Marketing Plan of MLM Company

Table of contents:

• Marketing Plan for MLM Company
• What is a marketing plan?
• Types of marketing plans
• What provisions should be included in a Marketing Plan?
• Foreign court cases
  
  

As Nicole Biggart, an expert in the field of management and network marketing, noted, MLM companies are not classic legal entities. They have a special corporate structure, they do not hire employees, accordingly, partners are not subject to the provisions of labor law. Remuneration for partners' services is calculated in accordance with a marketing plan. This document can be structured differently by company specialists, so there are several types of marketing plans. Companies should pay special attention to the structure and content of the plan, because the success of its implementation and growth of company profits depend on it. This article discusses what types of marketing plans exist and what provisions should be included in it.

What is a Marketing Plan?

Multi-level marketing does not follow the classic sales system. Its feature is that they create a marketing plan, which further defines the order of operation and structure of the MLM company.

The Marketing Plan is a legal document that describes the system of rewards for those who provide marketing services to the MLM company (partners). The plan is made on the basis of financial strategies of the company. Its purpose is to legally make payments to partners, effectively sell products/services and increase company profits. Typically, a marketing program may provide compensation for several facts:

1. Partner’s sales of the company's product/service directly to its retail customers. The partner receives a percentage of his or her sales as established by the marketing plan;
2. Sales of a company's product/service by junior partners (partners of the second, third, fourth... levels), which were brought by the senior partner. The partner receives a certain percentage of sales of the lower-level partners.

It is impossible to develop the same marketing plan for all MLM companies. Its type depends on what product or service the company offers and what maximum number of partners it plans to attract.

In addition to the legal aspect, it is also necessary to pay attention to the technical side of implementing a marketing plan. Because it involves complex financial calculations, MLM companies buy special software to intelligently calculate the rewards, control and analysis of financial flows (MLM software). MLM software is a software tool used by professional network marketing companies, in order to increase the effectiveness of sales.  This tool is customized according to the company's developed marketing plan.

MLM software is a secure online application that is usually synchronized with the company's website. The convenience of working with it lies in its accessible interface, which allows users with no technical background to monitor and manage the activities of the organization. In MLM software, scripts provide a great deal of functionality. This tool helps to manage financial transactions, generate financial reports, etc.

According to Digital Best, the top 5 MLM software development companies are Ambassador, ARM MLM, ByDesign, Cloud MLM and DataTrax.

Types of marketing plans

There is no single Plan that fits absolutely all network marketing companies. That's why we'll look at the most common types below.

1. One-Level Plan is a direct sales system in which rewards are paid only for the partner's own sales of MLM products/services to the company. By joining a company with such a marketing plan, a partner will not be remunerated for the sales of a lower-level partners. Accordingly, it is only the partner's responsibility to sell the company's product without creating his or her own team of partners.
2. The Step Plan is more attractive to partners, as it provides for a percentage payment both on personal sales of the partner and on sales of lower-ranking partners (usually sets from 3 - 21%). Such a plan is not beneficial to companies that sell cosmetics, household chemicals, dietary supplements, etc. This is due to the fact that such organizations are not adapted to promotion on the Internet. This plan is best suited for companies that provide an information product or service.
3. The Binary Plan is more complicated than the previous two. It involves dividing downline partners into two branches, a "strong" and a "weak" one. Accordingly, the remuneration of the first line partner depends on the sales volume of his referrals.  The turnover should be distributed between the two branches at a ratio of 40% to 60% or 30% to 70%.

This plan provides for a greater number of bonuses, which encourage partners to sell. First, Referral bonus - a bonus for each person attracted. Second, a reward from the sales volume of the "weak" branch. Thirdly, reward for execution of the plan is paid when all partners of the structure have sold the required amount of the company's product. Fourth, a reward for closing the system. This bonus is given to the first line partner when all positions designed for referrals are closed.

What provisions should be included in the Marketing Plan?

A properly prepared marketing plan determines the success of a company's financial objectives. Depending on what provisions are included in the plan, the profits and reputation of the company, the trust of the partners and their financial welfare depend. Also, it is necessary to exclude some provisions and not to implement them in practice to eliminate the risk of recognition of MLM company as a financial pyramid. Let's consider which provisions are mandatory and which in no case can be mentioned not only in the marketing plan, but also in other legal documents of the network marketing company.

So, the marketing plan must contain provisions for:

• the maximum number of levels, branches of partners;
• the order of sponsorship by the first-line partners of their team members, as well as regular communication (training and information) between the higher and lower partners;
• the order of building a system of rewards (bonuses), types of bonuses and their calculation;
• the voluntary procedure for purchasing paid training materials of the company;
• an option to buy back a product that is not sold within a specified period;
• the company's membership in the national/international association of direct sales, which controls the legality and order of payments to partners of the company;
• monitoring of the ratio of internal consumption to external consumption.

There is one essential sign that can be used to figure out the financial scheme behind MLM marketing - the MLM company charging a fee for partner status. Potential founders of a network marketing company should pay attention to this, as the provision of a one-time payment of a fixed amount by a potential partner to become a member of the company team, will attract the attention of both the media and law enforcement.  Whereas MLM business is based on the actual sale of a product, the pyramid scheme is an endless chain of distribution schemes in which the "products" are only an opportunity to recruit a person and further induce him to invest in the pyramid. MLM business is absolutely legal and financial schemes ("Ponzi schemes") are fraudulent because in exchange for small investments its founders promise big rewards.

The risk of recognizing an MLM company as a financial pyramid also arises when the company does not publicly post a return and exchange policy. In this case, the company also demands a huge sum of money in exchange for goods that do not meet all their characteristics of the set price.

Foreign court cases

So far there is no court practice where courts have qualified a marketing plan in terms of law. However, there is a rather old but seminal decision from a US Federal Trade Commission administrative hearing. Subsequently, this case became precedent.

The subject matter of the case was whether Amway was an illegal pyramid scheme and whether its marketing plan legally limited partner competition and fixed maximum partner profits. In 1979, Robert Pitofsky, appearing as an administrative law judge for the Federal Trade Commission (FTC), ruled that Amway "is not a pyramid scheme."  The FTC affirmed the judge's opinion on the issue, but found that Amway did record an pertners's maximum profit and misrepresented the potential profits of new partners. Amway did not qualify as an illegal pyramid scheme because it did not offer rewards for "headhunting" - recruiting new partners - but set rewards for actually selling products to new partners, a plan that also provided for redemption of excess, unsold goods. The Commission concluded that Amway's rules establishing the partner's obligation to sell 70% of the products to end users, selling to 10 different consumers in a certain period of time, indicates the legality of the company's activities. However, the Commission found, based on the marketing program, that Amway did illegally record partners’ sales and misrepresented their potential profits in the document.

This decision provides practical importance to the MLM business. The Commission found that the company's "anti-pyramid" rules should not only be prescribed in the company's marketing program, but really be enforceable and effective in achieving the goals in which the program was created.

To summarize, we have analyzed what a marketing plan is and what kinds of plans are, and presented a case study, which has practical relevance even today. Writing legal documentation for the MLM company website is a very important task, so we advise to take it carefully and seriously. In order to correctly draw up a marketing plan or other documents for network marketing, you need professional help. Specialists of A4 will study your business plan and make a legally competent marketing program in accordance with the law.