The Importance of MLM Compensation Plans in Network Marketing

MLM Compensation Plans

Different business models are adopted by various enterprises in the market based on the industry they belong to, the target audiences, the mission and vision of the business, and long-term targets of the business.

One such business model is the network marketing model, also known as MLM (Multi Level Marketing) business model. The main difference between this model and others is that in MLM business, enterprises do not follow a lengthy supply chain network.

Instead of going through a series of wholesalers and retailers, the enterprise hires agents who meet customers directly and sell the products to them. This model is also called direct selling.

MLM model promotes the recruiting of agents rather than employees. Moreover, one agent can go ahead and recruit a few more agents who, in turn, will recruit some more and so on. As the agents increase, so will the customer base and sales.

But agents are not employees of the business. They are similar to third-party distributors, though the agents have more responsibility towards the brand. So how do they earn money? How does the business calculate payments for agents?

MLM Compensation Plans

That’s where compensation plans come into the picture. To use compensation plans, businesses need to Buy MLM Software and integrate it with the business model. From creating websites to allowing online sales and paying commission, a lot can be done using the software.

In this blog, we will focus exclusively on why compensation plans play a vital role in deciding the success of the business.

  • The compensation plans are used to arrange the agents in the network in a specific order. This helps in knowing the network status and performance of each agent.
  • The percentage of commission that needs to be paid to the agents depends on various factors. The network status of the agent is one such factor.
  • Also, when a new agent recruited by an existing agent, the recruiter is entitled to a small percentage of commission on the sales generated by the new members. This is also calculated based on the type of compensation plan selected by the business.
  • The compensation plan simplifies the process of calculating and paying the commission to the enterprises. The payments can be automated and sent in bulk on a fixed date every month.
  • As the business expands and more agents become a part of it, arranging them in an order will be effortless. The positions are fixed and every new agent will be placed in the appropriate position.
  • The growth of an agent can also be tracked using the compensation plans. As the agent achieves the set targets, his/ her position in the network advances to higher levels.
  • Agents at higher positions will be entitled to more benefits and rewards due to their contribution to the business.

While there are many other reasons to follow a proper compensation plan, enterprises should also know about the different types of compensation plans and their specifications. Not all plans are suitable for every business. Just because a certain plan is widely used doesn’t mean it will deliver great results for the enterprise.

Matrix Plan

It’s hardly surprising that this plan is one of the famous compensation plans in the market. While it is not easy, it is powerful and promises returns to both agents and the business. A business that is steadily growing will find it beneficial to opt for the matrix plan. The matrix is decided in advance with the width and length fixed. The agents are then arranged in their respective positions horizontally and vertically based on their performance and hiring.

Binary Plan

The binary plan is famous for its simplicity. It is suitable for startup businesses with comparatively only a handful of agents. The network structure resembles a tree with one agent at the top and two branches. If the agent hires a third member, this person is placed under the left branch. The process is known as spillover.

Donation/ Gift Plan

This is a relatively new plan and is becoming famous as it delivers super-fast results. The concept here is that a member gives one gift and receives many. The problem with this plan is that can go wrong and lead to losses equally fast.

Enterprises should choose a compensation plan only after understanding how each of them works and analyzing their business needs. When enterprises Buy MLM Software, they can discuss the details with the development team of the software provider and take their assistance in making the right decision.

The compensation plans can also be customized to change the percentage of the commission and the targets that will be set for each level. By carefully following and implementing the compensation plans, enterprises can enter new markets with confidence and get the desired results.

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