Starting a business takes strategy, planning, and execution. What are the steps to launch a multi-level marketing (MLM) company? Like any entrepreneurial venture, launching an MLM begins with a marketable product or service and an appealing marketing proposition. However, a direct selling business model also requires some unique decisions and steps as you prepare to launch the business.
Direct selling means a company’s products and services are presented and sold directly to consumers by company-affiliated, independent sales representatives outside of fixed retail locations. This type of multi-level marketing approach enables MLM sales representatives to build strong, one-to-one customer relationships and create a network or community of loyal customers over time. These relationships rely on direct communication with the customer, whether face-to-face, virtual, or via social media, so that representatives have the chance to demonstrate the value of the product, personalize the messages to fit the customer’s needs, and answer a potential buyer’s questions.
MLM companies are built around attracting and retaining field sales representatives who engage customers and recruit additional sales representatives. MLM companies offer sales representatives an easy, flexible, and cost-effective way to start and build their own business. The MLM company provides the product or services along with the business infrastructure, including the MLM software platforms and Ecommerce tools, that sales representatives need to run the business. Independent MLM sales representatives are able to leverage these tools to start their own business with low overhead costs. This means they’re able to have their business up and selling within a matter of days, if not hours, of joining an MLM organization.
3 steps to take before launching an MLM company
Once you’ve decided that the direct sales model is a good fit for your company, products or services, and target customer market, you need to lay the groundwork for success by determining the sales compensation structure, software platforms, and brand strategy for your MLM company.
1. Determine a genealogy structure and compensation plan.
The way that an MLM company organizes its network of independent sales representatives is called its genealogy. Much like a family tree, the genealogy maps the relationships between sponsoring representatives and their downline sales teams. An MLM company’s genealogy also provides the structure for how sales representatives are compensated.
As representatives join the organization, branches are added to its genealogy tree. While no two genealogy trees are the same, there are a few fundamental structures that an MLM company can choose from when mapping out its plans for growth and compensation.
- Unilevel structures enable each MLM sales representative to sponsor as many downline representatives as she wants, with all of them placed directly below her in the hierarchy. This means the width of the unilevel genealogy structure is unlimited. The MLM company determines the number of levels to include in the compensation plan.
- Binary structures are built around two-by-two downlines called “legs.” Each level of the structure has a fixed width of two representatives. However, there are no limits on the depth. In a binary structure, MLM sales representatives earn compensation on the lower-earning leg, called the “pay leg.” The other leg is known as the reference leg and helps to promote teamwork as representatives work together to optimize the performance of both legs.
- Matrix structures offer both a fixed width and depth for the downlines, such as 4×7 or 3×9. For example, in a 4×7 matrix structure, the sponsoring representative’s frontline would consist of four representatives as the width and seven levels in depth, with each level multiplying out by fours. Establishing a fixed structure gives MLM companies more control over payout volumes as the organization grows.
- Hybrid structures enable the MLM company to use one of the basic genealogies as its foundation and then combine it with elements from another genealogy to create the organization’s compensation plan. An example of this “best of both” approach would use the binary structure to calculate a representative’s initial sales compensation and a unilevel structure for ongoing sales.
When choosing an MLM compensation structure, FTC compliance must be top of mind. To comply with the direct selling regulations, compensation plans must primarily focus on rewarding representatives for retail sales rather than recruiting new representatives.
2. Choose your MLM software platform.
After selecting the compensation structure for your company, choosing an MLM software provider and platform is the next critical decision. Integrated MLM software serves as a centralized hub that helps run all parts of your business and integrates with your corporate back-office. From tracking the company’s genealogy structure and calculating commission payouts through enabling a consistent Ecommerce experience and providing vital software tools for the field sales team, it’s important to choose an MLM software platform that meets initial needs and offers the ability to add functionality as your company needs it down the road.
Whether you’re choosing your company’s first software program or evaluating an existing platform, assess your options carefully. Look closely at Ecommerce capabilities, including replicated websites, shopping cart features, and responsive mobile-friendly design. The best MLM software also streamlines enrolling, onboarding, and communicating with representatives to provide convenient, effective online experiences and automated delivery of messages and training content.
Of course, software costs are an important consideration. But don’t just opt for a low price, as that can be a red flag that an MLM software provider is cutting corners in the form of fewer releases, limited access to live support reps, or overloaded servers that slow down your services. Expect high-quality MLM software to cost $20-$35k to get started and a monthly hosting fee of about $3-4k. In addition, look for providers that offer flat-rate hosting and no additional hosting fee per order or rep.
Finally, as you explore software options, seek an MLM software provider with extensive experience in the direct selling industry and a commitment to ongoing technology upgrades, new features, and innovation. Look for providers who offer case studies, customer reviews, and references. And seek an MLM software provider that will partner with you as your company scales and grows.
3. Create a brand identity for your MLM company.
Building a brand should be part of your MLM launch strategy. A strong brand is one of the most valuable assets a direct selling company can have, helping to attract customers, recruit representatives, and inspire loyalty. To get there, your company must take a deliberate and strategic approach to creating – and cultivating – its brand identity.
Today, brands go beyond a logo and product packaging. Consider your tone, internal and external messaging, and customer and rep experiences as core elements of your overall brand. In the early stages of building an MLM company, it’s essential to research and understand the needs and challenges of your target market. Then, develop a brand story and design framework that aligns with your company’s objectives and what you learn about your target customers and representatives. The pre-launch period is an ideal time to gather and incorporate feedback from your core audiences.
Treat your company’s brand as an ever-evolving aspect of your business by establishing guidelines to ensure consistency and providing marketing tools and templates that help representatives effectively leverage the brand. Build in measures that track brand awareness and recognition over time to ensure that you’re able to adapt brand assets as needed to optimize impact and help fuel long-term growth.