At least 1 in 13 adults have participated in an MLM company. This shows that your network marketing business could have a large audience that is interested and ready to get started.
However, nearly 44% of MLM representatives drop out after less than a year. Many participants are unhappy with their MLM Company’s compensation structure.
Putting together an MLM compensation plan that works for you and your representatives is the best way to keep them engaged and motivated while ensuring business growth.
Learn how to set up a successful MLM compensation plan with our top 10 tips.
1. Consider Your Business Traits
MLM businesses share similar goals and company structures, but no two are the same company.
Before you begin setting up a compensation plan, consider your individual goals and business traits.
Write down your answers to the following questions:
- What type of product do you offer?
- What are your main business goals?
- What is your business mission and vision?
- What type of experience do you want to create for your distributors?
- What is your cost to consumer ratio?
- What type of training and incentives will you offer?
- Will your company be national or international?
There may be additional questions to consider, but these will help get you started.
Ideally, the answers to these questions will help you make decisions down the road, including which compensation model will work the best.
2. Record Your Numbers
Before you can structure your compensation plan, you’ll need to understand your financial numbers.
Record all current numbers associated with cost, customer retention, distributor performance, and more.
If you’re working on building your business, many of these numbers may be goals.
Consider the following:
- Cost of goods
- Retail price
- Distributor price
- Customer acquisition cost
- Net income
- Profit and loss
- Weekly and monthly inventory
3. Understand the Requirements for any Plan
There are some specific requirements that you’ll need to include in any MLM compensation plan that you choose.
Your distributors will always have a discount on the retail price, otherwise known as the wholesale cost.
All MLM distributors will be structured in some sort of a genealogy model. A genealogy/downline structure means that each distributor has the opportunity to sponsor/enroll others and to sell your products and services.
Each individual that a representative sponsors directly or indirectly is structured into a hierarchy of levels.
Commissions are paid based on sales within the MLM and never based on recruiting. However, compensation is usually based on position.
With these requirements in place, you can begin to research the compensation plan that’s right for your business.
4. Focus on Retail Sales and Value to the End-User
At the end of the day, the customer should be your biggest priority. Before you begin creating an MLM compensation plan, consider how it will bring value to the end user.
With the MLM compensation plans you choose, are your distributors motivated enough to advocate for your product? Ask yourself if the MLM compensation plans will help boost retail sales. Normally, the more incentives you give, the more likely the distributors will be to sell as much as possible.
A successful compensation plan will connect distributors and customers through genuine authenticity.
5. Compare Different MLM Comp Plan Packages
Despite your unique business goals, there are a variety of compensation plans you can choose from.
The best MLM compensation plans include one or more of the following plans
Unilevel Plan, Binary, or Matrix
Each plan will differ in how they are implemented and how your distributors will benefit.
6. Consider Unilevel Comp Plans
The Unilevel Plan is one of the more common MLM compensation plans, and it’s also one of the easiest plans to implement.
In a Unilevel Plan, there is only one line of distribution where you start with distributors who then build a downline organization.
With this plan, each distributor can recruit as many people as possible (unlimited width with a fixed depth). Compensation is based on a simple profit percentage that also considers their level in the hierarchy.
7. Ask if a Binary Plan is Right for Your Business
A Binary Plan is also known for its simplicity, though it structures each initial distributor to have two front-line distributors working beneath them.
These two front-line distributors are often known as the “right leg “ and “left leg.” Compensation is based on a group effort that is commonly calculated using the weakest business volume.
A Binary Plan may be right for your business if you’re looking for rapid expansion. However, the binary structure can become very complex and requires distributors who are willing to work in teams.
8. Learn About the Hybrid Approach
A hybrid approach uses some of the same aspects as a Unilevel Plan.
Similar to the Unilevel Plan, compensation may be based on level. Recruits work their way up to higher pay as the downline becomes bigger.
The Hybrid Approach can help build company loyalty since distributors are more likely to stay in the long-term and reap the benefits of additional representatives that join underneath them.
9. Optimize Your Plan as Needed
After you choose the compensation plan that works for your business, keep in mind that compensation plans for MLMs may need to change from time to time.
As a good rule of thumb, you should assess your numbers and business objectives each year.
Each fiscal year, your number of distributors will change along with your profit and loss. Consider if there are any issues with your current compensation plan.
Look into your distributor turnover rate and ask if you’re compensation plan is building good relationships. If not, your plan may not be sustainable for the long term.
10. Keep it Simple
Don’t let the amount of comp plan options overwhelm you. The different plans mean you have a set of tried-and-true methods to choose from.
Our final tip is to keep it simple and try not to customize and plan or complicate it any more than it needs to be.
Network marketing companies before you have all used these comp plans for a reason.
If you do feel like you need to modify any plan, do your research first and reach out to other members in the industry to seek out advice and partnership.
MLM compensation plans are one of the most important aspects of establishing a network marketing business.
The plan you choose is dependent on your business needs, distributor needs, and overall goals and objectives.
As you’re starting and growing your business, contact MultiSoft today to launch faster than ever or focus on growing your numbers exponentially.