An affiliate program is a great way to grow your business. The concept is simple: A business recruits sales partners and agrees to pay those partners a referral fee for every customer or lead generated. Affiliates do the work of finding new customers, and the business enjoys a broader customer base.
Affiliate marketing can drive sales, but it’s not without challenges. One of the most challenging tasks in setting up programs like this is finding quality affiliates. It takes time and effort to establish strong relationships that motivate affiliates to sell for the sponsoring company.
Multilevel marketing (MLM) or multi-tier affiliate marketing can be an effective solution to this problem. With MLM, a company’s affiliates can recruit affiliates of their own. Those second-tier affiliates make sales and get commissions, just like the first-tier affiliates.
In an MLM model, though, the second-tier affiliates’ sales also generate commissions for the first-tier affiliates who recruited them. The original affiliates get paid from their direct sales and the second-tier affiliates’ sales. It can be extremely effective, but no system is perfect.
Read on to learn the pros and cons of MLM tiers in affiliate marketing and what they might mean for your business.
The Pros of MLM
Even without multi-tier affiliate software to keep things running smoothly, MLM as part of your affiliate program could be productive for your business.
With MLM, a business doesn’t have to do all the work of recruiting affiliates. Each first-tier affiliate gets out there and recruits their second-tier affiliates because of a simple motivation: The more people they bring on, the more money they make. This multiplies a company’s return on its affiliate recruitment and powers faster growth of the affiliate network.
Most importantly, MLM allows the company to make more sales without adding to its direct payroll. The only cost associated with affiliate marketing is the commission.
A business only pays for the sales its affiliates make. There’s no cost for the recruitment of affiliates beyond the first tier. Those first-tier affiliates recruit for the promise of future commission from their second-tier affiliates.
The MLM model means that when a business recruits one person as an affiliate, that person will be reaching out to potential customers and to other potential affiliates who will then reach out to customers of their own. There’s an increase not just in the number of people who are making sales, but also in total audience size.
The company’s sales pool expands exponentially with no additional effort beyond what it would take to earn the original affiliate. The advantage over a single-tier affiliate program is that the first-tier affiliates each use their own networks to recruit. They can reach more potential sellers than the original business ever could on its own.
First-tier affiliates in an MLM-based program can still make the same commission they would have made under a single-tier program. However, with MLM, they also have the chance to earn more when their recruits make sales.
The affiliate has an incentive to put forth effort on both levels, selling and recruiting. The higher their effort in each channel, the more they can earn.
Room for Expansion
Two-tier marketing is the starting point, but it’s possible to add a third tier and even beyond. A company just needs two things:
- A user interface that makes it easy for each affiliate to recruit to the next level
- A commission plan that pays out at every level
The person who makes the sale should get the highest commission, with the second-highest going to the person who recruited them, and so on down to the original recruit. As long as a company can afford to pay commissions earned, there’s no limit to the number of levels.
Each level expands the company’s audience and allows the affiliate program to reach more potential customers.
The Cons of MLM
MLM tiers in affiliate marketing have cons, too — not just pros. Here are some of the disadvantages of the process, though they are not beyond solving.
Sometimes when first-tier affiliates become recruiters themselves, they stop focusing on their own sales and let their second-tier affiliates generate their revenue.
Of course, second-tier affiliates can make up some of the difference, but there’s still the possibility of sales losses when the first-tier affiliates put forth less effort. Businesses need to continuously remind their first-tier affiliates of the benefits inherent in making their own sales.
When businesses do single-level affiliate marketing, they know all their affiliates. With MLM, a business might have sellers who have never had direct contact with the sponsoring company.
The problem is that effective affiliate marketing depends on strong relationships. Companies need to communicate with all affiliates at every level, and they need to do it consistently with multi-tier affiliate software.
When affiliates recruit other affiliates, some may be tempted to start spamming. Unfortunately, it’s not just these problematic affiliates that get tagged for unethical practices. The sponsoring company’s reputation is on the line, too.
Relationship building helps to solve this issue. When affiliates have a strong connection to the business and can access tools to help them succeed, they’re more able to recruit ethically.
Minimizing Drawbacks, Maximizing Benefits
When it comes to the pros and cons of MLM tiers in affiliate marketing, the pros win — but active management by the sponsoring business can negate most of the cons, too. The business has to monitor the program’s effectiveness, stay in touch with affiliates, and actively recruit.
To make this happen, businesses need the right two-tier affiliate software. That’s where LeadDyno comes in.
LeadDyno makes it easy to set up and run an affiliate MLM program. Companies get a complete suite of tools that engage and motivate affiliates. These features include convenient payment software powered by Paypal Mass Pay and email automation that makes regular communication simple.
Ready to find out what top-notch multi-tier affiliate program software can do for your business? Contact LeadDyno today and sign up for a 30-day free trial.