Sramana Mitra: You pay what percent as affiliate commission?
David Sharpe: It’s not quite 100% commission because we’ve got merchant, accounting , and processing fees. The commission is between 90-94% for our core product lines.
We’re doing a $12,500 event at the beginning of March. Clearly, there’s event cost for that but instead of paying a $2,000 commission, we’re paying almost a 50% commission. That allows us to pay for the event cost and also gives us a nice margin. More importantly, it’s giving our affiliates a nice commission.
Sramana Mitra: Affiliates are making most of the money and whatever balance that’s left in the pool goes into the operating cost of managing this network, what is your revenue model? Is it the monthly affiliate fees that you derive out of all this affiliate partners?
David Sharpe: Two things, commissions and affiliate fees. My partner and I are also affiliates. One tip that I would give somebody if they’re trying to create a sales force is do what you’re telling your people to do. If you’re only a teacher and not a doer, nobody’s going to respect you. My partner and I went out and became the number one producers, with no specials deals. We became the number one producers in the company by selling our own stuff. That helped us in the beginning months and years of the company where owners don’t make as much. So we, personally, earn commissions from that.
Another revenue stream is from the monthly affiliate fees net operating costs like back-office tools.
Sramana Mitra: Your incentive structure is good, but still you have to market to a large constituency to be able to convert 30,000 affiliate partners. How did you go about doing that?
David Sharpe: It’s not just the company that’s doing that. We’re a direct sales model mixed with a little bit of Network Marketing or a Multi-Level model. So people can actually just go out there and sell products to end consumers because we have a lot of people who use our products. People are also recruiting other affiliates to come in and sell. It’s not the company. The company has spent zero dollars on advertising. What we’ve created is a viral model where affiliates are motivated to go out, share it, and recruit other affiliates. That’s how we’ve grown the affiliate base.
Sramana Mitra: What is the structure? You are at the peak of the pyramid hub. How many direct affiliates do you have? How many did you recruit? I imagine that there is a cascading commission structure for people recruiting affiliates and people recruiting their affiliates, right?
David Sharpe: It’d be very difficult for me to get into the compensation plan on the call just because it’s simple, yet it’s complicated. My partner and I have gone out there and produced not only a lot of sales to end-consumers, but also recruited a lot of other affiliates. We have, over the course of the last two years, over 200,000 paying customers and to date, we have 30,000 affiliates.
Sramana Mitra: I’m trying to understand your business model for people to learn from what you have done. You just told me that you did not recruit 30,000 affiliates. You recruited some affiliates and then they recruited their affiliates and they recruited their affiliates and so on. This tells me that you’re trying to do a cascading multi-layer affiliate model which means that there needs to be a compensation structure around that, if that’s the model that you’ve done.
In which case, we need to understand that model. What is your direct recruitment? How does this model flow because you’re making claims that in two years, you’ve generated $100 million in revenue for this network even though you’re giving out huge amount of commissions to other people. It’s a very significant scale that you’re claiming.
In preparation for this interview, I did some research and there are a lot of people on the internet who asked the question, “Is this a scam?” We ask to make sure that we present to our audience an authentic picture that makes sense so that people understand that you are a credible business doing credible things. Here’s how you do it.
Am I right in gathering that you are doing a multi-layered cascading affiliate model?
David Sharpe: Yes. It’s legally considered a multi-level marketing company because we have multiple layers of people. You can earn commissions on multiple levels.