Custom MLM Compensation Plan Best Practices

by Lindsey Winsemius - Posted 5 years ago

Are you considering launching your own MLM / Network Marketing company? There is a lot to consider, including the type of compensation plan that is going to fit your business best.

Sometimes existing compensation plans like Binary, Unilevel, or Matrix just aren't going to cut it for your members. That's when a custom compensation plans becomes a potential option.

What is a custom MLM compensation plan?

A custom MLM compensation plan takes elements from other plans and puts them together in a unique way to best fits the needs of your MLM.

Most compensation plans include two main parts: Commission and Bonus. 

The commission is the amount earned when the Distributor, who has purchased the product at wholesale from her/his company, sells the product at retail. Bonus is the amount(s) paid on downline sales. There is normally more than one type of bonus.

What are the benefits of a custom compensation plan?

A custom plan will allow you to craft a plan that will fit your business, and offer special opportunities and rewards to your distributors.

Some of the fastest growing MLM businesses have attributed their success to their custom compensation plans.

One example is Ariix, named one of the top MLM companies of 2018, trademarked the ACTIV8™ compensation plan, which is a form of multiline that doesn’t cap the earning potential for members.

You can see the quick infographic they've put together describing their comp plan below.

Custom Compensation Plan Example

The ability to create a customized plan gives your business greater flexibility, and allows you to provide a completely original opportunity. This will help attract new members and make your business stand out from the many other MLM business.

Is there a downside to custom compensation plans?

To build a custom plan, it does take a little more time than using a pre-built, standard plan. For us, building and testing a plan typically takes several months, depending on the complexity. We’ve been creating custom plans for over a decade, so we have the process down to a nearly perfect science.

Another possible downside to consider is that creating too complex of a custom plan requires a lot of explaining. And if members don’t immediately see the benefits, it might scare them away.

What you should keep in mind when creating a custom compensation plan:

1. Consult with a professional.

Have your plan reviewed by an experienced MLM developer. They can help find potential issues you might not have considered when creating your plan.
Creating an amazing compensation plan is a combination of math genius and marketing acumen. Make sure you’re taking both aspects into consideration when creating your plan. Then go over it with someone who has developed custom compensation plans before. Note any pitfalls or areas for improvement and tweak your plan accordingly. This will save you a lot of time and headaches down the road.

Finally, have an MLM attorney review your plan. Regulations are always changing, and you want to make sure your plan is not only optimized for your business, but allowed in the countries you are operating in.

2. Keep it simple.

As mentioned above, one possible downside to a custom compensation plan is that it is unfamiliar or complicated. You’ll need to spend time explaining it to new members. Keeping your plan simple will alleviate this problem, making it easy to explain and easy for new members to immediately see the benefits. This will make recruiting new members easier, and make your existing members happier.

Don’t create too many rules or exceptions in your plan. Let’s consider the example of Ariix above. One of the reasons their plan was so successful was because of its simplicity. In marketing, we talk a lot about the Unique Selling Point (USP). A unique selling point is what makes a product or brand stand out from the competition. Why should they choose you over any other option?

You’re selling your company, and your compensation plan, to new recruits. It should be easy to immediately communicate the USP of your plan to potential new members. Arixx does this well. “Unlimited Width. Unlimited Depth.”

Keeping your custom plan simple will make it much easier to show your USP to potential new members.

3. Create a plan that fits your company.

It might be tempting to copy a successful plan from another company. After all, why reinvent the wheel? But it is important to remember that what works for one type of company might not be best suited to yours.

A few important factors to keep in mind when designing your compensation plan:

Your company type: MLM or Direct Sales (party plan)

Your product type: Is your product virtual or consumable? Product or service? 

Costs: Customer acquisition costs, profit margins, and product cost will all affect the kind of bonuses and commissions you can create.

International or National: Regulations of specific countries may affect your plan.

Shipping and fulfillment

Distributor tools and training required to successfully sell your product and recruit more members.

The structure of your company, the type of product you have, costs involved with acquiring customers (for the distributor) and profits (for you), where you are marketing and logistics of selling Internationally, and the amount of tools and training you offer distributors will all play a role in determining what kind of plan will work for your business

You don’t want to offer too much of your profits and not be able to afford the training and marketing tools for your distributors; you also don’t want to pay out too little when the customer acquisition cost is high on higher priced products or products with a longer sales cycle.

Creating a plan specifically for your company is crucial to your success, and the success of your members.

When it comes to MLM compensation plans, there are many options. Choosing the best plan is crucial for your business’ success. 

Do you have a great idea for a compensation plan, or just want to talk about your options? We’ve been programming custom compensation plans for MLM companies of all types and sizes for over a decade. We're happy to offer a free initial consultation. Contact us now to schedule yours!

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