Rules define the requirements a distributor must meet in an MLM company in order to be paid commissions on downline activity. They also specify the criteria for earning awards or benefits from the company. For example, how much must a distributor sell each month to remain qualified at the current rank? And, does the company require a distributor to take certain training classes before moving up in rank?
A network marketing company’s commission plan will almost certainly have to include the following two categories of rules: 1) commission qualification rules, and 2) rank advancement rules. A company has to attribute qualifications and rank advancement to the act of work.
Distributors want to be able to depend on a clearly defined set of rules that tell them what they have to do to be paid each month, and what they have to do to advance in rank. Basically, a company builds its qualification rules to set the distributors on the path the company wants them to follow, and then puts in a system of commissions that reward them for following that path.
There are two kinds of qualification rules: those that qualify distributors for rank advancement, and those that qualify distributors to receive commissions each month. This is where the issue of having ranks and lots of commission types creates a challenge for a company. The more ranks a company has, the more rules are required to advance from rank to rank and to qualify to earn each of the commissions associated with each rank. This means the commission plan description becomes more complex. The more complex the commission plan becomes: 1) the harder it is to explain, and the more time you need to explain it, 2) the more confused people are, and 3) the more distributor service people the company has to employ. You see the problem.
Companies can help alleviate this situation by having a consistent method of advancing from rank to rank. The advancement rules should set up a logical, consistent manner for: 1) commission payout for each rank, 2) achieving a rank in the first place, and 3) maintaining qualifications. In general, a company should make the rules as simple as is feasible to achieve the desired results.
In most companies, the distributors advance in rank by building their organizations and increasing their downline sales volume. A company always needs to keep the top rank in mind as it defines the rules for the other ranks.
Another thing to remember is that once distributors reach the highest rank, it’s tempting for them to quit building their organization and “retire.” When a company defines the top rank, it needs to make sure that when people do achieve that rank, their earnings are in line with the respect the company wants the rank to command. For example, if a 4-Star Diamond Rank is the top rank, and some distributors at that rank that are earning only $2,000 a month, it won’t command much respect. This is especially problematic if some 4-Star Diamonds are earning $2,000 a month and others, $100,000 a month.
Once a company decides what qualifications to use, it’s important to build consistency as a distributor moves from rank to rank. A distributor shouldn’t have to build one way to become a sales leader and then change methods to get to the next rank. A company shouldn’t, for example, encourage distributors to build their downline deep, and then switch to having them build their downline wide in order to advance to the top rank. Once a company decides which qualifiers to use, the next question it must consider is if distributors must reach the qualification to achieve a rank within a month, several months, or if they have forever to achieve it.
Caution: Make sure your commission plan isn’t rewarding non-producers. Examine what happens with your plan if distributors fail to produce. Do they continue receiving compensation at the level of their performance? If not, you’re rewarding nonperformance at the expense of performers. What one man receives without working, another man works for without receiving.
In conclusion, if you want to understand a commission plan, you must understand its qualifications and rank advancement rules. If you do not understand these, you cannot understand the plan.
Source: Understanding Multi-Level Commissions and Their Role in a Successful Company, Mark Rawlins.
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