Wednesday, October 29, 2008

Mary Kay Cosmetics Compensation Plan - A Review

The Mary Kay Compensation Plan

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

The initial investment to start your Mary Kay business is a one time investment of $100. This allows you to fill out the distributor agreement and gets you your starter package. You then have to purchase inventory for your business. Mary Kay sells its cosmetics to its independent beauty representatives for a 50% discount off the retail price. The representatives mark it up 50% and sell it to its clients.

So for instance, if a client purchases an All Things Glamorous Color Collection for $40, you as the representative paid $20 for that kit. Your profit is $20, which you get to keep. My understanding is that on average each of your customers will typically purchase about $100 worth of products from you. This means you stand to earn about $50 for each customer that you are able to get to purchase the cosmetics from you.

However, what you must keep in mind is that your initial investment doesn't include your product order. Your sponsor is likely going to encourage that you place an order that represents what type of income you want to make. So if you want to make $300 a month in Mary Kay, you are probably going to be encouraged to make an initial product order of $900. You pay the company $900 and you then sell $600 worth of product each month to make your $300 profit each month.

In order to remain active as a Mary Kay representative, you need to place a minimum order of $200 worth of product every 3 months. Failure to do so can result in you losing your status as a representative.

You also make money when you recruit new representatives into the company. All representatives start out at the level of Independent Beauty Consultant. Once you get your first recruit you are promoted to the level of Senior Consultant. This allows you to earn a 4% commission or the wholesale order of any recruits you personally sponsor into the company. So, for instance, if your new recruit orders $200 worth of inventory from the company, your commission on that order would be $8.

Once you personally recruit at least three new representatives, you get promoted to the next level in the compensation plan, which is Star Recruiter. In addition to the 4% commission on the wholesale orders of your team, you also now qualify to earn a $50 team building bonus on each recruit you bring on starting with your 4th recruit. In order to qualify for that bonus your new recruit needs to make a minimum order of at least $600.

This is what I was referring to earlier. You better believe your sponsor is going to encourage you to make a order of at LEAST this amount so they can receive their bonus. If I were in Mary Kay, I personally wouldn't work with anyone who didn't make this $600 order. Anybody who has been in network marketing for any length of time that has recruited and trained distributors before knows how much time, effort and money goes into getting a new person started.

Once you personally recruit at least 5 representatives you become a Team Leader. Now, instead of only earning 4% off the orders of your team, you now earn either 9% or 13% off the orders of your team. You get the 13% if you make a minimum personal order of at least $600 that month.

With 8 personal recruits, you become a Future Director and qualify to enter the Directors In Qualification program. To enter this program, you must submit a commitment card to the company stating your intention to go Director. Once you do this, you have 4 months to build a team of 30 active representatives. You personally don't have to recruit all 30. As long as at least 8 of them are yours, the other 22 can be representatives on the teams of the people you recruited. Your team must also make at least $16,000 worth of wholesale orders.

Upon qualifying for the Director level, you now receive an additional 9 to 13% commissions off the orders of the representatives that make up the 30 plus group of representatives that helped you to qualify as a Director.

Mary Kay also has car bonuses that are earned based upon hitting certain sales criteria as well. Upon hitting these criteria, usually within a 4 month period, you become eligible to get a free car paid for by the company! As an alternative you can also take cash instead of the car.

Keep in mind that none of these positions are permanent and they all have to be qualified for regularly. So, for instance, if you have 5 active representatives and one of them stops order, you go DOWN from Team Leader back to Star Recruiter.

So now that you have an overview of the Mary Kay plan, let's take a look at my three consideration points for reviewing compensation plans and see where Mary Kay stacks up.

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. Based on some comments that I've seen over the internet by Mary Kay consultants, the average customer spends about $100 a year on products. So let's say $50 is the initial order and over the rest of the year they spend another $50.

On a $50 order you will earn $25, assuming of course you are meeting your minimum requirement of $200 wholesale purchases every three months. This means you will need to get at least 20 customers a month personally if you want to make $500 just off your own personal volume. So how many women will you have to talk to a month to earn $500? Let's take a look at the numbers...

50% = 40 prospects a month (10 a week)
25% = 80 prospects a month (20 a week)
10% = 200 prospects a month (50 a week)

If you're in the 50% range, 40 prospects a month is very reasonable. That's only 2 people a day 5 days a week. If you're in the 25% range it's a little more work. You're looking at 4 people a day 5 days a week. However, that's still reasonable part time. The 10% range, that's a lot, 10 people a day, 5 days a week to make $500 a month.

So, I say making $500 a month part time is reasonable in Mary Kay.

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

The product cost for Mary Kay products are reasonable in my opinion. Keep in mind, I'm not a woman so my opinion may not matter much! One thing I do like about Mary Kay, at least from the standpoint of being a representative is that they are very aggressive at protecting the price integrity of the product and not creating unnecessary competition for the sales representatives. This means you can forget about trying to sell Mary Kay for below retail on EBay!!!

The only problem is you will need to make a significant investment if you want to make $500 a month. This will require purchasing at least $500 worth of product and moving it all in a 30 day time period. I consider this about average compared with other companies in the industry. There are some companies where you will have to invest significantly more to earn $500 and others where you will have to invest significantly less.

3. Is there competition for your products and services? Yes there is. Mary Kay is in the cosmetics and personal care business. That means they have to compete with everyone from Avon, who is the number on company in direct sales PERIOD much less direct sales and the cosmetic industry. They compete with the department stores like Macys who have their beauty representatives offering free facials and even the mall kiosks that offer cosmetics as well.

So does Mary Kay have a good compensation plan?

I think their compensation plan is a good one. It's certainly not the best I've seen, but its a lot better than some of the other plans I've seen. I don't like the fact that you can't earn on more than one level until you reach the Director position. However, I do love the car bonus program and some of the other benefits they offer its representatives.

However, my biggest concern with Mary Kay as a business is the retention. You are going to have to sign up a lot of customers personally in order to build an active customer base that you can earn significant money from monthly. With cosmetics being such a highly competitive business, I would be curious to know what's the average retention rate on a customer.

In my opinion, your REAL customers are going to be those independent beauty representatives that you recruit into your organization. With a MINIMUM requirement of at least $600 a quarter to max out the compensation plan, at 13%, you're looking at a minimum commission of $26 a month, assuming your business builders order at least that much worth of product, which I couldn't imagine them not doing so if they are seriously building the business. My understanding is you can go through that much worth of product after only a couple of skin care classes!

Therefore, if you want to make the big money in Mary Kay, your mantra better be RECRUIT, RECRUIT, RECRUIT and don't get it out of order. $26 a month from a business builder is a lot better than $50 a year from your typical average customer.

If you love cosmetics and you love the overall concept, go for it! Mary Kay does boast one of the highest six figure earner counts in the industry so you can certainly make money there. However, if you're looking for a company that pays you the most money for your time, there are other alternatives that in my opinion are better.

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 Mary Kay 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 download my free report, which will teach you how to use the internet to build your Mary Kay business or ANY direct sales or network marketing business for the matter..