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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 points about direct selling

Two big points about direct selling are: 1) what it is…and 2) what it isn’t.   And what direct selling is…is so much more than what it isn’t. 

First, what direct selling is not:

  • direct selling is NOT a get-rich-quick-scheme.  Besides con games by professional con artists or out-and-out thieves [and they are criminals by-the-way] , there are no get-rich-quick-schemes.  You might make a profit one day on the stock market, but you’ll lose another day.  You don’t sign on with a direct selling company hoping that magically you’ll quickly get rich.
  • That’s it to what direct selling is not…not a scheme, scam or illegal operation of any kind.  It’s just a business model – a way of doing commerce.

What direct selling is:

  • a way of doing commerce: selling a product or service person-to-person.  You can literally do this one person at a time, or hold a meeting or party in someone’s home or office and demonstrate your product(s).  Direct selling contractors are independent business people who do not have a brick ‘n mortar storefront. 
  • direct selling is a business, and like any other business, your success will depend upon what work you put into it.
  • a direct selling business is an opportunity…a way to earn for yourself either 1)extra money to supplement what you are currently doing, or 2)replace what you’re currently doing altogether [again, depending upon your work ethic and willingness to learn business acumen and selling skills], or 3)be its own opportunity – you don’t currently have income but are in need of some and want the leverage of a business with which you call the shots.

There are many direct selling businesses that are right now offering millions of people around the world the opportunity to either add a little extra income each month or a lot.  Such companies as Avon, B’s Purses and Accessories, Creative Memories, Discovery Toys, Inc., The Kirby Company, The Longaberger Company….there are hundreds.  The Direct Selling Association at this time lists over 200. 

Direct selling…as a phrase…is also not a compensation plan, nor is it catalogue sales.  Phrases such as direct marketing tend to indicate that the message about products or services are directed at end users – definitions vary.   If I were to put a brochure about my product into your hands, then I am directly marketing [literally means informing] you about my product.  It is a function of selling – whether you are in the direct selling industry or any other type of retail sales industry. 

Multi-level marketing, single-level marketing – these are phrases that have to do with compensation plans [how you are paid] of a direct selling company.  The ways of compensating independent distributors vary from company to company.  You would need to do your research and due diligence on the type of product/service and direct selling company you are interested in and then to determine which type of compensation plan appeals to you.  Again, there is nothing evil about the phrases multi-level marketing, they are simply descriptive of a compensation plan.

One other phrase heard a lot is network marketing…again it is a phrase used to describe selling person-to-person.  You build a network of contacts through which you market [inform people] about your product or service.  No mystery here.

Back to my 2 points about direct selling.  1.  direct selling is not something bad that makes your forehead crinkle.  2. direct selling is selling products/services person-to-person.

I am an independent distributor for a direct selling company and love the freedom this type of income opportunity allows.  I did my due diligence.  I found a product I love, a company with which I’m pleased to be associated [as my grandfather used to say: never work for or with something or someone that you can’t hold your head up in society]; and I love the potential for income that this compensation plan shows.  The company with which I’m associated is exciting and right now is offering some pretty exciting things.  If you’d like to know about it, please send me an email.

Have an awesome day.

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