MLM SPOT

MLM Business Models and How Can Affect You

Many people join today MLM companies based on the product and company name without looking on the compensation plan and the business model it follows. An unfortunate event as the two last can greatly affect the chances of distributor to succeed or not.

But how does this happen?

Well, when a multilevel marketing opportunity follows a certain model it encourages its members to adopt a certain behaviour that would help them maximize their earnings. For example if a company pays a big sum for each new distributor you enroll then it is certain that most of the members would get busy in sponsoring new ones than teaching and coaching their downline on how to succeed. Other examples if also followed can lead to disastrous results for the poor guy that joins such a multilevel marketing opportunity.

Of course you don’t want to be into such an opportunity as you will never learn how to build your home business properly and to succeed because your sponsor would be busy making money by luring people into but never following on them. So you really need to pay attention to the business model and compensation plan that a network marketing company follows as it could be the greatest factor that can determine the chances of succeeding with the given business opportunity.

How Do Business Models Drive Behaviour in MLM? by Dale Reynolds

The manner in which we are compensated for our work drives the type of work we do, would you agree? If you get paid just to show up, and nothing more for producing results, why work for results? I must believe anyone who is serious about MLM believes in being compensated for results! However, what type of results are you being compensated for the best? And how does that affect your long-term business?

Some types of compensation are:

* Recruiting bonuses
* Commissions from product sales
* Advancement bonuses
* Leadership Pools

Let’s look at recruiting bonuses. This is the money you are paid when you sponsor a new affiliate. If a company pays big bonuses (or has a contest) for signing people up, what behaviour does this drive? People are likely to sponsor others as fast as they can, even sponsoring some who have no intention of building the business. The sponsor may also fail to follow up with, train, and mentor their new people because they are too busy sponsoring others. The biggest problem with this is, recruiting bonuses are NOT ongoing residual income. You must keep recruiting to keep earning.

Another problem with recruiting, is when people recruit others when they should really be retail customers. Why does this happen? If there is a retail price and a wholesale price, people don’t want to charge their relatives and friends the retail price. They want to offer them the wholesale price. In some companies, this requires the “customer” to be signed up as a distributor. So you end up with distributors who really will never build a business, which is a misuse of the system. By the way, one thing the FTC is looking for to determine if the company is legitimate, is retail sales. They don’t want to see everyone signing up as a distributor. It suggests that the retail prices are unreasonably high.

Photo by Ed Yourdon

Ideally, there should be one price for the product. Let people choose to be a customer, or a business builder, based on their true intention. Distributor A should be paid a higher commission for their retail customer’s purchases, because retail customers are only buying products for themselves. Distributor A should earn a smaller percentage on the purchases of Distributor B, whom they sponsored, because he has the intention to bring in more retail customers and more distributors, all of whom contribute to Distributor A’s earnings. Make sense?

Commissions from ongoing product sales are the true lifeblood of MLM. Loyal retail customers will order month after month because they love the product, not because they have a minimum purchase requirement. Distributors will purchase their minimum monthly amount (at least). The commissions you make from these ongoing purchases are your true residual income. This is the money you should continue to make even if you stop working the business actively. However, some companies have provisions in their policies and procedures which obligate you to keep working the business “forever”, or to keep a certain volume of sales or a certain amount of recruiting going every month. You can never retire from such companies. You can’t even take an extended vacation or extended leave for illness, or they keep your check! What behaviour does that drive? Where is the incentive to drive ongoing purchases, versus just recruiting new people?

Advancement bonuses and matching checks are paid as you advance in rank. Rank advancements require that people on your team are also advancing, and sometimes it only counts if the people who are advancing were personally sponsored by you. So, sometimes there is incentive to give up your sponsorship rights by allowing someone you personally sponsored to sponsor a new person that YOU found. For example, let’s say you need one more of your personally-sponsored affiliates to advance to a “distributor”, so you can become a “super distributor” and earn an advancement bonus plus a matching check on your team volume. You could allow Affiliate B to sponsor Affiliate C, making Affiliate B a Distributor and you a Super Distributor. Now, what if Affiliate B drops out? Even if Affiliate C has now become a Distributor, you are not Affiliate C’s sponsor, so you just lost your new rank (and matching checks on the team!)

Leadership bonuses are percentages of a pool reserved for the company’s top earners. To keep earning these bonuses once you qualify, your team volume must remain high. If you don’t have a loyal base of repeat product customers, you again will find yourself recruiting like a madman to qualify for these bonuses!

I hope I didn’t lose anyone in the details here! But if I did lose you, let me suggest that you definitely should be working with someone who understands such details in order to maximize your opportunity. Being able to interpret your company’s policies and compensation plan is really necessary to your long-term success!

Dale Reynolds
http://dale-reynolds.com
Success is a decision. Decide today!

Related Post