A Binary Schema for an MLM System

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Ashfaq Rahman, Graduate Student, Computer Science Department, School of Engineering & Applied Science,
University of Pennsylvania, Philadelphia, USA
& Lecturer ( On Leave ), Computer Science and Engineering, BRAC University, Dhaka, Bangladesh
E-Mail: ashfaq@cis.upenn.edu
Shafquat Rahman, Lecturer, Computer Science and Engineering, BRAC University, Dhaka, Bangladesh
E-Mail: shafquat@bracuniversity.ac.bd
Mahmudul Islam, Graduate Student, School of CSSE, Monash University, Clayton 3168, Australia
E-Mail: sislam@mail.csse.monash.edu.au
Tanveer Ahmed Nasir, Metatude Software BV, The Netherlands, Dhaka Office
E-Mail: tanveer@metatude.com


Abstract :

This paper will introduce a model for an MLM ( Multi Level
Marketing ) System, also known as a Pyramid Scheme in many
parts of the world. This paper will discuss the system from a
business perspective with an underlying implication of the
information which is maintained and propagated within a binary
tree structure. The first part of this paper will introduce MLM.
Then it goes on to introduce a binary schema for an MLM system
and describes the system at length. The system has been under
successful operation for over 2 years with more than 1,40,000
distribution channels organized in its tree structure. The objective
of the research is not to instigate a debate on the efficacy of MLM
over traditional systems. Rather, the focus is to elaborate a
structure for the system and delve into the technical pros and cons
and their underlying computer simulation aspects.
Introduction
Every direct selling company that has reached the pinnacle of
success in today's competitive market began its business by
offering unique products or services that served a recognized
need. But quality products alone don't sustain a multi milliondollar
growth pattern. By necessity, the company provides a solid
marketing concept and a compensation plan that offers the serious
minded distributor a significant financial opportunity. In addition,
it is critical to provide the part timer and consumer/distributor an
easy way to stay involved at their own specific levels of interest.
In addition, a competent management team and motivated
professional sales leaders will engender success. This is the very
essence of a Pyramid Scheme or Network Marketing or Multilevel
Marketing.
The main objective in MLM is to cut the advertisement cost and
make the buyers themselves work for the company. The consumer
himself/herself is the dealer or distributor of the respective
commodity or service and he/she will get benefit from sales of
his/her down-liners. Different network marketing companies
prepare their system following tree structures of different arities.
Among them binary trees provide the most intricate formulation
of the marketing plan.
As an example a 250 ml Coke costs 5 cents. But the market value
is 40 cents. The extra cost can be credited to a large part to
advertisements. Thus the MLM system reduces this huge cost
overhead by self-advertisement, where the product is propagated
down a tree like structure.
MLM was first introduced by Dr. Carl Rehnborgh in 1940-41 and
was internationally recognized at US parliament in 1958. Over
12000 MLM companies around the World in more than 125
countries are involved in MLM business.
Advantages of MLM over Traditional Systems
MLM has constituted Over 50 Billion US dollars industry
Worldwide and also been regarded as one of the most effective
ways to reach consumer today.
1. MLM can establish a direct marketing system between
customer and manufacturer and in the process, eliminates most
overhead cost on retailing products. MLM is one of the viable
ways for an inventor or manufacturer to put a new product on the
market without having a million dollars and without having to
totally give up their product to someone else.
2. No showroom is required to sell the products and services to
end-user. Word of mouth advertisement system is used to attract
the consumers. It combines 2 powerful forces at work,
Networking and Marketing.
3. Consumer also gets profit share from his/her purchase after
joining the network, thus developing a residual type of income for
life. The very essence is to generate a lucrative secondary income
without quitting the full-time job and also to create income
opportunities for unemployed people.
4. Network marketing is not a full time commitment and there is
much greater flexibility. The distributor can work anytime,
anywhere and no experience is required. MLM can be a great
additional income option for better life-style.
5. Unlimited income options and provisions for sure replacement
makes MLM a “Freedom Enterprise”.
Figure 1: Multi Level Marketing
Vs Traditional Marketing
M A W R C
Company & Distributors 25% & 75%
In fig 1, the path M®A®W®R®C indicates traditional ways of
product distribution from manufacturer M to consumer C. A, W,
R stand for broker commission, showroom cost, advertisement
cost, many middlemen etc. In an MLM system, A, W, R are
replaced by the rectangular box representing an MLM company
and its distributors. MLM distributes the products directly with
the help of consumer distributors who get the profit share. In
Figure 1, the company gets 75%, whereas the distributors get 25%
of the profit.
A Binary MLM System
The binary schema that is being followed by an operational MLM
company is discussed below with full functional details. The
motto is to increase the sales volume and aggregate profit by
offering commission and benefits to serious distributors as per
their sales performance. The binary tree grows as more people
join the net.
Basic Premises
The MLM system has been devised under the following premises.
 
1. There is more financial freedom in having a business of one’s
own than working for some one else.
2. Average people are not capable to start their own business due
to lack of capital and proper knowledge!
3. But if someone can have a capacity of Tk.5,000/- as capital to
start MLM business, the company can help him start his own
business in his spare time and pave the way to self employment
and financial freedom.
Financial commitment and social commitment are the two key
issues behind the evolution of this MLM system.
Illustration of the Pyramid Scheme
1. Anyone starting the business will get a business center for each
1000 points ( or 500 points in the new marketing policy ) worth of
products he purchases.
2. To earn commission from the business center, there has to be
sales points on each side of the business center ( Left Sales
Volume LSV and Right Sales Volume RSV ).
3. When the new incoming distributor sells products or sponsors
some customers, he/she will earn commission.
Figure 3: A Business Center
4. Any person entering into the net can have ‘dealer only’ and
‘dealer with product’ status. The distinction being that for a
person with ‘dealer only’ status, the up-liners don’t get any
points. Each person who buys a product and becomes a dealer, is
assigned 1000 points.
Figure 2 : An MLM System
For example, the tree in Fig 2 is represented in Table 1
Table1: Distribution Center Status for
the Tree in figure 4
Left side Points for A = points for D, E, H, I = 4000
Right side Points for A = points for C, G, K, L = 4000
Figure 3: A Business Center with commission
from sale points on each side. 1000
points for each center
A Dealer with product
B Dealer only
C Dealer with product
D Dealer with product
E Dealer with product
F Dealer only
G Dealer with product
H Dealer with product
I Dealer with product
J Dealer only
K Dealer with product
L Dealer with product
D E F G
H I J K
B C
L
A
Business
Center
(1000)
1000 1000
0 DIN SP
1000 1000
Business
Center
(1000)
LCT RCT
Pool DIN SP
LSV RSV
Figure 4: A Business Center with commission from sale points on each side.
500 points for each center
Similarly, for others,
Table 2: Point status of nodes for the
Tree in Figure 4
The commissions are awarded as follows
Table 3: Commission offered to the
distributors
5. After 4 levels are completed the dealer is said to have
completed 1 cycle and he starts again from level 1.
6. The system here is dependent on balanced binary tree. If a
dealer has completed a cycle with 15000 points on the left side
and 20000 points on the right side then the extra 5000 points is
flushed. So no points can be carried over to a new cycle. Whereas
within the cycle on individual levels, extra points are carried over.
7. A distributor can buy points and add to his total pool points to
conduct his business profitably. He can also distribute points from
his pool to his left and right so as to create a balanced subtree with
a view to maximizing his own profit.
8. A business executive earns special incremental incentives when
his business center earns 4, 8, 16 cycles of commissions.
In our example,
A completes levels 1 and 2.
B completes level 1 and has 1000 points on each side left and so
on.
The values for commission, incentive and points awarded for each
center are subject to change. The values used here represent the
company policy. The point values and commission amounts can
be changed anytime. However, it is wise to maintain an equitable
Node Left point Right point
B 2000 2000
C 0 3000
D 1000 0
E 1000 0
F 0 0
G 0 2000
H 0 0
I 0 0
J 0 0
K 0 1000
L 0 0
Level Left
point
Right
point
Commission
1 1000 1000 1200 Tk
2 2000 2000 2400 Tk
3 4000 4000 4800 Tk
4 8000 8000 9600 Tk
Business
Center
(001)
6000 6000
0
0 0 0
Tk. 7,200/-
0 0 0 0
500
500 500
0
0
0 0 0 0
500 500 500 500 500 500 500 500 500 500 500 500 500
500 500 500 500 500 500
compromise between company profit and benefits awarded to
distributors.
Strategies to run a successful MLM business
MLM can be considered as a scheme where people are paid only
on the distribution of valuable products or services. The MLM
company and the incoming distributors have to take into
consideration the following salient points to sustain the system.
1. Capital:
Cost of new distributor entry sales kit should be modest, making it
easy to get started. A very small amount of capital will suffice.
2. Products and Profit:
The marketing of a product can be based on some criteria i.e
whether the product is meant for personal use or home use, resale
value or shelf value of the product, product demand already exists
or can be created, necessary training and knowledge on the
product which will be distributed within the tree structure,
affordable price and available delivery.
The actual profits are calculated on:
 
 l  retail value–(cost value + handling charge +
damage + VAT) = actual profit.
 
 l The points are given to on actual profits, and each time a
distributor can accumulate a min 500 points, he can ask
for a business center.
3. Work Plan:
The distributor member has to work few hours every week for 2-3
years. The dimension of work includes sharing the concept,
homework to update, contacting the team distributors, attending
the training etc.
4. Training
The distributor has to have the basic training of the system to
operate the business, which involves study of the Application and
Agreement Form, study of the sales and marketing plans, product
and price-list, study of the MLM training books and news,
attending the MLM group meetings and training.
5. We Feeling
The incoming distributor has to be associated with the sales team
all the time and follow the instructions from up line. He has to
stick with one concept and one team.
To sum it up,
In order to build a BIG Network Business, a distributor member
has to
· get the necessary training of the system,
· make a quick-list of the people he knows,
· contact and invite one person a day,
· show the big opportunity plan,
· sit down with active skilful up line(s) for making a time
· plan and a working plan.
· activate the working plan and work for few hours
everyday than huge hours one day!
· He has to learn first how to accept the rejection 500
times, even before he can succeed in his project.
· The ultimate motto for him would be to duplicate himself
and develop down-line leaders.
· He has to further explore new area and expand his
network.
Present status of the MLM System
The Marketing company running with a binary MLM scheme has
40 net offices as sales outlet. Till date, there have been 1,41, 910
distributors in the system at last count. These distribution
channels are organized in a binary tree of height 105.
The MLM company has joint ventures with local industries. As
has been found, the MLM company has to give away a
commission of 80% of its total revenue. The high rate of
commission encourages a tremendous number of new distributors
to join the system every week, creating a huge sales volume for
the products. The snapshot of the system at time of last statement
generation is given in Table 4.
Conclusion
The very essence of an MLM system is to offer commission and
incentive opportunities. An organized way to do this is to
propagate the commission values throughout the distribution
channels in a tree like structure. The greater the pay, the greater
will be the number of people attracted to become new marketing
distributors, thereby flourishing the MLM system. A binary
scheme for the tree has been proposed and its operational nitty
gritty have been explained at full length. The next course of action
would be to analyze the sustainability of the system and generate
data structures, algorithms and techniques for an equitable
computer implementation, thus necessitating a robust computing
research and development.
References
[1]. “The Marketing System of Destiny 2000” from Destiny 2000
Ltd.
[2]. http://www.mlm.com
[3]. “The MLM Simple Success Guide”: Dr. Dean Black
[4]. “The ABC’s of MLM” by Gerald P. Nehra.
[5]. http://www.usana.com
[6]. “The New Matrix Commissions Plans” & “Commission
Plans that Ignite Distributor Behavior” : Book Chapters by
Mark Rawlins.
[7]. “Book Review Understanding Multi Level Commissions and
Their Role in a Successful Company” by Lerory Ball.
[8]. “Binary Search Trees : How Low Can you Go ?” Rold
Fagerberg, Department and Computer Science, Odense
University, DK-5230 Odense M, Denmark.
[9]. “Optimal Rebalancing of Binary Search Trees” by Rolf
Fagerberg, Department of Mathematics and Computer
Science, Odense University, Denmark.
[10 SIAM Journal on ComputingVolume 23, Number 1 pp. 24-
44© 1994 Society for Industrial and Applied Mathematics
Unique Binary-Search-Tree Representations and Equality
Testing of Sets and Sequences : Rajamani Sundar and Robert
E. Tarjan.
Acknowledgement
Special thanks to Mr. Rafiqul Amin along with the other directors
of Destiny 2000 Ltd for letting us develop and implement the
MLM system.
A Snapshot of the MLM system at last count
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
1 1 1 91 0
2 2 2 97 0
3 4 3 0 0
4 8 4 220 3
5 6 5 220 6
6 12 6 42 20
7 22 7 197 26
8 35 8 112 30
9 47 9 210 45
10 77 10 289 56
11 124 11 94 73
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
12 185 12 259 118
13 297 13 188 156
14 407 14 247 186
15 555 15 250 218
16 717 16 265 276
17 852 17 320 384
18 1017 18 211 499
19 1257 19 204 618
20 1503 20 330 739
21 1734 21 215 881
22 1970 22 390 959
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
23 2226 23 318 1127
24 2472 24 248 1294
25 2757 25 214 1425
26 2989 26 224 1547
27 3292 27 267 1738
28 3592 28 305 2004
29 3869 29 275 2207
30 4082 30 261 2357
31 4345 31 266 2367
32 4620 32 263 2338
33 4708 33 249 2463
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
34 4789 34 289 2571
35 4757 35 234 2590
36 4733 36 201 2653
37 4774 37 254 2650
38 4741 38 213 2609
39 4573 39 148 2725
40 4643 40 173 2706
41 4600 41 167 2445
42 4378 42 198 2434
43 4211 43 95 2349
44 4102 44 115 2185
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
45 3983 45 70 2089
46 3735 46 74 1899
47 3567 47 89 1857
48 3394 48 72 1548
49 3085 49 52 1289
50 2664 50 67 1163
51 2310 51 49 1036
52 2022 52 35 1013
53 1788 53 32 912
54 1665 54 20 871
55 1567 55 18 686
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
56 1376 56 14 581
57 1184 57 18 509
58 1009 58 9 429
59 878 59 10 373
60 735 60 8 338
61 665 61 8 304
62 579 62 5 251
63 518 63 3 213
64 458 64 2 165
65 383 65 1 167
66 338 66 38 125
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
67 256 67 25 88
68 210 68 12 91
69 170 69 5 70
70 140 70 5 63
71 124 71 14 59
72 117 72 4 80
73 121 73 1 85
74 129 74 1 71
75 114 75 3 63
76 97 76 3 64
77 95 77 7 66
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
78 93 78 8 67
79 88 79 29 62
80 86 80 12 72
81 94 81 8 88
82 107 82 7 77
83 103 83 5 88
84 115 84 5 100
85 127 85 8 94
86 124 86 8 68
87 106 87 4 85
88 109 88 3 110
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
89 125 89 0 103
90 152 90 2 95
91 151 91 1 76
92 137 92 1 66
93 127 93 0 71
94 115 94 1 47
95 90 95 1 37
96 66 96 0 40
97 60 97 0 20
98 42 98 0 17
99 41 99 0 13
TREE_LEVEL COUNT(CID_NUM) TREE_LEVEL SUM(CYCLE) SUM(CYCLE_LEVEL)
---------- -------------- ---------- ---------- ----------------
100 23 100 0 17
101 32 101 0 6
102 28 102 0 4
103 19 103 0 1
104 6 104 0 1
105 3 105 0 0
Table 4 : A real snapshot of an operational MLM Tree