A multi-level marketing company is usually driven through a marketing strategy once the products are to be sold. While the revenue is earned from a people who aren’t working, the earnings come from a pyramid-based commission system.
Although every company has its own compensation plan, MLMs are way different as the payout is only from two revenue streams. The first stream is always paid out depending on the performance of the network marketing professional. On the other hand, the revenue source for the second stream is gathered from distributors who have been a part of the network. Way beyond the common misconception, the business growth is not dependent on the number of people that have been recruited. Instead, the payout is released depending on the sales volume that has been generated over a period of time.
MLM companies normally deal in products which people would be happy to use. Unlike a Ponzi scheme, the business may not generate revenue just on the sake of selling products. While multi-level marketing ensures the worth of buying products, a pyramid scheme seems fake when people repent in purchasing the products. The motive becomes clear when the scheme involves growing the network from every angle.
Marketing Strategy of MLM Systems
A legitimate MLM company always implements a marketing strategy. But, much before any step is taken, the company should be registered under Companies Act 2013. Apart from procuring a license for the establishment, the structure should be clear from the MOA (Memorandum of Association). It should also come with a compensation plan and how the incentives would be paid. While the net worth should be fifty lac Rupees, the paid-up capital should be at least five lac Rupees.
When products have to be promoted, the best way to reach out is through blogs. A person needn’t be an expert in writing, but he can just state what he learnt from the industry and the journey to success. He may also showcase the products through a website but that can be done only after the consent of the MLM company. Social media marketing can just be the next step when product information has to be delivered to a diverse set of individuals.
As time rolls by, the individual can conduct training sessions just to stress on the value of the business and the benefits people can enjoy. He may also teach people marketing techniques and how they can approach as well as convince others to be a part of the network.
Types of Compensation Plans
A network marketing business may fail if an effective compensation plan is thought about. As products are sold, the distributor earns a retail commission without a compulsion of recruiting someone else. So, let’s have a look at the types of compensation plans.
Matrix MLM Plan
This plan restricts the distributor’s network to a certain level. For instance, if it’s a 3x3 matrix plan, then every distributor can only recruit 3 people. Moreover, the volume would be equivalent to the three levels of the distributors (3+9+27=39). In case it’s a 3x9 matrix, then the total size would be equal to 29523. This means that when 3 people are involved, the earning potential is spread across 9 levels (19683 distributors).
Due to the structure, there’s always a limit set to the number of distributors. But, once the positions are filled up, the new recruits are included in the next levels. Whatever might be the size, the distributor should always be careful of who is going to hire. In case the individual is not dynamic, then his behavior might affect the earning potential. Having said that, the risk is low when the matrix or the network is quite large.
Binary MLM Plan
When it comes to speaking about a binary MLM plan, you as a distributor can only recruit two people. The person who benefits through automatic placements would be called as the power leg. Likewise, the individual who doesn’t have to worry about spillovers is called the weaker / income leg. However,the payout may vary on the volume depending on the ratio. This could either be 1:1, 2:1, 2:1 or as discussed with both the individuals.
A binary plan may seem to be the best, but it can always turn into a Ponzi scheme because people are persuaded to buy new income centers. They are further encouraged for balancing the ratio and qualifying for the earnings. Moving ahead, the Spillover effect can impact the plan with false promises. The upline would seem to support individuals to build one leg and give an assurance of becoming rich just by relying on the other leg.
Stairstep Breakaway MLM Plan
Recognized to be the oldest compensation plan, the StairStep BreakAway MLM Plan releases the payout through two ways. While the stairstep plan pays depending on the volume achieved by a single person, the breakaway plan involves paying people who have reached the top rank. After all, though the plan appears a bit complicated, the person can always place the recruits in the first level.
As compared to other plans, the Stairstep plan is structured in a different way. Participants always receive an override based on the difference between their rank and the rank of who they are sponsoring.
For example, if you are the Supervisor with Volume as SV and rebate as SR, then you would earn SR X SV. But, if you have a trainer under you, then the trainer’s commission would be TR X TV. As far as your commission is concerned, it would be SR x SV – TR x TV with (SR-TR) being the override.
When it comes to telling more about the Breakaway plan, then the huge commission is earned by someone at the topmost rank. He then breaks away from the group but avails an override that’s earned by the entire group. In fact, the person would benefit from residual income when he won’t be considered in the organization volume.
Unilevel MLM Plan
In the unilevel plan, the person at the top of the network can recruit people as much as he desires. But, this is not the case with the distributors under him. They are only eligible to increase the earning potential through a certain number of levels. You can actually think this plan to an ‘infinity times certain depth’ matrix plan.
Finally, every MLM company follows certain guidelines for selling products. The company is not allowed to force people to buy more products than their ability to sell. The organization can’t demand an entry fee or any money related to participation. The method of calculating the remuneration should be disclosed clearly once the person is recruited. There should always be a buyback policy and a system to answer the issued faced with the product. In case the person is inactive for almost two years, then the contract can be terminated with a reasonable notice.
Nyk Patel is a passionate blogger by profession and a fitness freak. He likes to do research, editing, evaluation and accumulation of authenticate information on different topics that add value to one’s life.