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Hey, thats Front End Loading!
Initial Compensation Component
So now let’s dive into some detail about the various stages of an MLM compensation plan’s payout, those stages being, Initial Compensation Component, Residual Income Component, and Generational or Infinity Component.
First, it is very important to note, you can NEVER pay commissions on MLM Joining Fees or MLM Distributor Kits, or MLM Signup Fees, or whatever you are planning to call them, and in fact MLM Joining fees are only tolerated in most countries if the, "MLM Distributor Kit" is sold at or near cost to the company. In other words, you cannot just have a “MLM Joining Fee” for which the MLM Member gets nothing.
Now before you go thinking you have the workaround and that you will say your “MLM Joining Fee” gets them the replicated website and Members Back Office, you can’t do that either, the government thinks of this as cost of doing business, not item of Value! In most good MLM Software, you are paying under $0.25 per month per ACTIVE member anyway, so what does that allow, a $3, “Joining Fee”? Check with your MLM Attorney regarding what is the best way for your MLM Company.
The Initial Compensation Component is often accomplished by the company adding in a Fast Start Bonus, Quality Enroller Bonus, or possibly even a Coded Bonus to its MLM Compensation Plan. The company will often attach these bonuses to some kind of extra ordinary package of products being purchased at signup, often called a, "Business Builder Pack", or "Value Pack".
Often the Initial Package will be priced under $500 as a number of States in the USA have laws about charging more than $500 on an initial signup or purchase in direct sales. The spirit of these rules is not to allow front end loading. Should your product be something that legitimately has value of over $500 for one item they may not apply to you. Your MLM Attorney can help you understand how this may or may not impact your MLM Company and MLM Compensation plan.
The idea behind this initial "Package" of items is it gets the initial order size up enough to be able to squeak a little money out of the point value for paying these extra up front bonuses.
Another way initial bonuses are handled is to have the initial start-up packages NOT put volume into the normal compensation tree whether that is a Binary, Matrix, or Uni-level. They have only orders from month 2 and on go into the residual tree and flow to the upline.
The Initial Compensation Components purpose in a good balanced plan is to allow the member to earn $300 or more in their first month with reasonable effort going through their warm market, so they get satisfaction and feel it is worth their time to continue on with your MLM Company and work toward that, “Residual Income Component”.
We are not discussing MLM Leader Motivation as building an MLM Compensation Plan targeted to only MLM Leaders tends to leave the MLM Company burning out in 6 to 12 months. This article is written from the perspective of building a Real, Legitimate, Long Term MLM Company.
INS can certainly help to design any MLM compensation plan compensation plan should you need help with yours. We have a generous Share in the risk plan on MLM commission plan design available to all our MLM Software clients.
Contact us today to learn more about INS MLM Software or our other MLM related services or request pricing by Clicking Here.
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