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Homework MLM

1) The document describes commission structures and financial performance for a direct sales company. Commission rates are 25% of sales for reps with less than $1,000 in monthly sales and 32% for others. Leaders earn additional commissions from their team's sales. 2) Key financial metrics for 2006-2010 show rising revenues, pieces sold, sales reps, and events. Sales per rep, costs as a percentage of sales, and operating margins also increased over this period. 3) Exhibits illustrate how team building can increase total commissions earned by leaders and managers by providing additional leadership dollars from their team's sales, despite a reduction in their own sales due to mentoring others.

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Nitin Paras
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© © All Rights Reserved
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0% found this document useful (0 votes)
39 views

Homework MLM

1) The document describes commission structures and financial performance for a direct sales company. Commission rates are 25% of sales for reps with less than $1,000 in monthly sales and 32% for others. Leaders earn additional commissions from their team's sales. 2) Key financial metrics for 2006-2010 show rising revenues, pieces sold, sales reps, and events. Sales per rep, costs as a percentage of sales, and operating margins also increased over this period. 3) Exhibits illustrate how team building can increase total commissions earned by leaders and managers by providing additional leadership dollars from their team's sales, despite a reduction in their own sales due to mentoring others.

Uploaded by

Nitin Paras
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Exhibit 1a.

Commission Structure

Commission Structure

Basic Commission (% of Sales) 25%

Commission for Sales Reps with > $1,000 in monthly sales 32%

Exhibit 1b. Leadership Dollars: Schedule by Type of Sales Representative

Leader Manager Director


Level 1 Team Members 5% 10% 12%
Level 2 Team Members 3% 6% 8%
Level 3 Team Members 2% 4% 6%
Level 4 Team Members 1% 2% 3%
Exhibit 2a. DBK Financials: Key Revenue Drivers

2006 2007 2008 2009 2010E


Revenues $4,999,968 $10,659,963 $28,815,094 $46,439,975 $74,283,586
Pieces Sold 89,556 205,000 542,215 880,713 1,402,624
Average Price $55.83 $52.00 $53.14 $52.73 $52.96
Sales Representatives 643 1,268 3,404 5,138 7,930
Annual Sales per Rep $7,776 $8,407 $8,465 $9,039 $9,367
Monthly Sales per Rep $648 $701 $705 $753 $781

Average Sales per Event $1,200 $1,252 $1,344 $1,344 $1,428


Number of Events 3,470 7,086 20,884 33,517 50,459
Average Events per Sales Rep 5.40 5.59 6.14 6.52 6.36

Non-Event Sales $835,968 $1,788,704 $747,616 $1,393,199 $2,228,508


% of Revenues 17% 17% 3% 3% 3%

Sales per Sales Rep $7,776 $8,407 $8,465 $9,039 $9,367

Exhibit 2b. DBK Financials: Profit & Loss Statement

2006 2007 2008 2009 2010E

Revenues $4,999,968 $10,659,963 $28,815,094 $46,439,975 $74,283,586


Cost of Goods Sold $2,049,987 $4,370,585 $11,237,887 $18,575,990 $29,713,434
Gross Profit $2,949,981 $6,289,378 $17,577,207 $27,863,985 $44,570,152

SG&A $2,599,983 $5,436,581 $14,695,698 $23,684,387 $37,141,793

Operating Profit $349,998 $852,797 $2,881,509 $4,179,598 $7,428,359

Key Ratios:
COGS as a % of Sales 41% 41% 39% 40% 40%
SG&A as a% of Sales 52% 51% 51% 51% 50%
Operating Margin 7.0% 8.0% 10.0% 9.0% 10.0%
Exhibit 3a Estimated U.S. Direct Sales ($ in billions)

2001 2002 2003 2004 2005 2006 2007 2008 2009


US Sales $26.69 $28.69 $29.55 $29.73 $30.47 $32.18 $30.80 $29.60 $28.33
($ in billions)

$40.00

$35.00 $32.2
$29.7 $30.5 $30.8
$28.7 $29.6 $29.6
$30.00 $28.3
$26.7
$25.00

$20.00

$15.00

$10.00

$5.00

$0.00
2001 2002 2003 2004 2005 2006 2007 2008 2009
Exhibit 3b U.S. Direct Sales by Product Group
Home/Family Care/Home
Durables 24%
Wellness 23%
Personal Care 21%
Services/other 18%
Clothing & Accessories 10%
Leisure/Educational 3%
100%

0.103
0.033 0.239

0.184

0.228
0.213
Exhibit TN- 1. Annual Productivity and Sales Representative Growth

Growth in Sales Representatives


2006 2007 2008 2009 2010E
1st Year Sales Reps 643 754 2,390 2,415 3,820
2nd Year Sales Reps 514 603 1,912 1,932
3rd Year Sales Reps 412 482 1,529
4th Year Sales Reps 329 386
5th Year Sales Reps 263
Total Sales Reps 643 1,268 3,404 5,138 7,930

Revenues
$ Volume
Monthly
(Average) 2006 2007 2008 2009 2010E
1st Year Sales Reps $648 $4,999,968 $5,859,994 $18,581,530 $18,777,485 $29,701,210
2nd Year Sales Reps $778 $4,799,969 $5,625,594 $17,838,268 $18,026,385
3rd Year Sales Reps $933 $4,607,971 $5,400,570 $17,124,738
4th Year Sales Reps $1,120 $4,423,652 $5,184,547
5th Year Sales Reps $1,344 $4,246,706
Total Sales Reps $4,999,968 $10,659,963 $28,815,094 $46,439,975 $74,283,586

Sales Productivity

Annual Attrition Rate 20.0%


Growth in Sales per Rep, p.a. 20.0%
Exhibit TN-2. Illustration of Impact of Team Building on Total Commissions - Leader

Key Assumptions:
Commission rate (>$1,000) 32%
Commission rate (<$1,000) 25%
Franchise Commissions
Leader
Level 1 Team Members 5.00%
Level 2 Team Members 3.00%
Level 3 Team Members 2.00%
Level 4 Team Members 1.00%

Reduction in Sales due to #1 Level 1 Member 15%


Reduction in Sales due to #2+ Level 1 Member 10%
Average Monthly Sales for a New Sales Person $648

NO TEAM
Monthly Sales $1,000
Annual Commissions $3,840

LEAD ONE PERSON


Adjusted Monthly Sales $850
Annual Commissions $2,550

Leadership Dollars (1st Mentee) $389


New Commissions $2,939
Decline in Commissions -23.5%

LEAD TWO PEOPLE


Adjusted Monthly Sales $765
Annual Commissions $2,295

Leadership Dollars (1st Mentee) $389


Leadership Dollars (2nd Mentee) $389
Adjusted Annual Commissions $3,073
-20.0%
Exhibit TN-3. Illustration of Impact of Team Building on Total Commissions - Manager

Key Assumptions:
Commission rate (>$1,000) 32%
Commission rate (<$1,000) 25%

Franchise Commissions
Manager
Level 1 Team Members 10%
Level 2 Team Members 6%
Level 3 Team Members 4%
Level 4 Team Members 2%

Reduction in Sales due to #1 Level 1 Member 15%


Reduction in Sales due to #2+ Level 1 Member 10%
Average Monthly Sales for a New Sales Person $648

NO TEAM
Monthly Sales $1,250
Annual Commissions $4,800

LEAD ONE PERSON


Adjusted Monthly Sales $1,063
Annual Commissions $4,080

Leadership Dollars (1st Mentee) $778


New Commissions $4,858
Incerase in Commissions 1.2%

LEAD THREE PEOPLE


Adjusted Monthly Sales $861
Annual Commissions $2,582

Leadership Dollars (1st Mentee) $778


Leadership Dollars (2nd Mentee) $778
Leadership Dollars (3rd Mentee) $778
New Commissions $4,915
Adjusted Annual Commissions 2.4%

ADD: TWO LEVEL-TWO TEAM MEMBERS

Incremental Sales Impact $0


Leadership Dollars (1st Level 2) $467
Leadership Dollars (2nd Level 2) $467

Adjusted Annual Commissions $5,848


Increase in Commissions 21.8%
Exhibit TN-4a. Potential Sales Value of a Representative – Direct Sales Only

Average Monthly Sales Annual Sales


Year 1 $648 $7,776
Year 2 $778 $9,331
Year 3 $933 $11,197

Discount Rate 15%

Top Line Value - PV $21,180

Exhibit TN-4b. Potential NPV of a Representative – Direct Sales Only

Sales, net of
Commissions
Average Monthly Sales Annual Sales Commissions
Year 1 $648 $7,776 -$1,944 $5,832
Year 2 $778 $9,331 -$2,333 $6,998
Year 3 $933 $11,197 -$2,799 $8,398

Discount Rate 15% 15%

NPV $15,885
Exhibit TN-5. Breakeven Commission Rate - Leader

Current Structure
Leader
Level 1 Team Members 5.00%
Level 2 Team Members 3.00%
Level 3 Team Members 2.00%
Level 4 Team Members 1.00%

Reduction in Sales due to #1 Level 1 Member 15%


Reduction in Sales due to #2+ Level 1 Member 10%
Average Monthly Sales for a New Sales Person $648

NO TEAM
Monthly Sales $1,000
Annual Commissions $3,840

LEAD ONE PERSON


Adjusted Monthly Sales $850
Annual Commissions $2,550

Leadership Dollars (1st Mentee) $389


Adjusted Annual Commissions $2,939
Decline in Commissions -23.5%

Revised Structure
Leader
Level 1 Team Members 16.59%
Level 2 Team Members 3.00%
Level 3 Team Members 2.00%
Level 4 Team Members 1.00%

Reduction in Sales due to #1 Level 1 Member 15%


Reduction in Sales due to #2+ Level 1 Member 10%
Average Monthly Sales for a New Sales Person $648

NO TEAM
Monthly Sales $1,000
Annual Commissions $3,840

LEAD ONE PERSON


Adjusted Monthly Sales $850
Annual Commissions $2,550

Leadership Dollars (1st Mentee) $1,290


Adjusted Annual Commissions $3,840
Decline in Commissions 0.0%
Exhibit TN-6. Cost of Revising the Level 1 Commission Structure

Leader Old Rate New Rate


Level 1 Team Members 5.00% 16.59%

Difference 11.59%

2010 Revenues $74,283,586

% Paying Level 1 Commissions 90%

% of Level 1 Commissions going to Leaders 33%

Cost of New Rate $2,556,902.92

Leader, Manager, Director Old Rate New Rate


Leader 5.00% 16.59%
Manager 10.00% 21.59%
Director 12.00% 23.59%

Difference 11.59%

2010 Revenues $74,283,586

% Paying Level 1 Commissions 90%

Cost of New Rate $7,748,190.67

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