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Multi-level – just another type of compensation plan

Some people get up a head of steam when they hear the term “multi-level marketing.”  For some reason it conjures up for them a spectre of scams or schemes.  Nothing could be further from the truth.

“Multi-level marketing” is a type of compensation plan.  Everyone who earns income derives that income from some type of compensation plan.  Compensation is what you are paid [in money and benefits] for work you do whether as an employee or as an independent contractor.  And, in most all cases of compensation plans, they are all multi-faceted

Take for instance:

Employee compensation plans: employees are people who are hired by a company/business to do specific job tasks – whether that person is hired as the mail room clerk or the Chief Executive Officer, they are employees.  Each employee of a company/business has a compensation plan that may include a combination of:

  1. salary or hourly wage [depending upon the job description an employee could be offered an annual salary, paid by dividing that salary into monthly paycheck amounts to someone paid-by-the-hour worked]
  2. incentives and bonus plans [could be anything from a year-end bonus based on overall company profit and divided among the employees to performance-based incentives to stock shares to car allowances to health club memberships and more]
  3. non-payroll items [meaning you don’t take this money and put it in your bank account] such as health and/or life insurance benefits and/or retirement benefits [not seen so much anymore]

Sales compensation plans: sometimes a type of employee position may have its own compensation plan format within a company, such as for sales employees.  Their compensation structure might include [following list from compensationresources.com]:

    • Base Salary [sometimes a small salary, one that is small enough the salesperson would need to fullfill sales quotas in order to achieve commissions and incentives to make a livable wage]
    • Periodic incentives tied to short-term goals [some companies will hold sales contests]
    • Annual Incentives tied to longer-term sales activities [an example might be “x” number of type ‘A’ car sold in a 12-month time-frame]
    • Commission-based incentives [a percentage of an individual product sale]
    • Perquisites to facilitate sales efforts [I think this might be something like everyone getting a certain bonus who meets the sales quota on a certain product or product line]

Multi-level marketing[MLM] compensation plans are those types of plans devised by direct selling companies for the people who contract with them [as independent distributors/contractors, not employees] to sell their products or services.  A simple definition of a single-level compensation plan [from directselling411.com]:

  • a structure in which a representative is compensated based solely on his or her individual product sales [this is strictly commission-based and direct retail sales…as example: I buy product wholesale from the company and sell it at retail cost to you – part of my compensation is the difference between the wholesale and retail price, and part of my compensation is based on a volume-sold commission structure]

A simple definition of a multi-level compensation plan [again from directselling411.com]:

  •  a multilevel compensation plan pays its representatives based on the individual’s product sales as well as that of their “downline,” which refers to a group of people that consultants bring into a company to generate sales

Now here is where that head of steam I mentioned at the beginning comes from…a misunderstandingof this type of compensation structure.  Direct selling companies can choose between the single- or multi-level plan.  The way the multi-level plan works – very simplified – is this: let’s say I become an independent distributor for a direct selling company with a binary multi-level compensation structure.  Here’s how this might look:

  • the first way of being compensated is strictly retail sales – I buy the product wholesale and sell it at retail – the difference between wholesale and retail is part of my compensation.
  • I interest someone else into joining the company.  I DO NOT receive any incentive commission for recruitment – the signin fee goes directly to the company, not to me.  So, why do I want to encourage others to become independent distributors?  Because in a binary multi-level compensation structure, the person I sponsored will generate sales just like I did – that person will receive their retail portion of the compensation plan.  The incentive for me is that my downline’s [the person I sponsored] sales volume will be tracked and I can earn bonuses and commissions on total sales volumeof my downline organization.  [Note: my downline can do the exact same thing.  Any sales volume that I generate through my retail sales is utilized by my upline sponsors for their sales volume bonus and commission structure.]

Multi-level compensation plans are attractive for direct selling companies – in my opinion – because they are in existence to sell their products.  Just like McDonald’s  is in the business of selling hamburgers, fries and other foodstuffs – only they chose to sell it using the franchise business model – direct selling companies are in the business to sell their products – only they choose to use the single- or multi-level business model of person-to-person selling.

Multi-level compensation plans in direct selling companies are no different in idea than multi-faceted compensation plans for employees of any other type of business.  It’s just a different way to earn income.

**I chose a direct selling company to be an independent distributor with and I like it’s compensation plan very much.  If you’d like to have information about it, email me – I’d love to tell you about it.

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2 Responses

  1. I like the easy way you’ve presented this information. It makes sense.


  2. Thanks, I think all it takes is a little investigation and learning rather than just “assuming” knowledge. Once you know, then the mystery and uncertainty is gone. – Linda

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