Mlm Compensation Plan

Shortage of cash flow might destroy your network marketing business before you even have a chance to get it off the ground. The truth is one of the primary reasons behind why people abandon network marketing is because they are spending a great deal more on their business than they are generating from it. Negative cash flow doesn’t work in a household budget and it most certainly doesn’t work when building a network marketing business either.

Often times a new distributor goes into the field of multi level marketing with a very short term perspective. They are focused on the original start up cost of getting into their company and purchasing a starter kit, however they have given very little thought to the continuous costs of operating and growing their business. Actually, there are many more ongoing expenses related to operating a business. These costs include fixed costs for things such as the auto ship, phone service, internet hosting, auto responders and domain registration. As well as these fixed costs are the variable and non-fixed expenses like business cards, fuel, training and travel. When these costscosts are added together they can wind up being several hundred dollars every month. Unless the distributor is generating that level of revenue from their network marketing business, they are going to be in a constant state of negative cash flow, tapping into their personal finances to fund the business.

Terms like “diversification” and “multiple streams of revenue” are normal in the business world. Sad to say, most network marketers have tunnel vision when it comes to how they fund their business. Their attention is solely upon their primary company and product. Although this can create some immediate funding, particularly if the company has a profitable retail sales piece linked to their MLM compensation plan, this involves a large amount of sales volume that may not be attainable in the early months of a new business.

The key to creating a solid funding system for your network marketing business is to employ numerous related streams of income that compliment your main business. This not only means that you can generate income from retail sales of your company’s services and products, but it allows you to expand the income to provide greater synergy for your business.

A great way to develop supplemental income streams is through the use of affiliate marketing relationships. Through these relationships the network marketer offers related or complementary products and services to help not only add value to their customers, but also to create new sources of income for their business.

In the world of multi level marketing, the real key to success is the expansion of your sales organization. The most effective plan of action is for a network marketer to offer goods and services that are helpful to other network marketers. This not only creates value by positioning the marketer as a leader, but it also allows the marketer to find other like minded entrepreneurs, who may be a good fit for their business.

Within my business, I have chosen to utilize MyLeadSystemPro to achieve this outcome. MyLeadSystemPro has 17 different affiliate relationships built into their system and they provide the training that allows you to benefit from those relationships. These affiliate relationships are with different business building tools that are offered via automated messages sent out by the system. When a marketer utilizes those tools in their business, it creates revenue in mine. I have been doing this for over a year and a half, during which time I receive multiple checks every month that have afforded me the opportunity to expand my network marketing business and run at a profit month in and month out.

If you are intent on seeing your business succeed, you need to take the steps necessary to fund your network marketing business for the long haul.

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MLM means Multi-Level Marketing. It is also called Network .
When we talk today about MLM we mainly mean recruiting a lot of novice marketers fast. Why fast? The answer to this lies in the dynamics of the MLM plans. In an MLM compensation plan the incentive of a marketer is propotional to the number of direct and indirect referrals he have. This creates an exponential phenomena. Lets say every marketer brings in only 2 more marketers. This means that after n iterations you will have (2 to the power of n) minus 1 marketers (i.e. (2^n)-1), a number which explodes exponentially.

Because of this exponential explosion, it is very hard to control such a plan. Our mind as human beings is used to think linearly, but when we encounter an exponential phenomena we loose most of our intuition and it is very hard for us to come to conclusions and predictions. Due to this difficulty many people are trying to learn MLM marketing tricks from the MLM veterans.

I would like to try to analyze the MLM plans with some traditional economic tools. As a first try, lets see what is the break-even point of a MLM marketing organization. So, how much money should the marketers make in order to sustain the marketing organization? There are two kinds of marketing organizations here, one is the company marketing organization which contains all marketing people for the company. The other is the local marketing organization for each marketer, which contains the marketer and all his referrals. In this analysis I am not counting the staff of the company that makes the products.
There are many MLM plans in the world, each with its own characteristics and “break-even” point. As an example, lets analyze an MLM strategy that is called “MLM Matrix plans”. In these plans there is a limit to how many marketers each marketer can have directly under him and also a limit to how many levels under the marketer he is making money from.

Lets have D as the number of marketers allowed to be directly under each marketer, and L as the maximum number of levels the marketing organization can be for each marketer. In most MLM plans the marketer is required by the company to buy a minimum amount of its products or services. So, lets also assume each marketer is required by the company to pay C dollars to get its products or services. In that case the break-even point of a local marketing organization is: (D^L-1)*C.

That means that if the marketing organization of each marketer is earning that amount then the company marketing organization will be stable. Since not all marketing organizations will be full matrix in an MLM, we might have a lower break-even point in reality, but this will need a deeper and more complicated mathematical model. This means that the break-even point for the company marketing organization is smaller then (D^L-1)*C*M where M is the number of marketers.

For further discussion you can visit read my mlm Blog posts.

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