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International Sponsoring And Commissioning

Article by: Mark Rawlins | Founder & CEO, InfoTrax
December 9, 2010

If your company is preparing to go international, you need to consider how you will handle international sponsoring and commissioning. You need to consider how your compensation plan will operate in the different types of markets—eCommerce, traditional, and in-person markets. The behaviors you need to reward will vary from one market type to another. You’ll also need to decide how (and if) you’ll reward distributors from one country who sponsor individuals in other countries.

No specific method of International commissioning has become a de-facto standard; all of them create challenges for the company. So you need to weigh your options before your distributors start trying to open new markets on their own.

There are five common strategies companies use to implement international commission plans:

No International sponsoring allowed. Companies which opt for this methodology restrict distributors from sponsoring internationally. So if I’m a distributor from the United States and I want to sponsor a downline in Portugal, I can’t unless I can prove residency or have created a legal entity in Portugal.

No International commission plan. With plans like these, distributors are allowed to sponsor internationally if they are of a certain rank but they won’t receive commissions on sales made by those they sponsor outside their own country.

Partial upline payment. This strategy pays commissions to a distributor who builds a downline in a new country, however payments to this distributor’s upline are limited to a number of generations that is less than the standard commission plan.

Worldwide seamless downline with regional commission plans. This is the middle ground. A company following this methodology will pay commissions differently from country to country. Distributors who sponsor individuals in a country different from their own will receive full commissions on their downline but each commission will be paid according to the commission plan where the product was sold.

Worldwide seamless downline and commission plan. These are commission plans that pay the same all around the world. Distributors get paid on their downline no matter where in the world they do their sponsoring. Quite a few very successful companies have implemented this method of commissioning since 1990. Most of these companies have ultimately created some “seams”—differences in the way commissions are paid from country to country—but have retained the original intent.

The most successful and fastest growing international companies of the last decade have used some form of the worldwide seamless downline. In the early 1990’s a seamless commission plan was very popular. However, as you talk to people in the companies that implement these plans, you’re confronted with the economic realities of trying to make a single commission plan work in a world where per-capita-income is so widely varied.

At the other end of the spectrum you have companies restricting any sponsor relationships from occurring between two countries. Obviously this avoids the frustrations of implementing a seamless worldwide plan, but it comes with problems of it’s own.

Many distributors believe that paying multi-level commissions is not just a method of marketing a product, but also a commitment to a philosophy. Because of this view, many distributors doubt the philosophical commitment of companies deciding not to pay full multi-level commissions to existing distributors as they enter new countries. It triggers the same kind of backlash that a company would get if they opened retail stores, or other out-of-channel sales methods.

Why then do companies open international markets without paying full multi-level commissions? In my experience there are six basic reasons:

Implementation costs. Creating a computer system to process these commissions can be very costly.

Higher commissions. Specific international markets might reach their maximum commission payout at lower sales under a seamless model.

Benefits few distributors. Very few distributors actually build International downlines, so going with a seamless model can mean creating a very expensive program—in terms of payout and operations costs—from which the benefit accrues to very few people.

Commission plan du jour. Companies like having the flexibility to create a new commission plan to meet the needs of each international market.

Operational Horror stories. Seamless international plans do create operations problems for companies that are pretty well known in the industry.

Different regions of the world prefer different commission plans. As a company moves its international expansion to regions where other commission plans are preferred, sometimes it is easier not to be burdened with fitting a new commission plan in with existing plans in other regions of the world.

The important question is would companies who’ve implemented seamless worldwide plans—weathered the difficulties—do it again? A solid majority of senior executives we, at InfoTrax, have worked with who have implemented these plans believe that if they had it to do over again they would do a seamless downline and some form of flexible commission plan strategy.

Why? If you allow for a seamless downline, distributors build the downlines that create the international sales volume. In other words, the hard labor of opening new markets takes care of itself. When you have trained and effective sales leaders they drive the creation of sales volume in those markets. If you don’t have an international commission plan each new market is the same hit or miss proposition as opening the original company. With an international commissioning system in place, each new market can build on the momentum of the previous markets that have been successfully opened.

So why not use the seamless/seamless strategy? Through hard experience companies have learned that other countries cannot be treated as a 51st state. Issues like per-capita-income, business practices, even availability of door-to-door shipping means commission plans must be modified, not so much by geographical region but by economic region.

This does raise the question of why the option of allowing international sponsoring but paying limited upline generations has not been more successful. It seems that once a company steps out of the multi-level channel distributors lose interest, and this is viewed as stepping out of the channel.

Conclusion

There certainly are challenges with an international commissioning system, but I don’t think that blanket statements about increased costs of commissions are valid because commission costs are typically a function of qualifications and many companies do not completely, seamlessly, aggregate qualifications across the world.

In fact, the only statement that we can generally hold to be true about seamless international commission plans is that it means a distributor can sponsor distributors in other countries under some set of rules, and they can receive full downline commissions under some set of rules. These rules have not formed into some standard; almost every company has created their own methods for dealing with these issues. One thing that does seem consistent is the longer a company has an international commission plan, the more seams appear over time.

Another statement that is also true is those companies that have created a successful international commissioning program can often track well in excess 50% of their sales to that program. So working through these issues is paramount if you want to grow your company to its full potential.

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International, Compensation strategy, All Articles

Mark Rawlins | Founder & CEO, InfoTrax

With a career managing MLM/network marketing companies that spans more than 30 years, Mark Rawlins is recognized as one of the pioneers and...

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