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FAQ: Making Money and Getting Paid in MLM

How do people get paid in MLM companies?

Compensation plans vary from one MLM company to another, but typically distributors' commissions or margins (a discount off the list price) depend on their overall sales volume and the level they have achieved in the compensation plan structure.

In some companies distributors earn a commission on their own sales (say, 20 percent) and a lesser commission on any sales made by people below them. They might make 7 percent on sales made by people they have recruited directly (level 1), 5 percent on sales made by the recruit's recruits (level 2), and so on. Thus if a level 3 recruit sold $50 worth of goods, she would make a $10.00 commission on the sale, the person immediately above her (the level 2 distributor in the chain and the one who directly recruited her) would make $3.50 commission on that sale, and the person at the top of the chain (the level 1 distributor) would make a $2.50 commission..

MLM Distributor Hierarchy

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Is there a limit to how big a downline can get?

Yes. Different MLM companies set different rules about how many levels deep distributors will be paid. Some key the number of levels to the sales volume; others set the number of levels some other way. In addition many MLMs develop some kind of procedures (usually based on sales volume) that lets them break away or go direct—in other words, split off from the parent distributor chain and operate as the head of their own chain.

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Getting paid for not working sounds too good to be true. Is it?

Ideally, that top-level distributor is also selling products as well as getting commissions from his or her downline. They are also responsible for providing training and support services for the downline.

Unfortunately, things don't always work that way. In some MLM organizations new recruits are lured into joining (and buying products or sample cases) with promises of gaining financial independence and great wealth. All they will have to do to become financially secure, they are told, is to work a marketing plan that consists primarily of doing nothing but recruiting others to work the marketing plan.

Steve Bretzke, a distributor for Watkins, an MLM company that sells household and personal care products, says that some distributors for MLM companies promise people they will soon be earning thousands of dollars a month in their MLM business. Since the cost of getting started is usually under $100, Bretzke says, "many people join before they have any idea what they have to do to succeed. Therefore, you see many dropouts."

Before dropping out, some recruits find they drop hundreds or thousands of dollars into the business, spending money on things like sample products they buy for their own use, meeting fees, transportation costs, promotional literature or catalogs they give out to prospects, and promotional tapes and books.

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Does anyone ever make money in MLM?

Yes. Like almost any other industry or business the amount of money that can be made is usually proportional to the effort, time, commitment, and planning that goes into building the business.

Richard Suter, a CPA who specializes in taking start-up ventures public and who has done some work with MLM operations, says, "The ideal distributor is somebody who has the long view and the capital to back it up. They should have sales experience. Dealing with and overcoming rejection problems is the number one problem in all selling."

Bretzke, who says he just broke even the first year he was involved in MLM, agrees that the long view is important. He says it takes distributors about a year of working 10 to 15 hours a week to be able to make an income of about $1,000 a month. Where the real money is, he says, is in residual income, which can take 3 to 5 years of concentrated effort to build.

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What is a compensation plan?

The compensation plan is the mechanism by which you get paid. It tells you what volume of sales you need to do before you get paid, how many levels deep you get paid, and under what circumstances you will qualify for bonuses. The plans typically have names like stair-step breakaway plan, unilevel, and matrix. There are also "hybrid" plans that combine one or more elements of the basic plan structures. The various types of plans are discussed at length in Learning By Doing, by Gary Molatore.

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Which type compensation plan is better?

"A lot of people in network marketing feel that whatever plan their company uses is the best, and that is understandable," says Eldon Beard who is a Watkins distributor. "Some plans are designed to pay a higher percentage of the available bonus money up front for personal sales and on commissions for group sales in the first l-to-3 levels. Others are constructed to pay more in the deeper levels, and some spread the bonus payout fairly evenly across all levels of the plan. Regardless of the type of plan, the key to remember is that you can make money with all of the legitimate plans. The product, and your effort, is the key. Good products, at a fair market value, are what drives any compensation plan," he adds.

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