There are many different types of MLM Compensation Plans. Every company has a “somewhat” different compensation plan than its competitors. Look at any 10 companies and you will find 10 different pay plans.
Which plan is best for you? I’m not sure. The pay plan you pick should support your short-term and long-term objectives. For example, if you enjoy retailing and need immediate income, you might want to pick a pay plan with a good retailing commission. And if you want “long-term” wealth creation, you want a plan that rewards you for building a large team.
The purpose of this post is to help you choose the right compensation plan for you. Only you know what is best for you, so please do your due diligence.
Prior to joining any MLM Company, you should have a thorough understanding of its compensation plan. You should know exactly how much you will get paid when you do certain things. You should know what you need to do to earn $1,000 per month, $3,000 per month or $10,000 per month. You should understand the retailing bonuses, fast start bonuses, team overrides, leadership qualifications, etc.
That way, there is no confusion or misunderstanding. After all, if you don’t know HOW you get paid, how can you expect to be successful?
To take it one step further, I think you should pick a MLM Compensation Plan first, and then find a company that uses that pay plan. I know that VERY FEW distributors will ever do that, but I think it’s a wise move.
In the paragraphs below, I’m going to take a few minutes to review the four most common types of MLM Compensation Plans in our industry. We’ll cover some of the pros and cons of each plan. Let’s get started:
1. Forced Matrix Plan: Forced Matrix Plans allow you to have a specific amount of people on your each level of your organization. You can personally sponsor as many people as you want too. You are just limited to where you can place them in your group.
For instance, a 5 x 7 forced matrix plan allows you to have five people on each level. After you sponsor your first five people, you must place all future distributors on level two or below. You’re still their sponsor, but they’re not on your first level.
Each one of your distributors can have five on their first level, and so forth. In a 5 x 7 matrix plan, you could potentially have:
- 5 on your first level
- 25 on your second level
- 125 on your third level
- 625 on your fourth level
- 3,125 on your fifth level
- 15, 625 on your sixth level
- 78,125 on your seventh level
- TOTAL 97,780 potential downline
The major advantage of this type of compensation plan is that you help your downline build a downline. You help lots of people earn small commissions, even if they don’t sponsor anyone themselves.
Another advantage is that you have people in your upline helping you build a team, by placing people in your group.
The major disadvantage of this type of MLM Compensation Plan is that it breeds laziness and a “welfare mentality” in your team. People expect you to put people under them. Furthermore, if you build a large organization beyond the payout levels, you miss out on lots of money.
In the above example, you wouldn’t earn one cent off people in your 8th level, 9th level and so on. Read more about forced matrix plans.
2. Binary Plan: With a Binary MLM Compensation Plan, you only have to build two legs. You have a left leg and a right leg. In other words, you are limited to two people on your front level.
Once you sponsor your first two people, you are forced to place everyone else under them in your downline. Basically, you are building a POWER LEG, where you place everyone you sponsor at the bottom most point of either your right leg or left leg.
Depending upon your MLM Company, you normally get paid on your smaller leg. Every company does it a bit differently though. Some companies do “cycles” when you hit so much volume in one leg and so much volume in your other leg. For example, if you have 500 points in one leg and 200 points in your other leg, you would cycle and earn a commission.
The major advantage about this type of plan is that you get to help people build a team. It is a very supportive environment. There is a lot of synergy. As you place people under other downline members, everyone benefits. In addition, you probably have people in your upline placing people on your team!
The major disadvantage to this type of plan is that people often get lazy. Most people will only join your team if you put them in your power leg. In addition, they expect you to place people under them and build a team for them. Also, with this type of compensation plan there is typically no “retail” aspect to the business.
In recent years, the binary compensation plan has grown in popularity. Personally, I am NOT a fan of this compensation plan, but I do see its merits. Read more about binary plans.
With a breakaway plan, your successful downline distributors “break away” once they’ve attained a certain achievement level in the compensation plan. Once they breakaway, their sales volume is no longer counted as part of your sales volume anymore. Instead, you get a small percentage of that person’s group sales volume each month as your bonus, normally three to six percent.
For instance, Amway uses the breakaway MLM Compensation Plan. Once your downline distributors attain the status of Platinum (Direct Distributor), they breakaway from your downline.
Their sales volume no longer counts as part of your sales volume. Instead, you get a 4% monthly bonus off their volume (if you maintain certain requirements). When you help others achieve the same success, you also get additional leadership bonuses.
The major disadvantage of a breakaway is that you end up losing a large part of your downline. Yes, the people are still technically on your team, but you can lose out on a lot of money. For instance, if you sponsor ten people and one of them accounts for most of your volume, once they breakaway, you could “lose” your achievement level in the company.
For example, if you are doing 30,000 points in volume in each month and John’s group accounts for 27,000 points of that volume, when he breaks away your volume is down to 3,000 points. If you have to maintain 5,000 points to remain qualified to get commissions from John’s group, and you don’t have it, you would potentially earn NOTHING from his group.
To succeed in this type of compensation plan you really need to be good at sponsoring and you need to develop several leaders to really maximize the compensation plan.
4. Uni-level Matrix: With a uni-level Matrix MLM Compensation Plan you can sponsor as many people as you want to on your front line (first level). In most cases, however, you are limited on how many levels deep you can get paid (initially).
For instance, you might get paid on your first three to five levels deep, regardless of your rank with the company. Anyone placed within those levels counts as part of your team volume.
However, to get paid on levels below that you must achieve a certain pin level in your company, sponsor a certain amount of people, or achieve a certain monthly volume. If you only sponsor a few people and one of your people really takes off with the business, you could potentially miss out on a lot of money.
If someone you sponsor builds an organization 30 to 50 levels deep, you leave a lot of money on the table (if you aren’t a leader yourself). However, if you are good at sponsoring people, you can build a wide and large organization. Remember, width gives you profitability and depth gives you security.
5. Hybrid Compensation Plan: The hybrid compensation plan is when a company combines one or more of these traditional compensation plans. You see a lot of companies doing that in today’s world. For example, they might have a binary structure, but also have a uni-level payout.
In summary, all MLM Compensation Plans have pros and cons. None are perfect. My best advice is to make sure that you thoroughly understand the company’s compensation plan, before you get started with the company. You must have a clear understanding of how you will get paid.
In addition, you must be able to explain the compensation plan to your prospects and new distributors. If it’s confusing to you, it will be confusing to others as well.
If you are a good leader, salesperson and recruiter, you can make money in ANY company. Most companies are designed for the heavy hitter and mass recruiter. On the other hand, if you struggle at selling, recruiting and leadership you will probably struggle with ANY company you join (until you develop those skills).
I really believe that your short-term and long-term goals should influence what type of company you join.
What do you think? What is your favorite type of compensation plan and why? Which one do you participate in? What do you like and dislike about it? Leave a comment below to share your thoughts. I look forward to hearing from you.