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Network Marketing Accounting

About organizing an MLM company, the MLM business structure, and the factors on which the MLM business is built. The role of software in network marketing.

Network Marketing Accounting. MLM Bonus Calculation.

 



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10 years ago, there was a universal lament in the Russian and CIS territories about the demise of domestic industry. The most common complaint, if you remember, was: "Everyone sells, no one produces anything." Now the industry is reviving, and domestic producers are pensively scratching their heads: how to sell what they managed to produce. Working capital is scarce, raw materials need to be purchased, and advertising and promotion expenses are on a residual basis. And a small advertisement is as good as none, money wasted. This is how good initiatives, interesting products, valuable, useful inventions perish. 
 
In these conditions, more and more manufacturers are turning to multi-level network marketing (MLM) - an effective way to break into the market without requiring huge initial investments in promotion. Indeed, in skillful hands, MLM is a powerful tool. 
 

 

The success of an MLM company is based on many factors:

All factors are equally great and significant, and each of them deserves a separate in-depth discussion. Today we will talk about the marketing plan (MP) and its programmatic implementation. 
 
The marketing plan (MP) is a set of rules describing how rewards for promoting a product are distributed across the distributor network. Foreign marketing plans are mostly of a leadership type: the main money goes to the top, to leaders with large networks. Russian companies are softer: a higher percentage of money goes to the lower layers of distributors. Discussing the characteristics of marketing plans is a separate big issue. What matters to us now is something else. 
 

No matter how good the MLM is, it won't work without a computer program.

If in a regular, "linear", i.e. non-network business manual accounting is possible (actually, this was believed for centuries), then in MLM it is impossible to manually account for even a small network. MLM was invented quite a long time ago, but it really spread only after the appearance of personal computers. So, paraphrasing Vladimir Ilyich, we can say: MLM is accounting. Computerized. 
 

How does a "newly baked" MLM company usually set up its accounting?

First, a marketing plan is composed and created. It is put together by the company's leaders themselves or, if they do not feel confident enough, it is entrusted to an external specialist. More often than not, this expert turns out to be an experienced distributor-networker who has been through a dozen different MLM companies, starting from "Herbalife". He creates the ideal plan, from his point of view, taking into account all the mistakes and achievements of the marketing plans known to him. 
 

Next, the company turns to a programmer, entrusting them to "program" this marketing plan - "to make it work".

A starting company tries to save on everything, including programmers. Often, a student, a retired military person, or an employee of a research institute where salaries are not paid, is found for this role. They ask for very little, and seem to know how to program. What could be better? The expert gives the programmer a verbal description of the MLM, and the work begins. Then, some details emerge. 
 
Most of the time, the verbal description of the plan for the programmer is too vague and insufficient to create an effectively functioning software product. The programmer has to "fill in the gaps" for the task setter on many important aspects, as a result of which, during the work on the MLM, some characteristics are discovered that were apparently not initially planned. Quite often, company leaders suddenly realize that, for example, they are forced to pay the network significantly more money than planned. Or their MLM actually incentivized distributors to take actions completely different from what they wanted to stimulate. The programmer reacts coldly: "That's what you asked for." 
 
Actually, a programmer and a task setter, i.e. a marketing plan compiler, are supposed to work closely together, meaning they meet and discuss the progress of the work, sometimes to the point of hoarseness. But they often speak different languages: the marketing plan compiler does not understand the language of mathematics and the possibilities and limitations of programming, and the programmer, in turn, does not understand network marketing. Not to mention that often people are involved in such work for whom this activity is a secondary job between working at a research institute where they don't pay and abroad where they seem to pay but haven't been hired yet.

 
 
A company is somewhat luckier if the programmer at least understands what MLM is (maybe the wife worked at "Mary Kay" or the mother-in-law sells coral calcium). However, the combination of real professional competence in both areas is rare, especially in programmers who, in old terms, practice "individual labor activity". 
 
Finally, the program is somehow compiled and starts working. Initially, the "craftsman" himself accompanies it, corrects and updates it to the best of his ability. The program description is missing in nine out of ten cases and is only spread as an oral tradition. If the programmer leaves the job, the program immediately malfunctions, followed by the entire accounting. And such incidents can and do happen all the time. Even if we exclude the scenario of going to a better world, a programmer, like everyone else, can get sick for a long time, be called up for military service, or eventually move to that very abroad that many of his colleagues dream about. And without a program, an MLM company cannot function for a day. Reluctantly, people agree to pick up someone else's program on the fly, created by an unknown craftsman, full of his own quirks, but still a successor is found (usually for significantly more money). He utters the sacramental phrase of all craftsmen: "Who on earth made this mess? I'd like to wring his neck!" - and starts creating his own software masterpiece.Further, the situation repeats with minimal variations.

However, if the first programmer does not disappear and continues to cooperate with the company, then another scenario, no less dangerous for the company, is possible. The programmer often gains disproportionately greater influence in the company, far beyond the functions of a programmer and system administrator. 
 
It's still fine if the programmer acts conscientiously. But you can also encounter a fraudster. For example, one such crafty person inserted a block in the program that would stop the program from working after six months. Fortunately, for a qualified programmer, bypassing this block turned out to be easy, but the company owner, so to speak, "went through fear," fearing to lose the accumulated information. 
 

 

But that's not all.

The company is growing, and its needs go beyond the network calculation itself. It faces and rapidly grows needs in managerial accounting. It requires comprehensive accounting of all aspects of the company's activities: finances, logistics, warehouse status. Of course, there are programs on the market for these purposes, but how to integrate them with the network calculation program? At the beginning of a company's operation, few think about such "trifles" as warehouse management, but then the confusion grows along with the company's turnover. 
 
The company's management operates increasingly blindly, unable to plan purchases rationally, resulting in overstocking of some items while others are chronically absent from sales. I once inspected a company that for several - not months: years!!! - could not establish timely ordering and delivery of goods. "Out of stock" turned into a kind of chronic disease for this viable and promising organization. At the same time, they had sufficient working capital. It turned out that the problem stemmed from the complete absence in their program of a logistics block (ordering and delivery of goods) and warehouse management. 
 
As the company grows, its needs for various types of analytics increase: both related to the network itself and the overall business situation. A lone craftsman cannot meet these needs. 
 
However, after the initial wave of interest in a new product subsides, the company needs increasingly precise tuning of its business, for which fine analytics and forecasting capabilities are vital. This stage usually begins after about three years of the company's existence. 
  
Often, it is during this period that Russian MLM companies experience a crisis, which outwardly appears as a decline in interest in the product, the departure of the most effective distributors to other organizations, and so on. The rumor, which spreads rapidly within the network business environment, passes judgment: it used to be a good company, but alas, alas, it has gone bad. "What to do, let's go to another one, luckily there are plenty of them," distributors decide among themselves with a tone of indifferent disappointment and temporary loss. 
 
Company leaders rarely seek the cause of their difficulties in the imperfections of accounting and business processes in general. However, those who truly understand the importance of bringing order to this vital matter rise to new heights. Such companies not only survive but become stable, efficient organizations that are noticeable in the market. 
 

 

How should MLM company accounting be organized to avoid all the difficulties mentioned?

1. Force yourself to realize that accounting is a crucial aspect of work that requires certain financial investments. Do not try to unreasonably save on it: it is an investment in your future. 
2. Only deal with software companies. Unlike individual freelancers, they are "manufacturers" who bear a certain responsibility for the results of their work and where there is continuity and interchangeability in the work of employees. 
3. Pay close attention to selecting a contractor, inquire about completed projects, talk to former and current clients of this firm. 
4. Ideally, the contractor should jointly develop a marketing plan with you. If you provide them with a ready-made MP developed by you, it is desirable that they conduct mathematical modeling of the behavior of this MP under different conditions. 
5. It is very useful for the company to set up the entire business process for you: this will save you from many difficulties and allow you to focus on what no one else can do for you - working with the network and forming the assortment. 
6. You definitely need a comprehensive integrated accounting system for all aspects of the company's activities. At the same time, it is optimal if you can initially purchase a minimum module at a minimal price with the possibility of further increasing the system's functionality. 
 
 
And don't forget: today, no one is surprised by a large number of computers or a high level of production automation. The leaders of large and medium-sized enterprises make decisions without hesitation about installing a large, "heavy" management system that covers almost every aspect of the company's "life." But often the cost of such a "heavy" program is simply "astronomical" and amounts to tens and hundreds of thousands of dollars.  
 
Today, there are worthy software developments on the market for network marketing companies at reasonable prices. So why not adopt the experience of installing and implementing quality and ready-made solutions for direct sales firms? Forgetting about inaccuracies, typos, shortages, and overruns - the dream of any director. And today, it is not difficult to realize it. It is enough not to forget about the serious advantages of modern information technologies, to trust only professionals, and to remember: MLM is primarily about accounting. 
 

 
Author: Ivan Tendryakov