This sample plan will provide you with important guidelines when creating a business plan for a company offering MLM cleaning products.
Earthly Clean is a start-up organisation using the multi-level marketing (MLM) business model to sell environmentally friendly cleaning products. Earthly Clean has been founded by Devon McGregor. The company has been registered as an Illinois LLC.
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Earthly Clean sells a complete line of non-toxic, environmentally friendly cleaning supplies for all possible household uses. Earthly Clean is finalising a contactual agreement with a major cleaning supply manufacturer for the production of a complete line of private label products. Product prices will be quite competitive since Earthly Clean is buying direct from the manufacturer.
Another feature of this relationship which is of significant value to Earthly Clean is the willingness of the manufacturer to allow Earthly Clean to place orders as small as $150. This will assist Earthly Clean in their goal of efficient inventory management.
Products that will be part of the initial product line include: all purpose soap, bathroom cleaner, basin/tub and tile cleaner, detergent, window cleaner, bleach, laundry liquid and a variety of different air fresheners. Earthly Clean is able to offer competitively priced products that are of the highest quality.
Earthly Clean will sell products to two customer segments. The first segment are individual consumers who are purchasing the products for personal (household) use. These individuals are environmentally conscious consumers who are looking for non-toxic cleaners for their home. Demographics for this group are younger, politically liberal people who are interested in making an individual contribution to the betterment of our environment.
The second target segment is a select group from within the first segment of individual customers. Some of these individuals will be recruited to become distributors of Earthly Clean products.
A distributor is a person who sells the Earthly Clean products on their own to their own set of customers. This segment is taken from the actual consumers that purchase and use products. This creates a sales force that passionately believes in the products that they sell.
The distributors that make up this segment receive a sales commission if they are able to recruit new distributors who then make sales. This is how the MLM business model works. Earthly Clean sells to consumers, some of those consumers then become distributors earning revenue for Earthly Clean as well as themselves. If these new distributors attract more people to sell, they then make money on their specific sales as well as money on everything that their recruited sales people sell.
An Efficient Distribution Model
This is an efficient and effective distribution model where the products are purchased private label direct from the manufacturer ensuring the highest quality and low prices. They are then sold direct to the consumer. The traditional bureaucratic distribution model with huge corporate profits is eliminated. MLM businesses are often confused with pyramid schemes which are illegal in the U.S.
Pyramid schemes are business forms that offer compensation specifically for the recruitment of new sellers. People are promised economic rewards for the more people they recruit, independent of what these people sell. Herein lies the crucial distinction that regulatory authorities analyse when determining if a business is a pyramid scheme: The way compensation is rewarded. If it is based on recruitment it is presumed illegal. Earthly Clean only compensates distributors for sales, an effective and efficient sales and distribution system.
Earthly Clean is an exciting new business that channels individuals’ passion for making a positive contribution to the environment and the ability to make money while sharing this passion with friends and colleagues.
By carefully using the efficient multi-level marketing business model, Earthly Clean will quickly generate sustainable revenue. Sales forecasts indicate that sales for years two and three respectively will be $90,000 and $125,000. Net profit for the same years will reach 4.19% and 8.66%.
Earthly Clean’s mission is the development of a environmentally friendly distribution company that uses grassroots and network marketing techniques to sell the product and make a meaningful contribution to the environment. Earthly Clean exists to support its members and to support the environment.
- To create a profitable company that sells environmentally friendly cleaning products.
- Design an organisation that compensates individuals for sales made by other people that they recruit.
- Design a more efficient marketing machine that does away with the inefficient traditional distribution systems.
1.3 Keys to Success
- Distribute only quality, environmentally friendly products.
- Recruit new people to assist in the sales of the products.
- Build the company on a solid basis of integrity.
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Earthly Clean has been formed as an Illinois registered LLC. The company has been founded by Devon McGregor. The company exists to distribute environmentally friendly cleaning supplies through an efficient, networking distribution system.
2.1 Start-up Summary
Earthly Clean has incurred the following expenses for the start-up phases of the organisation:
- Storage space: This will be used for the storage of product inventory. While Earthly Clean could get away with a smaller space such as a closet in Devon’s home, he is able to achieve costs breaks by purchasing larger quantities and will take these discounts and place the inventory in storage.
- Service provider fees: Earthly Clean has incurred both accountant and attorney fees in the set up of the business. The accountant will set up the PeachTree accounting system and the attorney will develop and register the business formation as well as draft some sale agreements for distributors.
- Computer system: The computer system will be used for correspondence, accounting purposes as well as to develop marketing and sales information. The system will include a laptop computer, printer, fax/scanner, and a broadband Internet connection. Earthly Clean will use Microsoft Office and PeachTree Accounting as their preferred software.
- Assorted types of paper and stationery: Personalised with a logo, return addresses, etc. for catalogs, and brochures.
- Assorted office furniture and accessories: The office will be located in Devon’s house.
2.2 Company Ownership
Earthly Clean is solely owned by Devon McGregor. In addition to his own investment Devon has received an investment from friends and family as well as a long-term bank loan.
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Earthly Clean sells a wide range of private label environmentally friendly cleaning products. All products are designed to be effective at cleaning, yet easy and non-toxic on the environment.
Earthly Clean has contracted with a large national producer of environmentally friendly products to manufacture these products with the Earthly Clean private label. This vendor was chosen because of their quality products as well as their flexibility in offering low minimum orders ($150). The following are the initial products that Earthly Clean will offer.
As the company grows they will consider adding new items to the product list as demanded by the market:
- All purpose soap: A concentrated formula for washing walls, floors, cabinets, and all other washable surfaces. Orange oil and sodium citrate based.
- Bathroom cleaner: Quickly and easily removes dirt and grime, cleaning and deodorising the entire house. An all vegetable-based cleaning agent.
- Basin, tub & tile cleaner: Effective at removing soap scum from all surfaces. Citric acid, glycolic acid and orange oil.
- Dishwashing detergent: Easy on hands, tough on cleaning. A mild coconut oil based detergent.
- Window cleaner: A streak free cleaner. Citrus based, either orange of lemon.
- Oxygen bleach cleaner: A wonderful cleaner that works on sinks and bathtubs. Made from sodium percarbonate, calcium carbonate, soda ash, and sodium sulfate.
- Laundry liquid: Concentrated, biodegradable, natural cleaner for laundry. This is a vegetable-based surfactant detergent.
- Air fresheners: Natural, healthful, eco-mists containing essential oils, emulsifiers, and water. Available scents include, wild cherry, vanilla and hazelnut, citrus, lavender, and natural fruit.
Environmental cleaning products were chosen for a several reasons:
- It allows the participating individuals to make a positive contribution to the protection of the environment.
- The environmentally friendly cleaning industry is in its infancy in terms of growth. It is on the verge of market wide acceptance as more and more people are participating in activities that take into account environmental impacts.
- The MLM and environmental cleaning products is a perfect combination as it combines emotional, and economic factors in a selling opportunity to friends and other network contacts. The seller has an emotional reason for selling the products. They also have an economic incentive because if they find additional people to help sell the product then they get additional commissions on product the new people sell.
Because Earthly Clean buys private label goods direct from the manufacturer, even after paying out the sales commissions, their products are competitively priced. This is achieved through the private label procurement as well as the more efficient, grassroots system of distribution.
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3.1 Business Model
Earthly Clean will use a multi-level marketing approach (MLM) to the sale of these products. An MLM approach is a grassroots networking based approach where products are sold direct from an individual (distributor) to the end consumer.
The distributor receives the products from Earthly Clean who buys direct from the manufacturer. When a distributor is able to recruit a new person to sell these products (new distributor) then the “recruiter” receives a sales commission for all of the sales made by person #2.
If person #2 is able to recruit another distributor (person #3) then both the original distributor and distributor #2 receive commissions from sales generated by person #3.
The MLM system in essence leverages peoples relationships and networking skills. It creates the ability to be your own boss, making sales pitches to friends and associates on your time schedule. It creates a common man, grassroots implementation of a real world distribution channel.
This arrangement differs significantly from pyramid schemes which are illegal in the United States. A pyramid scheme is a system where individuals sell products and get commissions from the recruitment of new people to also sell the products. The more people they recruit, the more money they make.
Pyramid schemes are illegal and are broken up when they are found to exist. The regulatory analysis that is applied to determine if the business is a MLM or a pyramid scheme is as follows:
- Is the compensation merely for introduction of additional participants into the programme;
- Or is the compensation related to the sale of goods.
If regulators believe the business is more like #1 it will be found illegal, against public policy, and shut down.
As it stands, Earthly Clean is clearly a MLM venture as participants get compensated for the products others sell, not for the specific recruitment of individuals.
4Market Analysis Summary
Earthly Clean has identified two distinct type of customers. The first customer type is the end user of the cleaning products. These are people with an environmental consciousness in need of appropriate cleaning supplies.
The second customer group is comprised of a select number of people from the first group with an interest in becoming distributors of the cleaning products. The following sections will provide more detailed information regarding these two groups.
4.1 Market Segmentation
Earthly Clean has identified two groups of customers who are the most attractive marketing prospects.
- Consumers of environmentally friendly cleaning products.
- Members of the consumer group who are interested in being product distributors.
These are people who are looking for products that will reduce their individual impact on the environment. Cleaning products are an excellent product category to concentrate on since they can be particularly abrasive to the environment.
Some demographic information for this group is as follows:
- Ages 23-48
- Median household income of $41,000
- 22% of the people commute by bicycle or use mass transportation
- 97% of the people are active recyclers
- The majority routinely consider what consequences their choices or actions will have on the environment.
- 41% are vegetarian
- 93% are registered Democrats
A distributor is an individual consumer who is interested in also selling the products. In the world of MLM, the sellers are called distributors because they are essentially doing the activities that a distributor would do in a more traditional distribution channel.
These individuals have a passion for the product and the time to sell the product to their friends.
- 89% of the people will take on the role of distributor in addition to their already existing part or full time employment.
- They see the chance of selling Earthly Clean as an opportunity to do something that they are passionate about (positive environmental actions) as well as a means of making supplemental income.
- 87% of the distributors will have the goal of signing up more distributors and establish an additional source of revenue.
4.2 Target Market Segment Strategy
The two enumerated customer segments are particularly attractive because they represent people who are most likely to be consumers of environmentally friendly cleaning supplies. The individual consumers have a sensitive perspective toward the environment and are looking for a way that they can have a positive impact on the environment.
Recognising that so many traditional cleaning agents are toxic for the environment, it then becomes relatively easy for the individuals to make a positive contribution. This attitude follows the slogan “think globally, act locally.” Buying these products allows them to do their part.
The distributors are individual consumers who have an even stronger conviction and belief in the products as well as the time to sell the products and find potential people to recruit into the distribution effort.
To be a distributor does not require a huge sacrifice of time, the majority of distributors will have full-time jobs in addition to marketing Earthly Clean. This makes the job of distributor all that more attractive, the person is able to balance their already existing job with another source of revenue and personal satisfaction.
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4.3 Industry Analysis
Earthly Clean arguably participates in two industries, the product industry of environmentally friendly cleaning supplies and the business model industry of MLM. The environmentally friendly cleaning supply industry is small but just now beginning to develop momentum. These supplies are typically sold in health food type stores. These stores generally sell a smaller variety than what Earthly Clean sells, they have just the basics.
Some larger retailers such as Safeway and Alberston’s are beginning to carry one or two products, typically an all purpose cleaner and a washing machine liquid. As the market demands more outlets for these products it is likely that more retailers will begin to sell environmentally friendly cleaning products.
Earthly Clean also participates within the multi-level marketing industry. However Earthly Clean does not, per se, compete within this industry. Currently, market research has yet to find an MLM company that sells environmentally friendly cleaning products.
The largest and most well known MLM company is Amway which sells a wide range of products. Amway is different from Earthly Clean in the sense that the majority of products that they sell are branded rather than private label products. While that is beneficial for Amway in that they are able to use the manufacturer’s marketing efforts to assist in sales, Amway is often not that cost competitive.
4.3.1 Competition and Buying Patterns
Earthly Clean faces competition from several sources:
- Local and national health food stores: These stores typically have a small selection of cleaning products. National competitors include:
- Whole Foods
- Wild Oats
- Large supermarkets: These competitors have a very limited selection
- Mail order/Internet sales: These are remote retail companies that sell a range of products. More often than not these companies sell national brands as opposed to private label goods. Competitors include: