Reader Report: Figures Don’t Lie
A reader sent me another mathematical analysis of the LIFE compensation plan, looking in detail at Orrin Woodward’s claim that 70% of LIFE’s compensation dollars go to 95% of the distributor force. The reader calls BS on this, demonstrating that even in a perfect scenario, over 50% of the money goes to the top 5% in the network.
Note: I have edited the analysis slightly for added clarity.
On November 4, Orrin Woodward posted an article on his blog titled ‘LIFE Compensation Plan‘. Not only are the statements made in the article questionable, but the numbers that Orrin states in his article are wrong.
Do you want to know how the LIFE compensation dollars will be allocated and distributed? This post address and clarifies the obviously debatable figures and allocation of compensation dollars in the LIFE compensation plan.
Here is what Orrin said:
‘It is here. The launch of LIFE and the compensation plan for building communities of leaders is finally here! Imagine a compensation plan that doesn’t top out at 25%, 35% or even 45%, but rewards through volume discounts up to 50%. This isn’t even touching upon the seven depth bonuses paid out for building secure long-term businesses. LIFE isn’t a plan to get a couple of people wealthy with everyone else trying really hard. Instead, it’s a plan where 70% of the revenue is paid out to 95% of the people, meaning everyone who is moving LIFE Leadership materials will receive a bonus if they have at least 150 points worth of total business and have personal volume/customers.’
Orrin states that 70% of generated revenue with LIFE will be shared or paid out to 95% of those involved. It is not clear, or understandable, what method was used, or exactly how this could be possible with the compensation plan in its current state.
No matter how one works the mathematics they will not match or even come close to matching the supposed income distribution as stated by Orrin. Either this analysis is correct, or LIFE and its representatives are correct, which is it?
Maybe someone from LIFE can help explain how 1 + 1 = 3, because no matter what hypothetical situation is drawn, the statement by Orrin is arguably incorrect. Was this a ‘misspeak’, or does Orrin simply not understand the plan which LIFE is employing?
To illustrate the point, lets create a hypothetical situation and a hypothetical team on paper and get very specific about where the money goes. To be more than generous, we will place the benefit of every doubt in favor of LIFE in each situation. Finally, to avoid the appearance of a bias, we will figure everything from the perfect scenario of a 2×2 structure.
Here, everyone enrolls only 2, and everyone generates $150 in personal volume, with $100 of that volume coming from end users outside of the compensation plan. Since LIFE now has a $50 customer requirement, we will even double that, which — one would think — would greatly enhance the profitability of the entire network. This ‘structure’ would take the most money from the compensation plan, and place it in the pockets of would be LIFE distributors, at all levels. Despite this perfect scenario, we will soon see that the figures do not match with the promise.
For all intended purposes our hypothetical structure is as follows, a perfect 2×2 network, starting with you and continuing for 6 generations below you. Each person will maximize the plan with $150 personal volume, and enroll only 2 distributors, to be exact, the number of distributors you personally enroll is of no consequence, because Life is a volume driven business, very similar to Amway. In this scenario there will be 127 total distributors, including yourself, with $19,050 of subscription volume. For this post, we will only look at the 50% promised payout, and will not even delve into the depth bonuses, because in all reality, the depth/leadership bonuses, even paint an uglier picture than I will show here. So to be fair, and objective, we will only focus on the 50% payout spoken of by Orrin, promised by Life, and the allocation of those dollars.
Is it possible that 70% of revenue can be paid out to 95% of distributors? Where do these dollars go in a perfect scenario? Could a perfect scenario be created? Does a perfect scenario ever happen in a network? You see, to illustrate a point, I have stacked all the cards in favor of the Life compensation plan. Here are the results.
This simple graph illustrates the injustice in the basic MLM compensation plan. In the original blog post by Orrin, 70% of revenue was to be paid out to 95% of the people, but in reality, and with all numbers and statistics greatly swayed in favor of this plan, 95% is sharing a mere 47.15% of all available compensation dollars. The remaining 7 people, or 5% of this entire network is sharing 52.85% of all available compensation dollars. What does this mean? This means that even if everyone maximized the plan (impossible) over half of compensation dollars go to those at the top of the pyramid.
I hope you understand, this is as good as it will ever get with this compensation structure, this is a pie in the sky scenario that has been drawn up and presented here, one that never happens. But if by some miracle you were involved in a perfect scenario, and built a perfect model this is what you could expect. You see, levels 6 and 7 which consist of 96 people or 76% of the network is not even earning enough to pay for their own $50.00 subscription, in spite of having two non-earning customers on $50 subscriptions themselves.
In conclusion, lets quote Orrin again from August 18, 2006, where he spoke of those who know and understand the true mathematics of MLM compensation plans. Orrin wrote:
“Figures Don’t Lie — But Liars Sure Can Figure” ’Statistics can be great tools in leading us to proper conclusions, but when used in the wrong context can lead you into many wrong conclusions. In one famous headline it was stated that 50% of the presidents of the USA were found to be above average. (Since average is the 50th percentile this statement is redundant.) Learning to think through someone’s arguments and statistics will many times be the difference between failure and success! In a similar vein, many of the statistics on the Team success rate is another journey into wrong statistics at the wrong time.’
It seems as though Orrin has fallen victim to his own statement made on August 18 2006. It is evident from the above table that 70% of compensation dollars do not go to 95% of the network, even in a best case scenario. At least Orrin is correct about one thing when he said ‘Figures don’t Lie’ , and where exactly does that leave him and the Life compensation plan?
Update November 16, 2011: In light of Orrin’s revision to his original post, the original author of this reader report sent me this response:
In light of the recent revision of your previous post titled ‘LIFE Compensation Plan’, I felt it obvious and necessary to respond and clear the air regarding my ‘poor math’. I have chosen to respond to the entire article again, and see if we cannot wade through your response that is nothing more than a Red Herring argument, and make some sense of all of this.
In the future, I would suggest that when you use spurious accounting, use numbers that make sense and don’t just sound good to a bunch of people who have no idea of (1) exactly what they are involved in, (2) how they are getting paid, or (3) that are going to believe you regardless of what you say.
Imagine a compensation plan that doesn’t top out at 25%, 35% or even 45%, but rewards through volume discounts up to 50%.
Now I may be incorrect, but I am going to assume that with this statement you are trying to point out just how magnificent the LIFE compensation plan is, and how equitable it may become for those who choose to get involved. Is my assumption correct?
Do you really believe that 50% or even 70% is generous on a product that has virtually no production costs? Since 30% or $15.00 is still coming back to LIFE, perhaps you could explain what that money is for, and who it goes to. Now I am not naïve enough to believe that LIFE has no operating expenses, but a 30% gross margin with hardly any production costs is huge. Walmart has a 3.48% net profit margin, Ford motors operates (and pays stockholders) with a 4.99% net margin. Why would life need 30%, and do you care to share with your members exactly what the net margin for LIFE is?
I looked up cd replication long ago, and I can have 1000 cds stamped for anywhere between $100, or .10 cents each, and $1500 dollars, or as high as $1.50 each if I want artwork and a 4 panel jacket. I tend to believe that with your high volume discount, you are probably a lot closer to the 10 cent cost than the $1.50 cost. You cannot expect anyone to believe that 70% is generous, when the cost of production is close to nothing now do you?
You then wrote:
This isn’t even touching upon the seven depth bonuses paid out for building secure long-term businesses.
Let’s get real here Orrin, these bonuses are not applicable to 99% of everyone involved with LIFE, so why place so much emphasis on them? With mitigating factors in place, you will be hard-pressed to have greater than .01% of those involved ever be able to earn from these other two categories.
First off, you are offering 8% through the leadership bonus which only 1% maximum can achieve if everyone in their team has 2 retail, non-commissioned customers. For every LIFE Associate who doesn’t have 2 retail customers that 1% will be cut drastically down to LESS than 1%. If LIFE members can each only fulfill the minimum requirement, and have 1 subscription customer at $50 , then the money accessible to 1% will be available to ONLY 0 .66 % of members, or just over 1/2 of 1%.
Now if by some crazy chance LIFE turned out to be an internal consumption model (I know that could never happen with the quality of the training materials and the power of the dream) then the 8% Leadership Bonus would only go to a maximum of 0.33% of everyone involved.
The question then is this, in addition to the 20.6% of compensation dollars from the previous table, we can add an additional $8 or another 11.5% of compensation dollars so that 32.1% of all compensation dollars are going to 1% (OR LESS) of the entire field of LIFE members.
Is this what you meant Orrin when you wrote, “LIFE isn’t a plan to get a couple of people wealthy with everyone else trying really hard.”?
Because honestly, I do not understand what you meant by this. From my intellectually impaired standpoint, it appears as if it is in fact just that, a plan to get a couple of people wealthy with everyone else just trying real hard.
Furthermore, there is an additional 8.5%, $8.50 or 12.2% of total compensation dollars, that are made available through the Depth Bonus Program. And I won’t bother pointing out the math on this one for illustration purposes because yes, it is held for less than 1% again. So the total amount held for less than 1% of everyone involved is an ASTOUNDING 44.3% of all available compensation dollars. Now I may be an idiot, but doesn’t this leave only 55.7% of compensation dollars to be shared between 99% of the rest of the members? I am sorry, but I will have to call B.S. on your original statement.
You then wrote:
95% of the people means 95% of the members will receive a bonus check since the first level is 150 points) (No where do I say, nor did I ever intend to say, that the bottom 95% of the people receive the 70% of the revenue.
Understand that this is your biggest Red Herring argument. Where exactly did you come up with the number 95%? Can you honestly say that you know that 95% of everyone involved is going to get customers and qualify for a $7.50 check? Again, if you are going to use PFA (plucked from air, surely you must be plucking these figures from the air) accounting, why not just say 100%? It would really sound more impressive if you included everyone in the equation and didn’t leave out 5% of your members. Now I may not know or fully appreciate the quality of your materials, but to assume that 95% of everyone involved will generate customers and qualify for commissions is a stretch of anyone’s imagination. If that were true, then I am sure you would be setting the new industry standard, and CEOs worldwide will be flocking to you to find out the secrets of your success.
You then wrote, ‘Never before has a plan shared so much with so many, but that is how LIFE TEAM is going to reach 1 million people – by rewarding everyone who does the work based upon results.’
Now honestly Orrin, you cannot expect me to buy into this notion do you? I can point out no less than a dozen companies right off the top of my head that share so much more with so many than the LIFE compensation plan does. You may be paying out 70%, but sharing it, hahahaha, perhaps you need to learn what the word ‘sharing’ really means. Because placing more money into your plan than most companies (70%) does not necessarily mean that it is shared by so many. As a matter of fact, there are many plans that pay way less than 70% but have a much better success ratio. Your basic break even ratio is 21:1, and there are so many, plans that beat that ratio by 2, 3,4, and even 5 times. Look at Visalus, Xyngular, RevvNrg, Xooma Worldwide, Nuriche, etc. etc., all of these have way better ratios than the LIFE plan does. Again, please do not exaggerate, or spin the merits of your plan. A 70% payout is one thing, but ALLOCATION is what matters.
Then you wrote:
The LIFE compensation plan is a game changer and one of the key planks in helping the TEAM reach 1 million people. The rewards for building communities and hitting new brackets is second to none with all subscription dollars to points being 1:1. In other words, 100 dollars of subscription volume equals 100 points.
Almost every new company is using a 1:1 ratio, is this something special? And exactly how is this compensation plan second to none? A Stair-Step Breakaway plan Orrin, really? I expected more from you than an antiquated model that is a carbon copy of a plan (Amway) you so emphatically disagreed with. Don’t you know that Stair-Step Breakaway models have a tendency to encourage inventory loading? At least with inventory loading in Amway or Monavie, you have a consumable product that could eventually be used or sold on eBay. What are people going to do with all of their cds and books? Will eBay be overloaded with LIFE materials?
[Editor’s note: LIFE’s policies and procedures prohibits the sale of LIFE tools on eBay and other online auctions. MonaVie says the same thing, but that hasn’t stopped the flow of juice on eBay.]
This is going to be humorous. I know you would not want that to happen to those people you are trying to help now would you? A Stair-Step Breakaway has a tendency to pay those at the top more money, it’s the nature of the plan, it is hard to avoid. It’s obvious that the LIFE plan falls squarely into that category. Did you design it that way on purpose?
Additionally, we all know that your goal is to have 1 million people on your team you have been saying that for decades now. The only way that this can possibly happen would be to solidify the foundation of your group by bringing people into profit quicker and cheaper. Do you realize that you could push the same 70% through a single line forced matrix with global bonus pools all the way up and increase profitability at the bottom by 700%? The LIFE Plan in its current state is nothing more than the Amway plan reworked with a little extra money thrown into the body and a whole lot more thrown in at the top. I thought you disliked the Amway plan Orrin, but not only have you now copied it, but you have even made it even more profitable for the elite at the top. Could this be self serving? Inquiring minds would really like to know. So cut the stupid revisions on your blog, and belittling my capability to do math. It’s more than obvious, that perhaps you are the one with a math problem.
To conclude, I believe that you are in direct violation of the following LIFE policies Orrin, does the P.C. know about this? Your direct violations are noted here in bold:
188.8.131.52- Deceptive Postings
Postings that are false, misleading, or deceptive are prohibited. This includes, but is not limited to, false or deceptive postings relating to the LIFE opportunity, LIFE’s products and services, and/or your biographical information and credentials.
You must ensure that your postings are truthful and accurate. This requires that you fact check all material you post online. You should also carefully check your postings for spelling, punctuation, and grammatical errors. Use of offensive language is prohibited.
And possibly this one, if you did not report the Amthrax post to corpsupport.
184.108.40.206- Responding to Negative Posts
Do not converse with one who places a negative post against you, other independent Members, or LIFE. Report negative posts to the Company at email@example.com. Responding to such negative posts often simply fuels a discussion with someone carrying a grudge that does not hold themselves to the same high standards as LIFE, and therefore damages the reputation and goodwill of LIFE.
So in closing Orrin, perhaps you should follow the LIFE Policy and Procedures and in doing so set a better example for your team. And by the way, don’t forget about that math class.