Multi-level Marketing

A Multi-level marketing (MLM) business model, also called Network Marketing, is a strategy in which the parent company sells or markets products directly to customers by direct selling and relationship referrals. The parent company here is responsible for all the management involved.

The parent company is represented by unsalaried, independent salespeople often called associates or distributors, independent owners, dealers, franchise owners, consultants, independent agents, etc. The distributors get a commission which is based on the volume of products and services sold through their corresponding individual independent businesses or organization.

Independent distributors operate by building a customer base that is active who at their end buy directly from the parent company, or they operate by recruiting more people and bringing them into the business as independent distributors. These people are known as downline of the distributor and they also can do the same thing themselves thereby exponentially expanding the organization they are part of.

Independent distributors may earn a reasonable commission on their sales efforts or that of their organization and their own individual effort. This commission comes from their own sales efforts and the sales efforts that are done by their downline as part of leveraging. The arrangement is comparable to franchise arrangements.

The various compensation plans devised by the Multi level marketing companies over a period of time are as follows:

Stairstep Breakaway plan: In this model distributors stand responsible for doing both personal volume as well as the sales volumes of the group. More retails and distributors create the volumes and as process also exist to scale the distributors up in the hierarchy chain.

Matrix plan: This plan simulates a matrix to form a distributor hierarchy. To implement this, a small number of representatives are placed on the first level of the matrix. Once the maximum amount of people have been recruited to fill the first level positions, the next recruits are then placed in other lower level or downline positions. Matrix implantation has a pre- defined depth and width. When the width and depth of a matrix are filled a newer matrix is usually started..

Binary plan: A binary plan is a marketing compensation plan that encompasses many levels. Each distributor is allowed to have two distributors in their front-line. If a scenario comes up in which a distributor may sponsor more than two other distributors, those distributors are recruited at the next level below the sponsor’s front line. The "spillover" is a salient feature of this plan and due to this feature new people only need to sponsor two distributors to become eligible for the compensations.

Hybrid plan: A hybrid plan combines characteristics of various types of compensation.