Understanding the different MLM compensation plans
Phoenix Alliance’s previous business segment discussed how to evaluate the quality of an MLM business and we mentioned that the details concerning the commission structures are quite elaborate and would appear in another Phoenix Alliance business segment. So here it is. After reading this article, you should be able to determine which compensation plan is best suited to your personality.
I will freely admit that the compensation plan aspect of MLM businesses is my absolute favourite part to study and assess. I have a geek side, and math has always fascinated me. But rest assured, you don’t have to be a fellow geek to understand compensation plans, as long as they are properly explained.
I hope this article will demystify what is considered by most to be the least understood of all MLM business aspects. But since MLM is a business, it is of capital importance that you have a firm grasp of the financial compensation you can expect from a pay plan. Because in the end, the goal of an efficient compensation plan is to leverage your time.
I know of nothing more despicable and pathetic than a man who devotes all the hours of the waking day to the making of money for money’s sake.
– John D. Rockefeller
It is commonly agreed in the Network Marketing industry that there are four main types of compensation structures. In this article, I will bypass the less common ones and hybrid ones, to concentrate only on the following four.
Please keep in mind that the information contained herein is summarized. So I will stick to the basics and simplify the explanations. Consider this as a beginner’s class.
Unilevel Plan
It only enables you to sponsor one line of distributors, everybody being on your frontline, with no width limitations and commissions are normally paid out on a few levels only.
Advantages: easy to explain and simple for part-timers to make money.
Disadvantages: every distributor is in direct competition with each other and you have to manage and train a very large number of distributors.
Strategy: recruit a large number of frontline distributors and target only the cold market.
Successful distributor: very experienced Network Marketer, willing to pay for lead generation every month, and happy to make recruitment his main business activity.
Personality type (D-I-S-C)*: «D» or «I».
*See May 6th Business Segment: Behavioural Styles: DISC Assessment
Company philosophy: recruitment.
Companies using this plan: ACN, Immunotec, Natures Own.
Stair-step / Breakaway Plan
It is a Unilevel plan, in which you can break away from your sponsor once you have reached a certain level of commission. In turn, your distributors will also break away eventually.
Advantages: has a long-standing track record and favours full-timers.
Disadvantages: same as for the Unilevel plan, and you will always lose your best distributors, and your sponsor will have little motivation to help you.
Strategy: same as for the Unilevel plan, and you should target mid-level distributors who will make you money but not enough to break away.
Successful distributor: same as for the Unilevel plan, and good at strategizing to minimize the loss by break away and maximize the advantages of it at the same time.
Personality type (D-I-S-C)*: «D» or «I», combined with some «S».
Company philosophy: recruitment and selling.
Companies using this plan: Amway, Avon, Herbalife.
Forced matrix Plan
It is defined by an equation of width by depth (for example 4 wide by 6 deep). That matrix fills up automatically, starting by your frontline from left to right, then the second level, and so on.
Advantages: easier for inexperienced Network Marketers, promotes some level of teamwork.
Disadvantages: different commissions on each level, difficult to explain, frontline may require many recruits before going deeper in the levels.
Strategy: choose a narrow and deep matrix (for example 2 x 12) with a relatively equal compensation on each level, and a supportive sponsor.
Successful distributor: Network Marketing newbie wanting to gain experience, and does not have very precise criteria for his first company.
Personality type (D-I-S-C)*: «S» or «C», combined with some «I».
Company philosophy: selling.
Companies using this plan: Greenway, J.U.I.C.E., Web Traffic Makers.
Binary Plan
It has only two frontline positions and unlimited depth. You can always choose where in your downline to place new distributors. The limit is determined by a maximum weekly commission per business center (virtual store), but you can have unlimited business centers.
Advantages: most evolved plan (created about 20 years ago), promotes teamwork and training, motivates to help the weakest distributors, success can be achieved with a small organization, commissions equal on all levels, easy to explain, profitable for part-timers and full-timers.
Disadvantages: although considered as the fairest and most accessible plan, it is not the most lucrative for the heavy-hitting Network Marketers.
Strategy: do meaningful networking, choose only a few good distributors, train them well, continue supporting them and always promote teamwork (upline, downline and crossline).
Successful distributor: anyone with a sincere desire to help, a willingness to learn and teach, teamwork oriented and with a supportive nature.
Personality type (D-I-S-C)*: «D» or «I» or «S» or «C», or any combination of them.
Company philosophy: training and support.
Companies using this plan: Isagenix, OrGano Gold, USANA Health Sciences.
Additional note: an objective third-party, MLM Insider, holds a vote each year for the best MLM company, best plan, best products, etc. It is interesting to mention that the company rated #1 every year for the past ten years is one of the first ones to have implemented the binary compensation plan, which is believed to be the fairest.
I invite you to visit this page of our website to find out about the company rated the best by MLM Insider, every year for the past decade.
For more in depth and detailed information, Phoenix Alliance offers a FREE specialized «Why the binary compensation plan is the fairest » seminar to its registered members.
Interesting outside link: « Understanding the Binary Plan »
