avon business..

1 comments:

Ryan said...

I read a little different Compensation Plan At Avon MLM You may want to update your information.