Understanding The Difference Between Network Marketing Compensation Plans
Written by Lusabara on September 21, 2018
Compensation plans in network marketing/MLM vary from one company to the next. They are at best difficult to understand for both you and the person introducing them to you.
It is up to you to ask questions when evaluating any company’s pay plan. Some are front end loaded or they maybe back end loaded.
There are some plans out there that payout more then 100% fortunately these companies don’t last long but do end up hurting individuals and give the network marketing industry as a whole a bad name.
As a general rule of thumb anytime you see a payout of more then 60% be suspect. It generally indicates that:
- The products are grossly overpriced, unless it is a unique product or a exclusive patented product.
- Qualification/Quotas most well established companies will have some volume or monthly quota that each individual representative must maintain.
- Breakage/Break away several of the most popular programs out there use this one. Imagine after all your hard work you miss your quota for the month only to have all your hard work building an organization disappear.
Most compensation plans fall into binary, breakaway, matrix, stair-step or uni-level plan but there are other plans out there as well.
The Binary Plan.
This type of pay plan requires more work on your part.
While theoretically it revolves around two who get two on to infinity, which of course, we know will never happen.
Most of the companies that use this type of program, generally pay you on the weaker leg in the binary.
This requires you to keep a sharp eye on both legs of your organization.
There is nothing wrong with this type of pay plan, yet still in my personal opinion which counts only for me I like the unilevel the best.
One of the first companies I worked with used this type of pay plan with a twist it was not until much later that I learned how flawed the concept of their pay plan was.
The twist they added was that after recruiting my first two individual I would create another business center under on of the two previous individuals provided they had done nothing.
After several years I ended up with all these business positions with no one in between. While many programs offer compression, depending on the pay plan it could be harmful to your future income.
Breakaway plans are different they are the oldest type of pay plan, once members of your organization reach a certain leadership level decided upon by the company, they breakaway into their own organizations.
At first glance, this looks pretty scary, yet in most cases you’re still paid to a certain extent on those new organizations.
Breakaway programs are the most popular in the mlm – network marketing industry. It is very important not to get sucked into graphs and numbers brought out and displayed for you.
Graphs and numbers can always be skewed to present a much better picture then what actually exists.
The typical matix is limited in width on the first level to usually 2 positions although with some companies it can go much wider.
Usually it has a predefined depth (levels) of 5 to 12 with linear commissions. Matrix plans often use the phrase two who get two etc…
The problem is maybe the two you get will actually do nothing at all? Matrix plans only make up a small percentage of the total pay plans offered by different companies.
This type of pay plan has been on the decline as Binary and Unilevel pay plans increase in popularity. One of the reasons could be that many of these pay plans where tied to reverse matrix scams.
This was a way of guaranteeing you a downline, yet when the numbers where added up “they didn’t add up!”
Unilevel pay plans are in my opinion the best option. Essentially I can control the income that I earn based on my own efforts. Why is this so important?
Many companies pay structure is laid out so that you must build a huge down-line to generate substantial income.
This is generally also true with our customer base.
In network marketing we should really be focused more on customer acquisition then downline building.
Often this is not the case with most company pay plans.
However, the monthly residual income could depending on the companies pay structure range from 5% to 30% of their monthly recurring orders.
This gives you the incentive to get out and find new customers, but to also follow up with the customer’s you have already acquired.
With this in mind, you can now predict with some certainty what your income level could be based on your own actions.
You do not have to rely on the actions of others. Anything that your downline does should be in my opinion be considered just a fringe benefit!