How Do Their Cost Structures Look Like?
Comparing various direct selling companies’ figures gives a good picture of how they differ in their operations. It is possible to see the areas where one company is stronger than the others or the areas where another is placing more emphasis on.
This week we will take a brief look into the cost structures of 13 public global direct sellers as they reported at the end of the first nine months of 2015. We will see how the breakdown of costs varies from one another and also the implications on the profitability.
Cost of Sales (CGS)
On the product cost side, RBC, Youngevity and Avon have the highest figures. They are all at or above 40%. Being below 20%, USANA, Mannatech and Herbalife on the other hand, have the lowest cost of sales.
Distributor Commissions (DC)
Distributor commissions is another interesting area to look into. For one thing, it is a major expense item for all direct selling companies. But just as important as this, the compensation plan which is the engine generating this expense is a strategically important part of this business. From the chart, we see that NHT Global, USANA and Nu Skin are the three companies with the highest payout ratios. RBC’s commissions payout though, is way below than all others. This comparison as you see on the table is not complete because not all companies report their commissions expenses as a separate item (those marked as “n.a.”).
Other (OOE) and Total Operational Expenses (TOE= DC+OOE)
From the total operational expenses point of view, Reliv ranks the first place on the high end. Natura has the lowest total expense and the difference between these two is an impressive 28% (Reliv: 81.8%, Natura: 53.8%). NHT Global has a distinct stand here as it manages its business with extremely low operational expenses (12.9%). Youngevity’s figure is just as interesting (15.5%).
Among the 13 companies analyzed, all but two report operational profits. RBC and Reliv post losses here.
Moving from here to net income that includes non-operational income and expenses (ex. interest gains or losses and taxes) as well, Avon and Youngevity join the above two that make losses.
Few final notes on this:
• Avon’s high net loss mainly originates from, as they report, “the negatively impacted effective tax rate by additional valuation allowances for deferred tax assets”.
• If both RBC and Reliv manage to run their business a little more efficiently in terms of lowering their other operational expenses, they can easily start generating profits.
• If Youngevity can lower its cost of sales, it seems it will post profits, too.