Fixed Matrix Comensation Plan

The fixed matrix is a unilevel plan with fixed width with the member being paid percentage on each level. In other words, you could have a matrix 5 wide by 5 deep. This would you give you a total of 3125 members in a fully loaded matrix.

Aim
The aim is to develop a full matrix. To do this, the member must have 5 recruits who have 5 recruits and so on until the matrix is full. Unfortunately, not everyone plays the game. A successful member would therefore land up recruiting more than 5 people with the overflow being placed into the wholes in the matrix. For a person who plans on doing nothing this is a fantastic plan. You join, do nothing, your team grows and you get money. For the people doing the work it can be very frustrating. As you can probably tell, I am not a great fan of te fixed matrix plan.

Drawbacks
The fixed matrix plan suffers from the same drawbacks as the unilevel plan. Due to the limitation in width, it requires a great deal more creativity to make it profitable.
Once the matrix is full, the member is required to take up a second position in order to grow his business.
Sales happening below level 5 in this example would be lost to him.
Inactive members in his matrix could lead to loss in profit.

Making the fixed matrix plan work
Making this plan work requires a little more creativity on the part of the company:

• Compensation Compression
  This is a mechanism that allows a member to be paid on sales happening below his 5th level by skipping inactive members in his matrix. Let’s say you have a team that is 5 levels deep and your frontline member is inactive. This would effectively give you just 4 levels to earn from. Compression compensates for this by paying you on the 6th level. If In this way you are always paid on five levels.
  
• Matrix compression
  This mechanism literally removes inactive members from your team and places their downline member in the gap. By compressing the team in this way, you eliminate the gaps created by inactive members.
  
• Multiple positions
  In most cases, the only way to build a team is to hold multiple positions in the matrix. This is great for the company as they can recruit the same person multiple times. It is not so great for the member as they are having to buy additional positions in a company that they already belong to.
  
• Value Positions
  Some companies will sell you a more expensive position that allows you to generate a higher percentage from each level.
  
• Promotions
  It is also common practice to create a rank structure that pays greater commission on deeper levels. As the member rises in rank, they are paid greater percentages or they are paid on deeper levels.
  

Conclusion

I feel that the disadvantages of the matrix plan far outweigh the advantages. I would therefore not recommend this type of plan to a client.

Unilevel Compensation Plans

The unilevel compensation plan is great grandfather of all compensation plans. It is based on the principle that you recruit as many people as you like and they do the same. The team will therefore grow wide and deep in a fairly haphazard structure. You are then compensated based on depth.

What does this mean?
Let’s say you recruit 25 people personally. You are said to have sponsored these people and they are in your fist level. If these 25 people together sponsor a total of 7 people, your team size grows to 32 people with 7 of them on your second level. This theoretically can go infinitely wide and deep.

A simple plan would typically pay 5% per level, 7 levels deep. This means that any sales that take place within the first 7 levels of your network will earn you 5%. Any sales that take place in level 8 and deeper will generate no income at all.

Break even
The unilevel plan is usually associated with subscription based structured payment sales and the network member is usually required to be one of the subscribers.

On the surface this seems like a simple and effective plan but if you start doing the math you realise that there is an intrinsic and I believe substantial flaw. The big drawback is that only a small percentage of the membership will be able to break even and an even smaller percentage will be able to make money.

This is easily calculated:

• Take the 100% (being the total month investment made by the sponsor) and divide it by the average percentage payout across all the levels. This gives you the number of members needed to break even.
• 100 / 5 = 20
  Only 1 in 20 people are breaking even therefore 95% of the network fails.

The unilevel plan does however have a number of strengths that make it almost irresistible to most companies.

• It is very simple to explain.
• It drives recruiting as there is no other way for a network member to make any money.

Making a unilevel plan work
I don’t recommend using a unilevel plan by itself. It can, however, be very effective as part of a larger plan. Many companies use the unilevel concept as the core of their plan and build mechanisms that reduce the impact of its weaknesses.

Compensation Plan example
In the following example we will use the unilevel as the core of the plan and build a number of mechanisms to reduce its negative impact.

Let’s start with the core:
The first aspect of the plan that need to be developed is the unilevel core. The following is an example of what that could look like:

Adding Breakage
Next we need to build in some breakage. To do this we add qualification requirements. As a persons rank status increases, the compensation plan will pay on additional levels deep. The converse is also true. As the rank status decreases, the compensation plan will pay out less.


Group volume bonus
To encourage leaders to develop leaders we will could ad a Group volume bonus. This type of bonus is also known as an infinity bonus. It pays on every person in your team that is at your rank or below and it pays infinitely deep. In the table you will notice that a Double Diamond (DD) will ear from someone of a Diamond and a DD but not from anyone who has a rank above DD. This is an additional form of breakage.


Next we will add a once off promotion bonus. This bonus is paid out the first time the member reaches a rank. If they fall back to a lower rank and are promoted again they will not receive a bonus.
NB! All the above commissions are calculated on the wholesale value of the sale.

Lastly we need to ensure that everyone is also focused on sales. We therefore ad a sales discount of 25% and a volume based personal sales volume bonus of 5% if the member personally sells over a certain volume.

This compensation plan will pay out a maximum of 54% in commissions and 25% in discounts. The reality is that after breakage, the company will pay out an average of 38% in commissions.

This plan provides the member with the ability to earn 30% on personal sales. There is therefore no excuse for not making money. If they are team builders, they can earn from the activities of their team and if they are that rare bread of individuals that can reach stratospheric levels through recruiting and motivating huge teams, they will earn on their entire producing team via the infinity bonuses.

The Stair Step Compensation Plan

This is a typical stair step compensation plan. Starting from the bottom and working up you find the following ranks:

• Agent
• Emerald
• Ruby
• Sapphire
• Diamond
• Crown

As members are promoted their income potential increases. In this example the compensation is as follows:

The first three ranks in this example will receive differential commission of up to 45% depending on rank.

Agent
An agent receives 25% discount off the retail price. He then sells the items at full retail and thereby generates a profit.

Emerald
An emerald is the first rank to receive over-riding commission. In this example the emerald is on a sliding scale and depending on a combination of personal and group sales will receive up to 35% on all personal sales and up to 10% on sales made by his team

Ruby
A ruby receives 45% on personal sales, between 10% and 15% on all ruby sales and 20% on all agent sales.

Breakaway (see definitions)
One of the big draw backs of the stair step model is the elimination of profits due to downline promotion. Simply put: If I am a Ruby and I have a downline member who becomes a ruby then we will both be receiving the same discount. This means there is no differential and I will earn nothing from my downline ruby’s sales. To overcome this problem, the breakaway concept was created.

This is not an easy concept to deal with as it varies vastly from company to company. In this example however the ruby is earning maximum discount. His upline is no longer earning from him so he is deemed to be a breakaway. To prevent the upline’s income from disappearing altogether a royalty is paid on his breakaway volume up to 3 levels of breakaway deep.

Sapphire
In addition to their ruby commission a sapphire receives and additional 2% royalty on volume generated by rubies in their team.

Diamond
In addition to their ruby commission a diamond receives and additional 4% royalty on volume generated by rubies and 2% on volume generated by sapphires in their team.

Crown
In addition to their ruby commission a crown receives and additional 6% royalty on volume generated by rubies, 4% on volume generated by sapphires and 2% on volume generated by diamonds in their team.

Promotion and compensation qualification
The stair step model is governed by qualification requirements. In this example they are as follows:

Agent to emerald

• R10,000 total group volume for 3 consecutive months
• R1000 personal sales volume for 3 consecutive months

Emerald to Ruby

• R40,000 total group volume for 3 consecutive months.
• R10,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Ruby to sapphire

• R200,000 R40,000 total group volume for 3 consecutive months
• R25,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Sapphire to diamond

• 800,000 R40,000 total group volume for 3 consecutive months
• R25,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Diamond to crows

• R2000,000 R40,000 total group volume for 3 consecutive months
• R25,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Demotions form an integral part of this plan and are triggered when any member falls below 80% of their qualifying bonus for three consecutive months.

Breakage
Regardless of the rank members reach, they are paid on the level that they qualify for. For example: Any member who does not achieve R1000 in personal sales will receive no differential or over-riding commission at all. These commissions are retained by the company.

There are inherent strengths and weaknesses in a plan of this nature.

Strengths

• A new member is able to generate a substantial and consistent income from day one. The 25% discount allows them to set up presentations and to make sales.
• Members can generate an income without recruiting a single person. There are many people who would rather sell than recruit.
• Team leader are able to generate substantial income from agents due to the massive differential commission of 20%.
• There is a strong focus on sales. A small motivated team can achieve tremendous volumes

Weaknesses

• The team requires substantial and ongoing training to achieve consistent sales
• The team requires constant motivating
• Growth is slow due to the focus on sales
• There is a high attrition rate
• Leaders are likely to experience massive income dips due to downline promotion.

As you can see by the graph, every time a downline member is promoted, the upline leadership looses a large portion of their income. This only needs to happen once or twice before the leader quits the business.

If your main aim is to develop a sales team then this is not a bad option.

Breakage

Breakage is the percentage of commission retained by the company due to poor performance by a network member. If the compensation plan is the carrot then breakage is the proverbial Stick.

Breakage is used by most companies to balance the networks need to make large commissions with the companies need to show a profit.

The unfortunate truth is that only 20% of all network members will put in the required effort. This 20% must be rewarded if your network is to grow. The compensation plan is therefore normally geared to pay this 20% an excellent to exceptional income. To maintain company profitability, qualification criteria are implemented. This ensures that inactive or ineffective network members receive the minimum reward.

How would this work in practice?
Let’s take a company that pays a total commission of 50%.

• 25% Discount
• 10% Differential over-rides
• 6% Royalties
• 6% Bonuses
• 3% Once off bonuses

Example of possible breakage rules:

• Each member must achieve minimum personal sales
• To receive differential over-rides a members must have a certain number of direct recruits
• To receive a royalty a member must have minimum personal group volume
• To receive bonuses a member must have minimum personal and minimum total group volume
• To receive a once off bonus a member must achieve a certain rank

As stated before, only 20% of the network will achieve the big bonuses and within that 20% a small group will achieve all the possible bonuses. This means that a sizable section of the possible commission payout will be retained by the company. It is therefore quite conceivable that a company such as this would pay an average of 40% rather than the full 50%.

This may seem a little harsh at first glance but there are few places in life where you are rewarded for poor performance. Run any business badly and you are unlikely to make money from it. Even as an employee, you can only get away with a certain level of ineptitude before getting your marching orders. Breakage allows the company to reward top people without risking bankruptcy.

Of course, this can lead to a great deal of winging. If you go onto the web (www can sometimes stand for “World Wide Wingers”) you will discover thousands of sites established by people who are disenchanted with the MLM industry. Although there are unfortunately many legitimate problems stemming from unethical business practices, you will find the vast majority of complaints come from people who would like to do nothing while earning something.

Compensation as a tool to drive behavior

Let's take a look at compensation plans.
The compensation plan is one of tools used to drive network behavior. Networks that have a consumption bias would use a different plan to those who favour sales. In many cases, a hybrid of different plans is used to strike a balance between recruiting and sales. These hybrids rely on numerous forms of additional compensation rules that attempt to bypass or overcome weaknesses in the fundamental plan.

If the majority of a network members income is generated from discounts and sales incentives then this will encourage sales. On the other hand, if the majority of income is derived from downline commissions the focus will be on building a team. The trick is to strike a balance between these two issues and in so doing create “Compensation Plan Utopia” (Cue trumpets and herald angels singing).

In order to make an educated decision you need to have a reasonable understanding of how each of the various compensation plans work. I will provide a brief overview in this section. I will then add a detailed description under discreet headings elsewhere in this blog.

Unilevel Compensation Plan
The Unilevel compensation plan is based on the principle of unlimited width with limited depth. This means that you could recruit 5, 50 or even a hundred people into your front line and you would get paid on all sales made by them. If they did the same (your second level recruits) you would receive an income from their sales and so on. This plan usually pays down 5 to 7 levels. The percentage paid on each level can vary drastically from company to company but the total resulting commission is usually around 45% of wholesale.

Forced Matrix
The forced matrix is similar to the unilevel but restricts the width of your team. This plan usually has a 5 x 5 or 3 X 7 structure. It is this structure that has led to the term “pyramid” being used to describe the industry.

In this plan, you can only build your team a limited number of levels wide. Any person you recruit over the minimum levels will be placed into the next level down and so on until the matrix is totally full. You would land up with a structure that looks as follows:


Stairstep breakaway plan
With the stairstep model, a member is paid according to qualification milestones. As their overall volume rises in relation to their downline, they receive bigger personal discounts and larger over-riding commissions on their team’s sales. At a predefined volume, they break away from their upline to become a leader of their own group. As the breakaway increases in rank and status, he receives additional bonuses and royalties.

In this example, a Tripple diamond will receive 45% on his personal sales and 25% on the sales made by a Ruby in his team.

Binary Plan
With the binary plan, you typically have a 2 leg forced matrix. Each moth your volume for the legs is totaled and you are paid on the weakest leg. This model has been known to encourage rapid growth but also results in high fall out due to the difficulty of balancing the two legs.
Within the above plans are subtle rules that allow you to maximize results.

Compensating for breakaway
In plans such as the stairstep model, differential commissions are reduced to zero as downline members climb the ranks and qualify for a bigger slice of the pie. To overcome this shortcoming additional rules in the form of royalties, bonuses, once off payments and fixed monthly amounts.

• Royalties
  This is normally paid on breakaway members of your network + their entire team down to a specific number of break away levels deep.
  
• Bonuses
  These are paid to encourage team leaders to help their downline breakaways to achieve promotion up the rank structure of the organization.
  
• Once off payments
  At the time of breakaway, the upline can some times lose a large portion of his or her income. To soften the blow, many companies pay a once off bonus.
  
• Fixed monthly payout
  This is also sometimes called a lifestyle bonus. When network members achieve specific ranks and for as long as they remain at these ranks a fixed monthly amount is paid to the qualifying member. (Whew… what a mouth full!). This is often given in the form of a company car or some other such perk.
  
• Shared compensation
  Companies often reserve a couple of percent for rewarding the top members of their teams. This percentage is split between the top leadership and is traditionally paid on an annual basis.

MLM & Network Marketing Terms

Achievement Level: A rank or title that is achieved by moving a certain amount of product per month and / or re­cruiting a certain number of distributors who themselves have attained a certain designated achievement level.

Affiliate Program: An Internet business, such as Richdad.com, that allows people to become affiliates simply by providing a link on their Web sites to a corporate home page, and pays affiliates a commission on all sales made through that link.

Autoresponder: A Web site or a service Aweber that e-mails information automatically to anyone who clicks on the responder.

Binary: A type of compensation plan that limits your frontline to two people and pays out weekly on one of the two legs of your organization.

Breakage: Sales volume generated by you or your down­line for which you receive no compensation.

Breakaway: An abbreviation for "stairstep / breakaway," one of the four major types of compensation plan. It can also refer to a distributor in your downline who has met certain minimum monthly qualifications and has consequently "broken away" from your group.

Breakaway Leg: The organization or downline of a breakaway distributor.

Bonus Pool: A special fund set aside by a network marketing / mlm company, from its profits, and distributed as a special incentive to qualified sales
leaders.

Bonus Volume: See BV.

Business Builder: A distributor who is actively prospecting and gathering customers, as opposed to one who is simply buying product at wholesale for personal use.

Buy-Back Policy: The money-back guarantee offered by all reputable MLM companies to distributors. Generally, companies will pay 70 to 100 percent of the wholesale price on any product that a distributor purchases, but then de­cides to return, for whatever reason

BV (Bonus Volume): An alternate expression for point volume (PV) or business volume (BV). It is a value used by MLM / Network Marketing companies to calculate overrides and commissions, based upon the wholesale price of the items for which over­rides and commissions are being paid.

Circle of Influence: The people who are closest to you and who constitute your warm market. Also, those who might be easily influenced by you because of your reputation in a particular profession or community.

Cold Market: Prospects outside your circle of friends, family, and associates.

Commission: The percentage you earn from the sales volume of your organization.

Commissionable Volume (CV): An alternate term for bonus volume.

Compressed Plan: A pay plan that stacks or "compresses" the bulk of its commissions on the front end.

Compression: When a distributor quits or is terminated, his downline moves up one level, thus filling the empty space he left, and "compressing" the company's downline by one level.

Depth: The number of levels in your MLM / Network Marketing organization.

Direct Selling: A form of selling whereby independent MLM / Network Marketing representatives, working on commission, sell face-to-face outside of an established retail location.

Distributor: A person who contracts independently to sell products or services for an MLM / Network Marketing company.

Downline: All the people recruited as distributors into a network marketing / MLM company constitute that company's downline. Your downline consists of everyone whom you re­cruit, who is recruited by your recruits, and so on.

Drop-Shipping: The practice of shipping product directly to customers from the company warehouse, rather than through an independent distributor.

Duplicatability: The extent to which an MLM / Network Marketing opportunity can be easily mastered by new recruits.

Duplication: The process of replicating business builders in your downline.

Group Volume: The total volume of wholesale purchases made by your personal group in a given month.

Heavy Hitter: A top sales leader in an MLM company.

Home Meeting: An opportunity meeting held in a distributor's home.

Hotel Meeting: An opportunity meeting held in a rented hotel conference room.

Infinite Bonus: A feature that theoretically creates infinite depth in a pay plan.

Infinite Depth: A feature of some compensation plans allowing distributors to draw earnings from deeper levels, below their ordinary pay range.

Leader: A top achiever in an MLM / Network Marketing downline.

Leg: A down line within your downline, usually headed by one of your frontline "Leaders" distributors.

Level: The vertical position of a distributor in your organization. If you recruit someone, he is enrolled on your first level. His recruits will be on your second level, and the recruits of his recruits on your third level.

Lukewarm Market: Prospects who are neither in your warm market nor your cold market, but somewhere in between. Can refer to people whom you have spoken to once or twice or people referred to you by others in your warm market.

Marketing Plan: An alternate term for compensation plan or pay plan. Massive Action: A sustained, one time barrage of prospecting activity. Matrix: A comp plan that limits the number of people on your frontline, usually to two or three. Max Out: A comp plan is said to be maxed out when you have put enough people in place, moving a sufficiently high level of monthly volume, to qualify you for the maximum level of commissions available in the plan.

MLM / Multilevel Marketing: Generally, an alternate term for network marketing. It can also be used to distinguish those particular network marketing plans that permit distributors to draw income from more than one level.

Momentum: The phase of a network marketing company's growth when sales and recruiting begin to grow at an exponential rate.

Monthly Volume Requirements: An alternate term for qualifications.

Multi-Affiliate Program: An affiliate program that allows affiliates to recruit other affiliates and to be paid multilevel commissions on sales of their recruits.

Network Marketing: Any form of selling that allows independent distributors to recruit other independent distributors and to draw a commission from the sales of those recruits.

Opportunity: The chance to join a mlm / network marketing distributorship, or another term for the distributorship itself.

Opportunity Meeting: A recruiting rally or business briefing held by MLM distributors for the purpose of presenting the opportunity to prospects.

Organization: That portion of your downline from which you are allowed to draw overrides and commissions. It includes all distributors placed on levels that fall within your pay range.

Organizational Volume: Monthly sales volume generated by your organization, through product purchases from the company.

Overrides: The monthly commission you receive from your breakaway legs.

Payout: The percentage of a company's total revenue that it pays out to distributors, in the form of overrides, commissions, and bonuses.

Pay Plan: An alternate term for compensation plan.

Pay Range: All levels of your downline from which your comp plan allows you to draw overrides and commissions.

Personal Group: All distributors in your pay range, whom you have personally sponsored, but who have not broken away.

Pre-Launch: The period just before an MLM / Network Marketing company's official launch.

Prospect: A potential customer or recruit.

Prospecting: The process of seeking customers or recruits for your Network Marketing / MLM business.

Personal Sales Volume: The volume of product that you personally sell in a given month.

Personal Volume: The volume of product that you buy at wholesale from the company in a given month.

Point Volume: An alternate term for bonus volume.

Qualifications: Monthly quotas that distributors are required to meet, in order to qualify for a given achievement level. Quotas are usually set in terms of group and personal volume. Occasionally, there are recruiting quotas, requiring that you bring a certain number of people onto your front­line each month.

Recruit: A prospect who has agreed to join your downline as a distributor.

Renewal Fee: A yearly membership fee paid to an Network Marketing / MLM company, in order to maintain your status as a distributor.

Retail Profit: The spread between the wholesale price you pay for product, and the retail price at which you sell it to your customers.

Roll-Up: A feature in some plans stipulating that if you fail to qualify for commissions in a given month, because you did not meet your quota, you are declared inactive, and will receive no commissions from your downline that month.

Saturation: The theoretical point at which a network marketing / mlm company runs out of potential customers and recruits, and stops growing.

Sifting and Sorting: The practice of quickly identifying the most promising prospects and focusing your recruiting efforts on them, while ignoring the rest.

Sponsor: A distributor in an Network Marketing / MLM company who recruits and trains another distributor.

Stairstep: An alternate term for an achievement level, or for a stairstep / breakaway compensation plan.

Stairstep / Breakaway: A type of compensation plan that requires distributors to meet monthly volume quotas, in order to qualify for an ascending series of achievement levels, or "stairsteps." When a distributor reaches a certain level, he "breaks away" from his sponsor's group.

Stockpiling: The practice of buying and hoarding more product than you can possibly sell, usually in an attempt to meet excessive monthly quotas, to qualify for commissions.

Teleconference: A recruiting rally or business briefing that is broadcast by telephone. Prospects are told to phone in at a certain time to hear the event.

Three-Way Calls: A prospecting technique that allows distributors to build a downline while training recruits. When a raw recruit wants to interview a new prospect over the phone, he will 3-way his sponsor into the call. The sponsor gives the presentation while the recruit listens and learns.

Two-Level Plan: Another name for the compressed plan, derived from the fact that many compressed plans stack the bulk of their commissions on the first two levels.


Unilevel: A type of compensation plan in which you must qualify for achievement levels, but in which people in your downline cannot break away.

Upline: All of the people above you in a network marketing / mlm organization. Also, an alternate term for sponsor.

Warm List: A list of personal contacts drawn up by new recruits that constitutes their warm market.

Warm Market: All potential prospects for your business whom you personally know, either because they are family members, friends, or
business associates.

Width: The number of people in a distributor's frontline, or the number of people allowed in a distributor's frontline by the rules of the
compensation plan

Driving Behaviour

It’s not all about the compensation plan
After 5 years of helping companies move into MLM and setting up MLM compensation plans I have come to the realisation that they are “ALL” unique. Every company employs the services of an expert. They crunch number, tweak royalties and bonuses, develop breakage strategies, implement promotion and demotion plans and introduce new “never seen before” mechanisms that are “guaranteed” to send the members into a frenzy of recruiting and selling.

The truth is that the compensation plan is only one small part of what drives a Network and it’s not the most important part at that.

The aim is to design a total program that will drive desired behaviour. The first step therefore is to decide what behaviour you desire.

Companies are divided into two broad categories when it comes to desired behaviour. On the one side you have consumer networks and on the other you have sales networks.

Consumer networks:

In this category the network consumes the companies products and focuses on recruiting. The bigger the team gets the greater the consumption becomes.

Advantages:

• Members join primarily to receive a discount on the products. This provides the company with a loyal, stable and committed consumer base.
• +/- 20% of the network focuses on team building. These members are the ones who start earning commissions from the business.
• A few (two to three percent) will do the hard yards and will build enormous networks. These members are the top earners who are paraded before the masses as an example of what can be achieved.

Disadvantages:

• If the network is not consuming then no one is. Many members of consumer networks have huge teams with little or no volume.
• Your sales are governed by the size of your team.
• Due to the business focus of the team, consumer networks tend to develop an unjustified but prevalent bad reputation in the market place.

An example of a consumer network would be AMWAY or HERBALIFE.

Sales networks:
In this category the network is focused on sales. Their job is to get the products in front of prospective clients and to convince them to buy. Once they have created a new client, they service the client and generate ongoing sales.

Advantages:

• A new network member can generate income from day one.
• A single member can generate huge volumes without recruiting a singe new member.
• Sales can be driven through promotions and incentives.
• They usually have a great reputation due the their consultants who are militantly loyal to the brand.

Disadvantages:

• There is less emphasis on recruiting and growth is therefore slower.
• Sales volumes can dip and spike due to forces outside of your control.

A good example of a sales network would be AVON.

Obviously there are strategies that try to straddle the fence and this is where the creativity comes in. In a bid to get the best of both worlds, company owners get truly creative and in so doing, make the software developer’s life a living hell!

Driving behavior
There are three main mechanisms uses to drive behaviour:

• Compensation
• Recognition
• Incentives

Over the next few weeks I will be looking at these in turn. I will expand on them and provide you with working models of how they can be implemented.

Where is MLM heading

MLM is going online and this is the reason why!

If you look at current global business trends you will find that many small and medium companies are getting the vast majority of their business online. As a matter of fact, US stats show 4 out of 10 small companies receive more that 75% of their income online.

And South Africa?
The overall situating of online business in South Africa is not dissimilar to where the USA was in 2000. At that point, bandwidth was expensive and somewhat limited. The costs where as follows:

• 56Kbps $88 per month
• DSL $135 per month

Today, DSL and other broad band connections are practically free in the US and South Africa is destined to follow this trend. Leading roll players such as IS and Google SA are suggesting South African DSL rates of around R50 per month with bandwidth increasing ten fold and capping being removed completely. It happened in the US so there is every reason to believe that it will happen in South Africa.

With reduction of price and the increase in speed, more and more people are going to connect permanently. This will lead to a rapid and radical increase in online business and those best poised to take advantage of these trends are going to make serious money.

MLM and the web
Traditional MLM is fundamentally a referral based business. People talk to people who become consumer or sales people. This activity is repeated and before you know it you have a thriving business.

If you take this age old concept and apply it to the Internet you can perform miracles. Instead of one person talking to one person you now have a situation where one person talks to hundreds if not thousands of people and they in turn do the same. With a good offering, the correct systems and a well conceived e-strategy you can ramp up your MLM business very quickly indeed.

If you are in any doubt of these facts, take a look at facebook/, myspace/ or even skype/. These are just three examples of what can be achieved when referral marketing is used effectively. Social networking is one of the most powerful drivers on the web. Ordinary people are changing the way products are perceived by consumers. Never in the history of the world as so much influence resided in the hands of consumers. If you are able to harness or influence consumer opinion and the online buzz you can literally grab the market.

NetReady provides very powerful mechanisms for MLM online. Take a look at the system features at http://www.netready.co.za/.

Statistics for South Africa

The DSA
The direct selling industry is governed by the Direct Selling Association of South Africa. They are responsible for policing the industry and have placed a number of rules and guidelines in place to help member companies stay within legal and ethical boundaries.

At the 2007 DSA conference, they released some interesting statistic.

South African Statistics 06/07
The following are official statistics as published by the DSA for South Africa.

• 329,000 registered consultants
• Total sales volume generated by these consultants is R3,5 Billion
• They corporately earn R1.2 Billion

This means that the national Average income per active consultant is R3647 per month

To put this into perspective, the average income in South Africa is R1800 for women and R3000 for men. When you consider that the vast majority of MLMers are part time, the industry is doing really well.

As with any industry, you will find that 20% of the people are doing 80% of the work and earning 80% of the money. If we apply the 80 – 20 principle to the above statistics then we come to the conclusion that 65,000 independent business owner have earned R960 Million. This means that 16000 people are earning an average of R14,000 per month. There are not many industries that can make this claim.

Company Turnover

• 5 companies doing over R300M
• 4 companies doing between R200 - R300m
• 5 companies doing between R100 - R200m
• 2 companies doing between R50 - R100m
• 20 companies doing between R10 - R50m
• 8 companies doing Under 10m

I find it staggering that in a country with high unemployment, low average income and a very expensive trading environment that we have 16 companies doing over R50 million per year. 5 of these companies are doing in excess of R300 Million and I am aware of one company doing in excess of R570 million per year.

When an industry can provide this type of income for this many people then it requires serious investigation.

The following is a list of registered MLM and Direct selling companies in South Africa:

• ALCARE-THE HOUSE OF ALOES
  AMC COOKWARE
• AMWAY SOUTH AFRICA
• ANNIQUE SKINCARE PRODUCTS
• AVON JUSTINE
• AVROY SHLAIN COSMETICS
• BALLTRON
• BIO-PRO TECHNOLOGY
• CANYON ORGANICS
• CLIENTELE LIFE
• CREATIVE MEMORIES
• ENJO SOUTH AFRICA
• FOREVER LIVING PRODUCTS
• GOLDEN NEO- LIFE DIAMITE INTERNATIONAL (GNLD)
• HERBALIFE INTERNATIONAL SOUTH AFRICA
• HERBAZONE
• HONEY FASHION ACCESSORIES
• HOUSE OF HEALTH
• ICI MARKETING
• IMPUMELELO GENOVESE
• JEAN GUTHRIE BEAUTY CARE
• KMI – THE SPRAY VITAMIN COMPANY
• LE MORGAN
• LUX APPLIANCES SA
• MIGLIO
• MISSING LINK EDUCATION
• MULTISURE
• NATURE’S HEALTH PRODUCTS
• NUTRI-STAHL COOKWARE
• PRES LES
• SH’ZEN
• SMILE EDUCATION SYSTEMS
• PORTRON INTERNATIONAL
• SUNRIDER SA
• SWISSGARDE
• THE AIM CORPORATION
• THE ART OF SKIN CARE
• THE VIRGIN COSMETICS COMPANY
• THE UNLIMITED WORLD
• TIANSHI SA
• TRASTWARE
• TUPPERWARE SA
• 20TH CENTURY DISTRIBUTORS
• VANDA COSMETICS
• WATKINS VALEUR COSMETICS
• WORLD BOOKS
• SENCIDA NETWORK
• SUNSHINE HEALTH PRODUCTS

These are not the only MLM companies in SA they are simply the registered ones

The Ethics of MLM (Network Marketing)

So, your company is thinking of MLM as a route to market.

There are probably a number of questions you want answered. One of the first that always seems to come up is the question of the ethics of MLM. Over the years there have been many unethical people who have managed to tarnish the image of the industry. Their exploits usually land up in the news and they often end up in jail. Like any powerful and effective marketing mechanism, MLM is not immune to abuse.

There are however many ethical and successful MLM companies in operation worldwide. Avon is one that immediately springs to mind. Their awesome product range, enormous international network, structured compensation plan and the visible success of millions of consultants make them a great case study for how MLM should be done.

As with anything in life, it is up to you to ensure that you are honest and ethical in your business practices. The DSA has published a set of guidelines that govern the industry. The key issues are listed below:

The rules for keeping your business ethical

1. No member should be compensated in any way for the act of recruiting.
2. Products should provide value for money.
3. You should have a money back policy allowing dealers to return unused stock for a refund.
4. Dealers should not be required or encouraged in any way to purchase large amounts of stock. This is known as front end loading.
5. Training should be freely available or at the very least, provided at cost.

Network Marketing Vs Franchising
When it comes to Turn-Key businesses, franchising used to be the pinnacle. When it began around forty years ago, hardly anyone had heard of the concept. As a matter of fact, there was a drive in the USA to declare franchising illegal and unethical. It seems ridiculous to think of it now but there was a time when the future of franchising was doubtful at best. Now, with more than R600 billion in annual sales of goods and services, franchising has become a part of our life-style. Our appetite for hamburgers alone has helped McDonald's become the industry leader, with over R60 billion in global sales.

Anyone who wants to own their own business can do so, without consuming time and money in research and development. The franchisee will provide all of that. All you need to do is pay over your money and you can walk in and turn the key. Because of this, franchises are also called "turn-key operations." But there's a catch. The average start-up cost for a franchise is about R1.2 Million. Ouch! It also comes with its own set of overheads such as rent, staff, shrinkage etc.

So where does Network Marketing fit into the picture? Network Marketing gives any willing dealer all the benefits of a franchise for a fraction of the cost!


The following is a laundry list of facts about Network Marketing:

1. Network Marketing is open to everyone of legal age regardless of sex, education, race, religion, business experience, social standing, past successes or failures.
2. Network Marketing is a legal and ethical business structure. It is recognized in Canada, England, Australia Germany, Japan, Malaysia and other countries throughout the world. In most countries, it is regulated by the Direct Selling Association (DSA).
3. Although no precise figures exist (because most companies in the industry are privately held and are not required to publish their financial statements), experts believe Network Marketing is currently at a level of approximately R400 billion globally!
4. Network Marketing companies are also on the New York Stock Exchange and Fortune's list of 100 Fastest Growing Companies. A few examples are Avon, Shaklee, Amway, A.L. Williams and Mary Kay Cosmetics.
5. Dealers own their business.
6. Dealers are volunteers. They are under no obligation to do anything.
7. They can typically begin their business for a few hundred Rand. This money goes towards start-up kits, sales support material and initial product inventory.
8. Network Marketing is a professional career opportunity. Due to the fact that so many people are involved in it part-time, it might appear as a kind of money-making hobby. However, one look at the number of professionals and white-collar men and women entering the industry changes that perception.
9. There is no need to employ high-pressure sales tactics and manipulative closing techniques. Network Marketing is a "sorting" business based on finding the right people who fit with the dealer, the product and the opportunity.
10. Network Marketing is all about freedom of choice. The Dealers are free to choose who, when, where, why, and how they operate their business. Network Marketing puts them in control of their life.

What Network Marketing is Not:

1. Network Marketing IS NOT an illegal "pyramid scheme." It is not a chain letter or illegal lottery where people make money by recruiting others to join in the game. Network Marketers are paid only on the distribution of valuable products or services.
2. Network Marketing IS NOT a "get-rich-quick' business. Although fast money has happened for a few individuals, they are the rare exceptions, not the rule. But if you drop the "quick" and call it a "get-rich" business, that's another matter.
3. Twenty percent of all millionaires HAVE NOT become rich through Network Marketing. Yes, the industry has produced many millionaires, but compared to the number of real estate millionaires... Again, no way!
4. Network Marketing IS NOT just for professional salespeople. Of the countless success stories in the industry, most have come from individuals with non-sales backgrounds and little or no experience.
5. Network Marketing IS NOT taught at Harvard and Stanford Business Schools. A number of colleges and universities have used case studies of a few companies in their marketing courses, but that's all (at least for now!).
6. Network Marketing IS NOT a full-time commitment. The vast majority of the men and women in this industry work their business part-time.
7. Network Marketing IS NOT for men only. Actually, the majority of active, successful people in the industry are women. In the case of the Acorn business, it is heavily biased towards women.

Unfortunately, Network Marketing is misunderstood by most of the general public. There are those who have had an unfortunate experience of one kind or another. Others, because of what they've heard, think it's an "illegal pyramid!' But as Dr. Dean Black, author of "The MLM Simple Success Guide" says, "there’s nothing wrong with the principle, just with the way some people work with it!'

The truth is, it's legal and it works! It's working for lot of people who have learned how to make it work for them.

The reason for this blog

I have started this blog for three reasons:

1. The first is to help companies to develop MLM as a route to market
2. The second is to generate interest in the NetReady system (http://www.netready.co.za/)
3. Lastly, but not least in importance, is to share ideas with MLM and direct sales companies around the world.

As this is my first attempt at blogging, I am not sure what to expect but here goes!

Starting NetReady
In 2001 we started development on software that would manage MLM and direct selling companies. We where convinced that manufacturers would jump at the opportunity of marketing their products through this exciting channel. Three years and several Million Rand later, NetReady was born (http://www.netready.co.za/). It was at this point that we got our first real shock.

We showed the system to dozens of manufacturers who we felt sure would buy it but were sent packing by all of them. In all our research, we had never guessed that the industry would be viewed with such scepticism. Even when we tried to give the system to one company for free, they were not interested.

We decided that we would have to prove that MLM would work for local manufacturers and that NetReadr was the only choice to manage an MLM company.

In 2003 we started a small MLM company called AcornKids.com. Within 6 months we were experiencing the most unbelievable growth. We doubled our turnover every month for 12 consecutive months. It was truly remarkable! With the visible success of AcornKids.com, companies began to show real interest in the software. Within the following year we had signed contracts with Virgin, Censida, Smile Education and VOX Telecoms. We now also have clients in Dubai and the UK.

NetReady has become a force in the South African MLM industry and we believe we are contributing in a very real way to stemming the joblessness that is so prevalent in South African society.

Our development skill coupled with 5 years of real world MLM experience make us a perfect partner for anyone entering the MLM or e-business environment.