In 2018, there were 6.2 million direct sellers and 36.6 million customers of multi-level marketing (MLM) companies.
MLM companies attract entrepreneurial-spirited people who are looking for supplemental income on a full-time or flexible basis. Understanding how to compensate your distributors fairly is crucial to keeping your highest performing recruits.
Developing an MLM compensation plan isn’t as easy as performing a Google search. The plan you choose should be tailored to your company and business model.
We will explore some commonly used compensation plans, but no two plans are exactly alike. Many companies add twists or extra incentives to attract prospective associates.
Let’s look at 7 steps to designing a plan that will work for your business.
1. Understand Your Company’s Objectives
Before you can design a plan, you need to consider several factors. The plan you choose will depend on many aspects of business strategy, such as:
- Type of product
- Product or service
- Cost to consumer ratio
- Corporate goals
- Ease of sales
- Room for incentives
- Distributor experience
… and more!
Examining these factors will give you a better idea of your company’s goals and objectives. All should be considered when developing a compensation plan that makes sense for your company.
2. Do Your Research
Learn as much as you can about MLM compensation plans before you even think about developing your own. A simple web search is fine, but watching relevant and educational videos that explain the role of compensation plans are even better.
After doing some research, you might have questions about the legalities of specific plans. MLM Is perfectly legal, however companies may break the law by designing unlawful compensation plans (https://www.mymlm.com/avoid-ftg-and-ag-radar/).
It’s important not to risk your reputation and trustworthiness. Seek legal consultation to save time and money.
It’s also important to understand which compensation plans other MLM companies (especially competitors) are using. Search company profiles to find examples of how other MLM companies create compensation plans, how they’re written, and which models are successful.
3. Know Your Numbers
You can’t even begin to talk about compensating distributors until you are comfortable with your company’s numbers.
Take the time to familiarize yourself with the cost of goods of your product, the retail sales price, distributor price, company retention and more. The more you know now, the less surprised you’ll be as questions arise.
4. Choose an MLM Compensation Plan Structure
Now we can begin talking about the various compensation plan structures you have to choose from. While you want your plan to be unique to your business, you don’t have to start from scratch.
There are 4 structures worth considering for your network: Breakaway, Uni-Level, Forced Matrix, and Binary. Make sure you are familiar with each before making a final decision.
A breakaway structure pays distributors deeply on the group volume of his or her downline and the downline of sales leaders.
This structure allows the most successful distributors to start their own organization. Once they break away, their original upline will receive a lower commission rate.
The breakaway structure is most popular with full-time distributors. It has stood the test of time, as one of the original MLM compensation strategies still in use today. However, this structure is not favored by brand-new distributors.
New recruits favor a uni-level structure, as it is the least complicated. This structure is only one level deep – recruiters are only responsible for one line of distributors. This means they are all on the recruiter’s frontline.
In a uni-level, there is unlimited potential for growth, as there is no limit to how wide a distributor can stretch their business. This is good for start-up companies wanting to remain attractive to part-time associates.
This structure is not, however, favored by those who want to work full-time and build a lucrative business.
Within a forced matrix structure, there is a predetermined width and depth matrix.
For example, a 3×4 structure gives distributors the ability to directly sponsor 3 people and earn income 4 levels deep for those recruits. This is a successful way to promote teamwork and gives frontline distributors the most control.
The forced matrix structure fosters teamwork and helps companies achieve greater success, but growth is limited. Many companies that use this structure implement bonuses to help loyal distributors earn beyond their matrix.
In a binary structure, distributors enroll two people below themselves, who then enroll two new people each.
The company will tally sales generated by both “legs,” and pay the distributor based on the underperforming leg. As a result, distributors work hard to train the weakest leg. This creates ongoing support and fosters teamwork.
Binary structures are popular for new distributors as well as veterans who have abandoned other MLM companies. However, binary structures can cause companies to lose profit by overpaying distributors.
5. Hire an MLM Marketing Agency
If you’re starting to feel overwhelmed, consider hiring an MLM marketing agency to help you identify goals, set realistic expectations, and navigate hurdles experienced by other companies.
No one knows everything, and it’s okay to ask for help. If you’re starting an MLM company from scratch, you will appreciate the wisdom of someone who knows the industry. They have seen what works and what doesn’t.
If you have an established MLM company, you might need a fresh perspective. This might be what you need to motivate your sales force and up your bottom line.
6. Consider a Profit-Sharing Program
Regardless of the success of your business in any given year, you want the compensation to remain consistent for your players.
But sometimes you need a way to recharge your team. Consider implementing extra incentives such as a bonus or profit-sharing program. This will give your associates an energy boost, encouraging them to continue their hard work and make more sales.
7. Be Prepared to Make Changes
Just because you did your research and developed a unique compensation plan doesn’t mean it’s foolproof.
When your fiscal year ends, take some time to reflect. Reexamine your MLM compensation plan and assure that it’s still working. Is it falling within your budget? Is your sales force motivated?
Maybe you should consider new incentives or tweak a few areas that need to be reeled in. An unbiased expert will look at your plan with fresh eyes to determine how to ensure the next year is a success.
Stick With What Works
In the end, it’s important to remember to keep it simple.
Be different, but don’t stray too far outside the box. Many companies have learned from their mistakes and it’s okay to learn from them.
Don’t be the first to unveil a new MLM compensation plan unless you have done lots of research and have leaders who will back it.
When it comes to choosing the network compensation structure for your business, don’t settle on a solution alone. Contact us to discover how we can better serve you, your distributors, and your cherished customers.
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