How To Create MLM Compensation Plan?
13 Oct, 2023
What Is an MLM? How Multilevel Marketing Works ?
MLM stands for "multi-level marketing." It's a marketing strategy for the sale of products or services where the revenue of the MLM company is derived from a non-salaried third parties selling the company's products/services, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system.
Here's a breakdown of how MLM typically works:
Recruitment
Instead of marketing products through conventional channels (like stores or online storefronts), MLM company rely on their distributor to recruit new distributor. This creates a layered structure.
Commissions
For Those who join an MLM or MLM Company can earn income/reward in two primary ways:
- Direct/Personal Sales: By selling the product directly to consumers or customers
- Recruiting Others**: By recruiting new peoples to become distributor. When those newly recruited distributor sell products/services, the original recruiter will gets to earn income based on their sales. If those new recruiter bring in more recruits that also able to generate sales, the original recruiter will entitled to earn commission too, and so on.
Levels or Tiers
This layered, or hierarchical system, usually results in different "levels" or "tiers" of distributor. The more distributor recruit new distributor, and the more these new distributors sell, only the higher up distributor in the tiers can promote to higher layer or ranking. And the more income higher up tier or ranking distributor can make from other distributor sales.
Products
While most of the MLM company often sell legitimate products, in some cases, the products can be overpriced, of poor quality, or both. It's essential to differentiate between MLM businesses selling genuine, competitive products and those where the product seems secondary or less important to the recruitment scheme.
Training and Support
MLM companies often offer training and support for their products, sales and recruitment. Training is extremely important for the success of new distributor. Without proper training and support new distributor would not able to sustain in MLM business.
Buy-in/Stock Up
Many MLM company require new distributor to buy a starter kit or invest in huge inventory upon joining. This means that new distributor are often financially invested from the beginning. However, this practice is not advisable as new distributor might not have the necessary financial backup or selling skill to disposed huge inventory.
Concerns with MLM Business:
Saturation
Since MLM business heavily depends on recruitment, markets can quickly get saturated, making it difficult for new distributor to sell products or find new distributor.
Lack of Income
Many new distributor in MLM business make little to no money, with a significant percentage losing money after accounting for unsold inventory, training costs, and other expenses.
Pyramid Schemes
MLM business are sometimes associated with pyramid schemes. While some MLM company are legitimate businesses, pyramid schemes are illegal and focus primarily on recruitment rather than focusing in product sales. The primary distinction is that legitimate MLM company made their income from sales of products or services, whereas pyramid schemes mostly rely on income generated from new distributor recruitment.
Relationship become Strains
Most of the new MLM participants often tap into their personal networks for for MLM product sales and recruitment, which can lead to strain friendships and family relationships, especially if the party feel pressured to buy or join.
Conclusion:
While some people do manage to success in MLM business many do not. It's crucial for anyone considering joining an MLM company to research the company thoroughly, understand the compensation structure, product and company culture and be wary of promises that seem too good to be true.
