To start an MLM business or to join an existing MLM business, it is extremely important to have some understanding about the various compensation plans. MLM compensation plan is the heart of the MLM business. Some promoter had said that “Our compensation plan is our product.”
According to MLM industry expert, Michael Sheffield said with respect to a good compensation plan, “Its absence will be noted more than its presence.”
- MLM compensation plans cannot make or break a company but a fair and balanced compensation plan is necessary to sustain it.
- It may not drive financial success but it may contribute to failure.
- The good compensation plan is aimed to motivate distributors in contributing towards direct sales, to developing wide and deep business, to support respective downlines and maximizing sales volume and its retention.
- Also, they should be as easy as possible so that recruits can understand clearly.
What are MLM Compensation plans?
- It is the method of compensating participants in MLM business or it is the method by which a downline earns commissions and get paid.
- Each MLM company has a compensation plan which precisely summarises how representatives are paid.
All the MLM compensation plans are based on one of four basic compensation structures:
The principle of each of the above structure is that you promote up and earn a higher income by recruiting downlines to sell products and in turn earn a percentage of their sales. The difference is in the building up of a team.
- Is the simplest form of compensation.
- It offers unlimited width with a set number levels of depth. More width, more earning.
- Easy and most accessible for new marketers.
- Each person is a distributor and is at par to others.
- Promotes heavy recruitment to build a MLM organization.
- It has a Binary Tree Structure or a left and a right subtree.
- Promotes recruitment in a down-line of both the legs
- One subtree is called Power Leg and the second is called Profit Leg.
- Provides an opportunity of earning income to several levels down the line.
- Limits the width of each level. For e.g., the 3×5 matrix will have three distributors at each level down to 5 levels. After the top line is filled up, other people can be placed under others to fill the matrix. It is referred to as ‘spillover’
- Teams are build faster as distributors together work to fill the matrix.
- Team members have to work together which may limit competition and motivate better relations with other distributors.
- More than 85% of MLM companies that survive the first 7 years of business are using the stair-step breakaway.
- Provides unlimited width as well as depth
- Distributors can build strong teams under them and achieve goals set by each leg.
- After a certain time, downline can break away from up line and form an independent team. Can earn higher commission thereafter.
- Offers greater stability and longevity.
- Motivates for teamwork and setting up a group goal.
- Difficult for new recruits to understand due to its complexity.
The purpose of this description of plans is to initiate an understanding of various MLM compensation plans.
Ventaforce offers all the plans. With its more than 17 years of experience, it also helps you to decide which plan can work out best for your product and for your organization.