While there are many factors that contribute to the success or failure of MLM companies, the commission plan is one of the biggest. Commission plans that are not well designed and consequently fail to motivate distributors for whatever reason can become a mammoth obstacle to the growth of a network marketing company. The basic components that should make up every commission plan include:
The questions you need to ask yourself as you begin designing a commission plan revolve around the theme, “What do I want my company to do?” Like any entrepreneur hoping to build a successful business, you need to be very clear on what you want your MLM company to achieve and how you want it to operate in order to achieve that goal. The commission plan you develop and implement needs to reflect your values and beliefs. Those beliefs must guide and control your company. You must develop a commission plan that encourages distributors to behave in such a way that fosters and support those beliefs.Success is more likely when your commission plan drives behaviors that support your company’s values and beliefs.
A commission is an amount paid to a distributor on his/her direct and downline commissionable volume. It usually comprises commissionable volume within his/her own group. Some plans call all forms of payment to distributors commissions. A commission plan is the combination of rules, commission types, and structure that defines how distributor compensation is calculated and paid. By the way, commissions alone do not define the commission plan.
Rules define the qualifications a distributor must meet in order to be paid commissions on downline activity. They also specify the criteria for earning other awards or benefits from the company. For example, do you expect new distributors to purchase a sales kit on sign-up? Do you require them to purchase a demonstration kit? How many months can distributors be unqualified before losing their distributorship?How much must distributors sell each month to remain qualified at the current rank? What are the most common qualifications?
Structure is comprised of the specific set of rules in commission plans that determine where people are placed in the organization. The commission plan defines what the organization will look like. Today, almost all successful commission plans include sales force classifications or divisions. Plans are built on finding ways to divide your downline and compensate the different levels. How do distributors build downlines? What will the downline look like as the company grows? How effective will the organization be in terms of motivation, payout, distribution, and so on? Some commission plans are very structure-oriented. For example, a distributor may be allowed to build his business by personally sponsoring only three distributors. Other commission plans simply require that a distributor do certain things without requiring a specific structure.
In conclusion, few network marketing companies seem to really grasp the skill of compensation. Study and apply these basic, time-proven commission plan components because the network marketing companies that achieve long-term success always have a sound commission plan based on them.
Source: Understanding Multi-Level Commissions and Their Role in a Successful Company, Mark Rawlins.