There are so many varieties of MLM compensation plans that all stem from the foundations of a few. Some are better than others and you need to really understand a company’s compensation plan before you start to build an MLM business. This is a summary of four basic plans, from which most of the others have emerged.
The Breakaway Plan has been around since the beginning of network marketing. It is one of the original MLM compensation plans and is still one of the most common. It is utilized by companies like Amway, Mary Kay, Herbalife, and NuSkin. This can be a very complicated plan to understand. Once some of your business builders, who are building their own organizations, reach a certain level, determined by the company, they “break away” to act as their own separate business. You now receive a percentage on the sales of that new business that used to be part of your business. This plan motivates business builders to perform well and to encourage high sales volume. The disadvantage is that when one of your downline teams “breaks away” from your organization, you may actually earn less than you would before the team reached that level.
The Uni-level Compensation Plan is usually the easiest plan to understand. You build your organization by enrolling people who make up the first level under you. You earn a certain percentage of sales from your first level of people. When your first level, enrolls people into their first level, they become your second level and you are paid a certain percentage of the sales from this second level as well. Each company is different and will pay you a certain commission percentage down a certain number of levels. This plan encourages personal selling and those who have a talent for recruiting a large number of people usually do the best in this type of plan. The disadvantage of this plan is that it can discourage team growth and in a true uni-level plan there aren’t promotions or ranks that you can rise to. This plan is somewhat responsible for the term “pyramid”. Most companies using this plan have now modified their system to make it more attractive to potential business builders.
The Matrix Plan, or forced matrix plan is another popular plan that limits the number of people who can go into the first level under you in your organization. When you fill your first level, you additional enrollees automatically go into the next level or space available. It is an automatic “filling” of spots that you don’t have a lot of control over. For someone who has a strong upline or sponsor and is just starting their MLM organization it would be an advantage to be in this type plan because others are helping them build their downline, but on the other hand because of the limited number of people that can go directly under someone, you may find yourself under an upline person who didn’t recruit you. When your first level is full and you enroll another person into your organization, either the company computer or you (depending on the company’s rules) are allowed to place this person under someone else in your downline. This is called spillover, which allows people other than you, the sponsor, to earn a bonus. Most companies with a matrix designed compensation plan have many modifications and additional bonus structures that work best for that particular company.
Finally the Binary Plan is a newer MLM compensation plan. You are the leader of two business centers that you have to develop. Each center, or leg, collects business volume each week. When sales volume requirements are met for each pay period, you are paid a certain percentage of the volume. The requirements for each leg usually have to “balance” one another to encourage both business centers to grow. There are sales requirements and strategies for each leg so that one leg doesn’t overdevelop while the other leg shows no growth. Income is usually paid on the entire sales volume of the smaller leg. This plan is sales volume driven, not level driven like in the plans above. This encourages both personal enrollments as well as team and business building. An advantage to this plan is you are paid on the unlimited depth of your entire team and because everyone “shares” in the sales volume, you can grow your team quicker because you have a whole team, helping to build an organization, not just you. One disadvantage of the binary is that sometimes there is a lack of commissions if one of your business centers is much stronger than the other and goes way beyond the company sales volume requirements, you may feel like there is extra sales volume that you are not being paid for. Many companies now allow carryover business volume and allow extra sales volume each pay period to be carried over to the next pay period.
These four MLM compensation plans have developed into hundreds of more unique type plans. Additional bonuses and incentives are added and each plan is shaped and changed according to what will work best for each network marketing company. You should study and understand the compensation system before you join an MLM company so that you know exactly what it will take to earn the income you desire!