Going Deep on the
– Business Plan –
Revenue Splitting Model, Marketing & Financial Projection
Revenue splitting model
As a nonprofit, tax-exempt 501(c)(3) organization, EEC’s net earnings cannot inure to any private person or shareholder. However, EEC may pay its expenses, and such expenses may be charged as a percentage of sales revenue—gross sales revenue OR net sales revenue (after cost of goods sold, which is mainly bandwidth). Net earnings are whatever is left after expenses are deducted from revenues. EEC is not in the business of making money—rather, it is in the business of transforming education to uplift humanity and reduce human suffering. Accordingly, EEC has adopted a Revenue Splitting Model illustrated in the following diagram, and explained textually below it.
Referring to the above diagram, the funny green shape is EEC, so diagrammed to delineate the boundary between money in EEC’s accounts versus external sources of funds and external destinations of funds.
The diagram has four circles, with the largest circle containing a partial smaller (blue) circle.
Funds from sales (i.e. Gross Sales Revenue) enter EEC at the top left, and go into the first circle. There, a percentage (probably 45%, but that is not yet finalized), which is the peach pie slice, are paid by EEC as commissions to marketers, under the commission system explained below. The balance (nominally 55%, the gray part) moves to the next and smallest circle. There, the Cost of Goods Sold (CGS) is deducted and moves over to the gray circle on the right, SKIPPING the big circle. What remains from the smallest circle is Net Sales Revenue (“NSR”), which is Sales minus commissions and CGS.
The NSR then enters the big circle, which is the essence of the model. The big circle reflects both MONEY that passes through it, and CHARMS that control how that money flows. As the blue portion shows, there are a total of one million Charms, which control 80% of the funds passing through the big circle. The other 20% is for General Expenses, as shown in the orange pie slice.
What is a Charm? A charm is something that EEC can “issue” in one of two ways. First, a charm can be issued as a Star to a person who is a founder or a key staff member. Second, a charm can be issued as a Heart to an investor. Whichever way a Charm gets issued—as a Star or as a Heart—it controls one-millionth of the 80% of the Net Sales Revenues in the blue portion (i.e., not paid as General Expenses). This is because there are a total of one million Charms. The system is flexible as to whether they are issued as Stars of Hearts.
Financially, 1 Star = 1 Heart. But legally, they are very different. Funds paid on a Star can go to a private person who has worked on the AlgebraVictory, whereas funds paid on a Heart MUST be paid to a nonprofit organization that is designated by the owner of the Heart. This means Hearts are NOT “securities.”
So, when NSR enter the big circle, several things happen. First, 20% is moved out of the big circle and goes to the gray circle on the right. Second, each person who owns Stars gets paid a portion of the NSR equal to his or her Stars divided by the Total Charms (which is one million). Third, for each investor who owns Hearts, the nonprofit that he or she designates get paid a grant equal to his or her Hearts divided by the Total Charms (one million). Lastly, assuming some of the Charms have NOT yet been issued (which will be the case for several years, as we want to hold some in reserve), the balance of the NSR (which will be the NSR times the number of unissued Charms divided by one million Total Charms) is moved out of the big circle and goes to the gray circle on the right.
The gray circle on the right is the General Fund. It receives money from sales revenues not paid out on Marketing Commissions, Star payments or Heart grants. It also receives funds paid in by investors. And from the General Fund, all the other expenses get paid, including server and bandwidth to serve customers, regular staff pay (typically in a fixed monthly amount), and other expenses such as office, insurance, legal, etc.
The pink portion showing Charms issued as hearts to RI (Round One) investors, is exaggerated in size for readability. R1 investors will, in fact, be issued a percentage of the Charms that is a smaller slice of the pie than the pink slice.
Along with building the AlgebraVictory production system, including its sales and payment system, we will build our accounting system, which, in addition to general ledger matters, will include a Marketing Commission System and a Charm System that track and accumulate for each sale how much is payable as commissions and on Charms. The Marketing Commission System will probably close on a weekly basis, paying each marketer the commissions they earned on sales completed that week. The Charm System probably close quarterly, paying Star Payments on the Stars and Heart Grants to investor nonprofits on the Hearts.
Marketing Commission System
The best way to sell AlgebraVictory! is by word of mouth, whereby AlgebraVictory! students and their parents tell other students and parents about it. Our Marketing Compensation System gives them an added financial incentive to do so via fair, balanced, transparent, and 100% legal multi-level marketing.
45% (not yet finalized—see the peach pie slice in the first circle above) of all gross sales revenue is devoted to marketing, and most of it is paid as commissions to those responsible for generating the sales, whom we call Marketers. It works on the basis of a series of numbers called a “geometric series” (which has very little to do with geometry, the name is from ancient mathematical history). In a geometric series, we start with a number and then use a multiplier to generate the rest of the numbers. Like this, where we start at 5 and then multiply by 2 each time:
5 10 20 40 80 160 …
The series can go on infinitely. If the numbers in the entire series are added up, the result will obviously be infinite.
However, if the multiplier is less than one (and positive), such as one-half (0.5), then the numbers in the geometric series will get smaller and smaller (but never reach zero). If the first number is 100, with the multiplier 0.5, the series is:
100 50 25 12.5 6.25 3.125 …
When this happens, even if the entire infinity of numbers is added up, the result is NOT infinite. In fact, in this case, the sum of ALL the numbers in the infinite geometric series is precisely 200. (This is taught in AVCCS.) Hold this thought while we explain how our Marketers operate.
We will build a hierarchy of Marketers. EEC will recruit several top-level Marketers. They, in turn, will recruit additional Marketers, who are their respective downlines and, in turn, will recruit more Marketers. Each Marketer will have (a) a unique Marketer number; (b) one or more discount codes for their customers; (c) exactly one upline Marketer, and (d) any number of downline Marketers.
Marketers will promote their own unique discount codes to their prospective customers. Anyone who passes the Prerequisite Quiz can enroll, and they can access the first several lessons free of charge. But then they will then hit a paywall, where they can get a 20% discount off the subscription price by providing a Marketer’s discount code, which will identify the Marketer responsible for the sale.
As stated above, 45% of the sale price will go to our Marketing Commission System. If no discount code is provided and the full price is paid, the entire 45% commission will go to EEC. Otherwise, the 45% commission will be geometrically distributed to the Marketer whose discount code is provided, and to that Marketer’s upline. The multiplier for the geometric series will be one half (0.5).
For example, suppose our Marketer hierarchy includes a Marketer named Frank with the following upline above him (Terri is a top-level Marketer):
Now, suppose Frank gets credit for a sale because the customer uses his discount code. And suppose the retail price of AlgebraVictory is $500. The customer gets a discount of 20% off the $500 full price (which discount is $100), and instead pays $400. Of that, 45%, which is $180, will be go to commissions, which will be distributed as follows using a multiplier of 0.5 (read the table from the bottom up):
|EEC||$11.25||balance of the $180|
|Terri||$11.25||=$22.50 × 0.5|
|Mary||$22.50||=$45.00 × 0.5|
|Susan||$45.00||=$90.00 × 0.5|
|Frank||$90.00||=$180.00 × 0.5|
|$180.00||Total Marketing Commissions (= 45% of the $400 discounted price)|
Whatever is left over at the top goes to EEC (the more Marketers in the chain, the less will be left over for EEC). But it doesn’t matter how many Marketers are in the upline—the geometric series keeps it fair and balanced. Everyone will clearly understand where the money is flowing.
Also, the balance of $11.25 at the top in the example that goes to EEC will be allocated to international outreach. This means a portion of every sale goes to international outreach, including recruiting excellent top-level Marketers outside the United States.
Our Marketing Commission System is our own species of Multi-Level Marketing (“MLM”), which is legal in all 50 states. And we have some powerful company that will keep it legal. Direct Selling Association (“DSA”) is an association of companies that do Direct Selling, including MLM companies. According to DSA, “Direct selling is a business model that offers entrepreneurial opportunities to individuals as independent contractors to market and/or sell products and services (here), typically outside of a fixed retail establishment, through one-to-one selling, in-home product demonstrations or online. Compensation is ultimately based on sales and may be earned based on personal sales and/or the sales of others in their sales organizations.” MLM is a subset of that (see here): “Multi-level marketing is a type of direct selling recognized by the Federal Trade Commission and used by hundreds of companies, including some of the world’s best-known consumer brands.”
According to DSA, “In 2017, over 18 million people were involved in direct selling (here), accounting for over $34 billion in retail sales.” DSA aggressively advocates for this huge industry, including lobbying the federal government, all 50 states and locally to protect the industry from burdensome laws and regulations. DSA’s board of directors includes executives from the biggest MLM players in the industry, including (among many others) Amway, Herbalife, Nu Skin, Shaklee, and Southwestern Advantage (SA is the oldest direct seller in America, founded in 1855). DSA has approximately 130 member companies. EEC might want to consider membership in the future, but as non-members, ECC and its Marketers fully benefit from DSA’s lobbying activities.
Four-year financial projection: 2022–2025
EEC has no significant financial assets, and it has no debts. Its expenses are slight and are temporarily being paid by another entity. Hence, there is no need to present either a balance sheet or an income statement for EEC.
The following financial projection is presented to give an optimistic picture of possible investment results. PLEASE TAKE IT WITH A GRAIN OF SALT. In reality, we have no way to predict the number of enrollments we will sell in any time period. Nor can we predict how price-sensitive the market will be—the prices shown increase because as later versions of AlgebraVictory! are released, including versions that support automated tutoring, people will likely be willing to pay a higher price.
We anticipate launching AlgebraVictory! in April 2022. The projection is based upon our belief that the hardest part of our marketing and sales effort will be getting from launch to the first 1,000 enrollments. We believe we can accomplish that in the nine months to year-end 2022. During that nine months, we will build our marketing team to several dozen good people, and as students make their way through the lessons and complete the course, outstanding feedback will pour in from parents.
With this firm foothold established during 2022, we think we can multiply our enrollment by ten in the second year (2023) to reach 10,000. Once we hit 10,000, it’s going to get EASIER to grow—we think it’s going to explode and that we can reach 100,000 in the third year (2024) and one million in the fourth year (2025). Obviously, this ten-fold exponential growth cannot continue indefinitely, and the growth rate will decline as we approach some as-yet-unknown portion of the total population of prospective algebra students. In any event, we think is is fair and reasonable to project 1,000 in 2022, and then tenfold annual growth in 2023–2025.
|Projected AlgebraVictory! enrollments||1,000||10,000||100,000||1,000,000|
|Average price per AVT enrollment (increases with later,more powerful versions)||$200||$250||$300||$300|
|Projected AVT sales||$200,000||$2,500,000||$30,000,000||$300,000,000|
|Less Marketing Commissions (45%)||($90,000)||($1,125,000)||($13,500,000)||($135,000,000)|
|Less Cost of Goods Sold ($6 per student)||($6,000)||($60,000)||($600,000)||($6,000,000)|
|Net Sales Revenue (NSR)||$104,000||$1,315,000||$15,900,000||$159,000,000|
|NSR to General Expenses (20%)||($20,800)||($263,000)||($3,180,000)||($31,800,000)|
|NSR to Charms (80%)||$83,200||$1,052,000||$12,720,000||$127,200,000|
|Grants paid per Heart||$0.08||$1.05||$12.72||$127.20|
|Cumulative grants paid per Heart||$0.08||$1.14||$13.86||$141.06|
|Round 1 Cumulative grants per Heart (at R1 price: $5.00 per Heart)||1.66%||22.07%||277.10%||2821.10%|
Thus, if this projection proves accurate, then for each $1.00 you invest now at the Round 1 Offering price of $5.00 per heart, by the end of 2025 your nonprofit will have received $28.21 in grants, which is 28 TIMES your investment! Not only that, the grants will continue to flow into your nonprofit, year after year. The results might not be as good as this projection. On the other hand, they might be even better!
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