Dan,
First you are confused a little. Gross Profit margins for the company are really pretty low at around 11%. Second Representatives as a group get paid out about 60-65%. This is not too high. This is consistent with hypergrowth companies in this industry. Third, Do you think that they just pulled out from the air, how much money or Gross profit margin, the company should take for its product sales. No, they did it with very much consultation around North America both inside and outside the industry of network marketing. Fourth, Microsoft, well really Bill Gates, in front of the lecturing of the entrepreneurial elite congressmen and Women of this great country, Got an answer about "net profit take home for the company," which I heard Mr. Gates say was around 25%. But this is not a fair comparison in any way. (I would love to talk in defense of Microsoft and of Mr. Gates. I would love it. But I'll save it.) Fifth, Microsoft net profit margins has actuarially been reducing in terms of percent for the last few years. Sixth, Microsoft is allege as being a bad guy, because they don't let the competitors beat them. They are said to be using "unfair trade practices," or the like. It's there product. They have right to make a million square in terms of profit margins. If they could. I could see the sign for windows 98 for sale at $7,245 upgrade and $19,285 full edition.<G> Very few would buy it. Software Companies would see an opportunity to spend money, time, effort, to make a program the average guy could afford in volume. A lot of these companies will lose there money, time, and waste a lot of effort, even under such circumstances.(fail) But a few or one will provide the product everyone wants to buy around the world. IHIN on the other hand has very little market share in this huge industry called Network Marketing. We won't a right to exist and to be a leader in this industry. Not just be in it, we won't to help define it, for the better. We are today not like microsoft in size, but the future will tell our strength.
At any rate, competitive forces create product prices. Competitive forces create the potential profit margin for any company. Etc. Etc. Etc.) (Boy I really would like to debate the issues of the justice department, congress, and Microsoft, but I will refrain) seventh, and most importantly, the current pay out % is one of the most important issues for a network marketing company. IHI has one of the highest, if not the highest, in the industry. This is a good thing not a bad thing for this company at this time. And by this I mean a good thing for the shareholders too.
You see, you are looking at things from a traditional point of view, which is ok. But the pay-out must be constant with the competition in the industry of network marketing and for the distribution of the products and services it is involved in.
One cannot just say, ahhh lets cut company expenses, so we can make the company more cash. Although there is nothing wrong with this, IF IT COULD be done and made sense. You see sales reps are expensive, especially ones in network marketing. But they are the ones that drive the products out the door. They are more expensive than other salesmen because there actions create a lot more value for the "marketing buck." In terms of volume or gross sales, they are the ones that take the place of so many others in the traditional marketing model (please refer to the traditional marketing model which I go through in detail, in a previous message.) On the other extreme, without sales reps, there is no sales for the company, much less profit. Therefore the pay out must also be appropriate for the long term stability of the company. And this tend to be higher than one would see in a tradional sales company. It's a different model.
Let me try to simplify things: The pay out ratio controls growth for company, profitability for the company, and sales rep longevity. Also to make many changes in the pay out ratio or comp plan itself creates instability in the sales force base. In other words the pay out % is a major component for all parties success. Company, Shareholders, Vendors, Sales Representatives, etc., etc. (The discussion below is with the understanding that the product base is consistent. I give you what happens to equity, when product types are added)
Let me try to explain in the context of the network marketing model, in terms of the issue you present. First, higher pay out % means faster sales growth and rep base growth, as a general rule. Second, the pay out % is a major factor in profitability of the company. The challenge is that a low ratio figure is not necessarily a good thing. Also too high a ratio pay out is not necessarily a good thing. They are relative conditions for what makes up, in part, a hugely profitable network marketing company. (And I am speaking from the shareholder prospective, and from the field reps.)
Let me put it this way: high ratio equals fast growth, more sales, and yes more company related expenses to service the sales base. It is the magnitude of these that is at hand. It is about "BALANCE." A MLM company is either in balance or it is not. It is either maximizing profits in all market places or it is not. To lower the pay out, you kill or slow the growth of the sales base and lower gross sales, you also lower company expenses.
And your right from certain perspective: It can be a good thing for a company at stability, or when your company is growing too fast during hypergrowth phase of development, to lower the pay out %. But in the case of a company in hypergrowth phase of development, Capital intervention can boost sales and profitability at the same time (This is a very simplified look at capital expenses for a network marketing company, and does not take into consideration, such topics as outside venture capital, such as the capital raised from private/public investors as this company has done in the past. Nor do I discuss why sale aid marketing cost and development cost for this for the company in some areas of the marketing plan get more linear as the sales force grows, even if hyper growth occurs.)
Another issue to keep in mind is that the primarily cost for the company is to provide support services for the field reps in various forums. That is the mission of the company. Some experts on the industry have coined this kind of company as a "Wave Three Company." (Richard Poe, Success magazine editor) Almost all companies today in the industry are wave 3 companies. IHI is a state of the art, wave 3 company. <Smile> To finish up with the model summary: The changing up or down the ratio can cause instability in a companies sales force. The more changes, the higher the attrition rate. etc..
So lets get back to what you are seeing. You look at the reports with color blinds on. And you say" Company is not making any profit. IHIN, took a loss of 12M for 1997, I recall you mentioning. Then you say, how can the management team fix it. You take a look at the records with all your past experience and biases, and like a kid that gets his first bite of candy, you say with big eyes, "the reps are getting all the money." Let's cut the pay. Because it is difficult to understand a sales company, that pays so much as % of sale $, to its sales force. It's not a wrong view, it just doesn't apply the same way here. Traditional sales involve a lot of resources spread over by many parties. Network Marketing simplifies and cuts out the middlemen, such that the majority of profits are given to the sales force. I would also say that there are other ways to increase profitability of the company. You can increase not by cutting the ones that generate gross sales (these are not clocked employees), but by adding "new products types." Preferably ones with higher repeat sales. This has all been thought of some three years back. This is a company playing out its five year plan. Its on track, if anything, its ahead of schedule. (I'll talk about this in one second) This is the MLM model or NM model in summary. It is a streamline approach to marketing products/services and in generating sales rapidly. It is highly profitable as an industry, meaning the vendor can win, the company can win, the shareholders can win, the communities we live in can win(save that one for another message), people not associated directly with the company can win, and yes if you work hard and smart, an individual can win too. It has jazz, It can be quit fun and enjoyable. It is sleek. And it performs. It does what can not be done in the traditional marketing model.
I hope I clarified the issue you presented. Pay cuts to the reps would work only if it increases profitability for the company. And I say it would not, it would weaken the performance of the field rep/ the opportunity in general and thus hurt the bottom line of the company. I appreciate what you have to say, Dan. Its good to hear from you. I respect that, I really do.
But here's the deal and solution for you today. We have spent a great deal of our time talking about the opportunity as it existed before the convention. (which is fine in terms of investors wanting to know the issues the company will defend in court in the future. They will do just fine.) But guess what we have, new PRODUCT TYPES, that will give Dan that profitability for the company, he was asking about. Heritage essentials are here and are expected to bring gross profits as high as 55%. This is quite a bit better than the 11%. This will bring profits up very quickly. Also There will be a press release by management in the next day or so.(I see if I can post, if there are no objections) They, the management team, are now in complete control of the company. They have the blessing of the courts. The courts have Stan's 5M bond that he personally put up, on record. The revised and better plan is in full force and approval. The Receiver has stepped down and is now in a monitor role. He is learning everything he can about the new flex level plan. He is excited, but can't join as an independent sales representative. (Ok I made that up, but it was fun) New positions have been established in the executive management team with specific geographical oversight, authority, and benefits based on performance of the geographic region. Three basic regions (more on this latter) Great things are happening for the shareholders and reps alike. Wait till the many regionals that come to a city near you. The sales force is already excited and that was with the grim reaper, the SEC pulling ever trick they had on us, for the last few weeks. (All the people I have spoken IHI to have nothing but good things to say about the so called changes. The majority of which had already taking place at the convention) Stan gave numbers of profit, but I will leave that for the press release. Here is the general deal. IHIN is projected to post a net profit for Q1. Strong six figures. It is also projected to have greater profit for Q2. Stronger six figures. Europe is on the horizon before the end of Q4 '98. Regulator, legal counsel from around the country and in europe is being devised for that project. Several new countries are on the horizon. Also 10 Million worth of debt will be converted into stock shortly. Effectively removing the liability from its balance sheet. The stock will be held by those investors for 1 year under standard SEC rules. This will clean up the balance sheet.
That's all for now. Have a great day everybody,
-Lawrence E. Erny
Independent Sales Representative
P.S. Dan the sales rep in Florida want more than there money back. That's all I should say on that specific case as a representative. (There case is weak)
P.P.S. I think the SEC thinks this is a big case. They probably went out of the way to make it clear, there position on there site. That seems pretty self evident. Even the critics would agree that the SEC thinks this is one of the biggest cases they have. All the better. I think, a few in enforcement, the ones on this case, are just excuse me "pissed off." They lost a major battle in court. The permanent injunction didn't have any of the main teeth they wanted. No real teeth at all. They, the SEC, said they are happy with outcome to reporters. Give me a break. They are chapped like a wet tongue on ice. This is apollo at the begining of rocky 2, Well you know what happens to apollo in rocky 2, He loses his butt. That's what goning to happen to the SEC. Is it over? No way, the fun is just getting started, all the better.
They are no where near happy with the outcome of the hearing. Look at the court record. It indicates, They, the SEC, wanted 3 things, (1) The complete liquidation of the company, (2) the removal of Stan and others from the company, (3) the removal of him from the investment banking industry, for life. (they wanted his ass, on the wall.) And when Mr. Hicks pleaded with the court after his case was over and this is what the judge had to say to him: "your case [Mr. Hicks] is not that good." There wouldn't even had been this deal put together unless the judge put a pressure on them to do so. Hell, I'm not a member of the management team at all, but I think all they GOT could have been given over lunch with Mr. Hicks at Subway. But they keep fighting. And they fought hard that last "Thursday," to at least get rid of Stan as the head. Again the court said: "Your case [Mr. Hicks] is not that good." And another thing we didn't even put up a defense, call not one witness. Nothing.
I tell you. This company is ready for anything. And there will be more to come. We are ready, we have everything in our favor. No Hype. You can look at the record yourself.
By the way where is all the great press after "the largest pyramid" is back in business?" Hint: it ain't coming, nor do we need it. The SEC needs to be carefull, it's action could backfire on them. New case law from this case could prove it difficult for them to enforce laws on real schemes. This would not be in the best interest of the public. It could also put into play legislation into being and who do think will win here? The DSA could step in and self regulate the industry with a little more bite and backing of congress. I tell you, the upset pencil heads at the SEC don't have a clue as to the consequences of the acts on this one company. My guess is they are gonna want money via fines and hide from this company before any trail. Either way we are gonna win.)
It great to write... this is really long but lots of investment facts and Rep facts have been included. Also to all reps that are sending me private messages, please include your email address. Thanks much and we see ya another day. |
