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Starting an MLM Company That Will Last, Part 2 Compensation Strategy

Article by: Mark Rawlins | Founder & CEO, InfoTrax
July 6, 2016

Multilevel Marketing is big business. There are dozens of companies (including Infotrax) that sell products and services to MLMs new and old. My company has been supporting companies in the industry for decades. I have seen a lot of companies start: some fail some succeed beyond their wildest expectations, and many others fall somewhere in between.  This article is the second part of two part series on Starting an MLM Company.   This article focuses on how distributor motivations change as a company grows and commissions should match these new motivations.

Evolving distributor motivations

As a company grows, the needs and motivations of the distributors it attracts change. Just as companies are started by entrepreneurs, the first distributors who join a company are themselves entrepreneurs. However, as a company becomes more established, it attracts distributors who are more conservative, and more risk adverse.

These distributors are looking for different things from the company. Geoffrey Moore’s book,  Crossing the Chasm, identifies a consistent pattern in customer behavior when it comes to types of people who will embrace a product or company depending on what stage it is in in its life cycle. This research has been applied to everything from the adoption of hybrid corn seed in Iowa in the 1930’s to high-tech products. In my experience, it directly applies to MLM companies as well, and I believe the principles are relevant for our commission  plan creation purposes.

The basic theory is that any group of consumers for a specific product can be broken down into five categories from “innovators” to “laggards” (Moore). Each of these groups is looking for different things from the company. This is important to know because when a direct selling company starts out, its first set of leaders will be innovators, those who want to get in on the ground floor. It needs their risk-taking and reward-seeking in order to gain momentum. As the company grows, the people who join the company will slowly move from innovator, to early adopter, and so on. If it is successful enough, the company will eventually attract the laggards.

Late majority and laggard distributors are lower risk takers. They are focused more on financial stability and less on the potential of a quick “home run” payout.

This evolution through the life cycle will affect everything about how a company does business, from the type of literature created, to the importance of things like shipping error rate and flexibility in enforcing policies and procedures. For example, innovators are more tolerant of errors, and they want a lot of flexibility.

Laggards, on the other hand, insist on tight policies and procedures and are intolerant of errors. If the company wants to continue its growth, it must also create a slow, but dramatic, evolution in the compensation plan.

This progression for an MLM company will change the compensation strategy because the early majority and the late majority are looking for predictability and reliability; they want to know they are going to make something, but this group is not joining to become overnight mega millionaires.

A company has to be prepared to adapt through the cycle as the types of people who are joining the company evolve from innovators to laggards.

This one concept can trip up many growing companies because their inner circle of distributors continues to be comprised entirely of innovators, even though the company is now attracting early majority, late majority or even laggards. The further into this life cycle a company gets before recognizing this change, the more of a problem it becomes. This is because although innovators and early majority have a lot in common, innovators do not have much in common with laggards.

At some point, the innovators no longer represent the views and interests of the new distributors who are joining. The company culture changes and the compensation plan must change as well. (I believe Crossing the Chasm is a must-read book for the executives of growing companies!)

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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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Comments (1)

  • babajide alagbe - Reply

    Aug 17, 2014

    In the third world countries, there should also be emphasis on familiarization with the company policy and procedures. Most of the time, they are always in a hurry to become rich as most of the new distributors have the erroneous belief that MLM is a get rich quick Scheme

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