Here's the 5 types of MLM compensation plans commonly found in the industry.
1. Unilevel Plan
This is known for being the most straightforward plan to understand. Under the unilevel network marketing compensation plan, every person you’re going to sponsor will be on your frontline.
It means sponsoring into one level and gaining commissions on every person your downline members fund to reach the first level. The good thing about this is that it’s the simplest and easiest plan to explain to recruits. However, the downside of a unilevel plan is that you may get a little support from an upline and no rank advancements.
And even if you earn on a multi-level structure down 5 or more levels in your downline, the downside limitation is that you can only earn up to a certain level and beyond that, everything below that level you do not earn any more commissions.
2. Binary Plan
Under the binary compensation plan, you’ll be given two legs, the right and the left side for your two frontline associates. When the sales of both legs match at a particular amount, you’ll be paid with commissions.
If there’s an additional volume in a leg, it’ll be carried over to the next commission payout period. An advantage of having this kind of compensation plan is that you’ll more likely be paid weekly. Plus, the program itself can be an excellent way to encourage group participation.
On the other hand, the not-so-good thing about a binary plan is that it may cause some legal concerns when people push for recruitment over the selling of products. Plus, there’s also a tendency that with many people who start and grow their business with the same MLM setup, they fail to support the downline members.
However, there are many advantages to a binary plan because you virtually earn on infinite levels in your downline and the teamwork element is much stronger as you have a direct benefit for helping team members even in your 999th level or beyond.
3. Stairstep Breakaway Plan
It’s the oldest network marketing compensation plan operating these days. It’s actually called a unilevel plan, but it differs in one thing. When you’re able to achieve a certain level, you’ll break away from the upline and begin a new line. From there, you’ll get royalties from the sales volume obtained by that line.
If you’re good at recruiting a high volume of people and don’t need network marketing training, this breakaway plan can be the right fit for you.
A rewarded performance, easy modification, and the acceptance by regulatory distributors and agencies are some of the advantages you can get if you have this kind of compensation plan. However, it’s also the most challenging plan to understand and explain to new recruits, and it may result in inventory loading just to achieve the volume requirements.
The downside of a breakaway is that it is a real work plan, meaning you usually have to be stressed out about monthly sales targets both personally and in your team. However, if everyone works super hard and sells tons of products, you earn a lot just based on your first 3 or more levels of distributors. Take note though that the attrition rate of such plans is much higher than another other kind of plans due to the breakaway and sales targets.
4. Matrix Plan
It’s also known as the forced matrix plan. This compensation plan works by limiting the width of each level. As a distributor, you’ll likely add more people and their downline members fall under your line. For instance, if you have a 5 x 7 matrix, there’ll be three distributors at each level going down to seven levels. When you’re done filling up the top line of the matrix, it’s time to put the people you support under the others for them to fill up the matrix.
The positive side of the matrix network marketing compensation plan is your ability to create a strong downline for you to generate more profits. Unfortunately, only a few MLM companies are using it because it has been criticized as a pyramid scheme because someone who comes in earlier on top of the matrix can literally be sitting there earning from the people below them in the matrix due to the forced spillover structure.
5. Hybrid Plan
This is a more sophisticated compensation plan which seeks to combine the best of each type of plan above and provide a more balanced way for distributors to earn income without having to fall into one of the pitfalls of the more traditional plans. Usually a hybrid compensation plan combines elements of a direct referral bonus, a binary tree bonus based on weaker leg volume or matching orders, a unilevel commission to a certain number of limited levels and some kind of leadership matching bonus which pays you a percentage of the binary commissions of your directly referred distributor leaders.
In summary,
As an industry professional for over 20 years now, I have seen an uncountable number of companies with all sorts of compensation plans. However, there is no one perfect compensation plan out there and no one perfect company. But I have seen newer companies who deploy hybrid compensation plans and their distributors really earn much more income, build stronger larger organisations which are more stable and rewarding at the same time.
So if you ask me, I believe hybrid compensation plans are the future of the industry. That is, if the company can last that long.
Author: Dennis Bay
Dennis is an MLM Industry Veteran with over 20 years of successful experience as a top field sales leader, having built a sale team of over 1 million downlines, generating over 1 billion US dollars of annual sales revenues in under 5 years.
Read more about him at
https://dennisbay.com
https://mlmconsultingpro.com
