MLM Compensation Plan Review

Multilevel marketing companies are called multilevel marketing companies because they use a unique compensation structure. That “multilevel” compensation structure involves passing “compensation” through “multiple levels” of the company.

If you’ve spent much time browsing through network marketing company sales brochures, then you’ve probably seen terms like binary, matrix, uni-level, matching bonus, and infinity pools.

But what do any of these terms mean? What are the different types of compensation plans? Which MLM compensation plan best suits your needs? Here’s what you need to know about how MLM compensation plans work.

How Do MLM Compensation Reward Plans Work?

As many of you may know by now, we got our first start inside the internet retail/sales game due to the network marketing world.

Not knowing up from down, right from wrong or good from bad about anything involving pyramid schemes and MLM companies, we knew we had to do our own due dilligence to come up with a guideline on what qualifies as a viable option to generate commissions and compensation in any given network marketing business opportunity.

As we explain MLM pay plans in depth, please understand that every company has differences in their commission structures.

Our goal here is to show you the 6 expert elements required for you to join a network marketing opportunity by giving you a detailed guide and break down the componenets of popular and common compensation plans in today's MLM landscape.

We know that most 2015 MLM compensation plans revolve around these principles, so enjoy and hopefully this allows you to pick and choose the right system and program to work for you.

Top 4 Most Popular MLM Compensation Plans

Over 95% of all multilevel marketing companies doing business today use one of the four plans listed below (or a blend of two or more plans mixed together):

Stairstep Breakaway Plan

The Stairstep Breakaway Plan is the oldest multilevel marketing compensation plan. It’s also the most common out there today. With this plan, salespeople who meet certain criteria can “breakaway” from their original sponsorship line.

The sponsor then receives a percentage override on all of that salesperson’s future sales, including the entire sales of that breakaway organization.

Essentially, the stairstep breakaway compensation plan is just a unilevel plan that has added flexibility. This flexibility is designed to give new members the motivation they need to perform and advance.

Pros: The main advantage of the stairstep breakaway plan is that it’s easily accepted by regulatory agencies in the United States. It also has a good track record of success (it’s the oldest and most common MLM compensation plan in the world today) and can easily be modified to suit the unique needs of a company. It also gives plenty of incentive to all levels of the company – something many people attribute to its high rate of success.

Cons: The main disadvantage of the stairstep breakaway plan is its complexity. Sometimes, new recruits can have trouble understanding the policy. To a new recruit, just the name “stairstep breakaway” makes this compensation plan sound complex. Stairstep breakaway plans, when implemented poorly and under-monitored, can also lead to inventory loading, which involves forcing recruits to subscribe to high monthly personal purchase volume orders in order to artificially inflate sales while leading to high rates of failure.

As far as tried, true, and battle-tested plans go, the stairstep breakaway plan is at the top of the MLM compensation plan list.

Unilevel Plan

The unilevel compensation plan is one of the most basic MLM compensation plans available today. The distinguishing feature of a unilevel plan is that recruits cannot advance to positions above basic distributors, regardless of their performance.

Pros: This compensation plan is easy to setup, easy to understand, and easy to manage.

Cons: The main disadvantage is the lack of motivation. Sponsors may not be motivated to support their downline. This plan can also lack flexibility.

Ultimately, many MLM companies start out by using a unilevel compensation plan for simplicity’s sake. Then, as they gain more momentum, they transition into a stairstep breakaway compensation plan for greater flexibility and better long-term growth.

Matrix Plan

The matrix compensation plan closely resembles a grid: your goal, as a distributor, is to fill out your grid with a certain number of recruits at each level.

Let’s say the MLM has a 3×5 matrix plan. That means each level down to five can only have three downline distributors.

Matrix plans typically don’t have a great reputation in the MLM industry – they’re often associated with gimmicks and flash-in-the-pan style companies. This is because sponsors often end up with recruits who they did not personally recruit.

For example, if your three-wide matrix is already full, then the fourth person you recruit would be placed into one of your original three distributor’s own three-wide matrix.

On the other hand, many new recruits are enticed by the idea that spots in their matrix can automatically get filled.

Matrix plans are typically used in companies where the products are primarily used by distributors (as opposed to being sold to outside consumers).

Pros: It’s easy for recruits to fill their matrix and feel accomplished. This plan is also ideal for companies where distributors actually use the products themselves instead of just selling to others.

Cons: These plans have a poor track record of success in the MLM industry. They’re often associated with gimmicks and low-quality, recruitment-based MLMs. They’re also notorious for being filled with unmotivated recruits and sponsors.

Ultimately, there are a handful of successful MLMs using matrix plans. Many unsuccessful MLMs, however, have lived and died by their matrix compensation plans.

Binary Plan

Binary plans are the newest compensation plans in the MLM community. Just like matrix plans (which are only slightly older), people aren’t 100% sure how well binary compensation plans will perform over a long period of time.

With a binary plan, a distributor can typically build two downline “legs”. Each leg must have a balanced amount of product volume in order to be eligible for commission.

Ultimately, the distinguishing feature of binary plans is that they’re based more on volume than levels. Some companies also let distributors occupy two or more “business centers” in order to create multiple two leg matrices to maximize sales volume.

Pros: Many binary plans come with weekly payouts, which are surprisingly rare in the MLM industry. Supporters of binary compensation also argue that the system promotes group cooperation because the payout is based on group volume and a special balancing of each leg. Some also call it the most “democratic” form of MLM compensation because there’s a limit on the payout in each matrix, there’s an unlimited depth to the payout, and distributors are often allowed to loop or re-enter the leg at multiple points.

Cons: MLMs that use binary plans have been filled with controversy. The first major MLM to use a binary compensation plan was a 1990s fraudulent gold coin MLM. Today, the plan is often used for other questionable products – like high-ticket, one-time purchase items that were sold fully knowing the customer would never buy the product again. MLMs that use binary plans also seem to face greater legal problems than other companies.

Ultimately, few major MLMs use a binary compensation plan. USANA, which has applied the concept to consumable health products, is the only major MLM that uses binary plans today.

More Key Features of Direct Selling Commission Plans

The systems listed above are simply the MLM compensation systems. Depending on your MLM, that compensation can come in many different forms. Some MLMs reward distributors with cash. Others reward them with luxury car leases or luxury vacations. We talk in great depth and detail regarding what Direct Sales is and how you can benefit directly from it here.

In any case, here are some of the other important characteristics and terms that may pop up when you’re researching MLM compensation plans online:

Infinity Bonuses

Infinity bonuses, also known as infinity pools, are additional commissions you might receive above and beyond your standard product commissions.

The infinity bonuses are based on the total sales volume of the entire company. For example, the top salespeople in the MLM company might earn 1 to 2% of a company-wide “Infinity Pool”.

The Infinity Pool is named “Infinity” because it has no limits. The more sales a company earns, the larger this pool will grow. This is also an effective way to reward the company’s highest-volume distributors even further.

Matching Bonuses

Matching bonuses are another form of supplemental compensation. These bonuses are typically found in binary-type MLM compensation plans. With a matching bonus, the company will reward certain distributors by “matching” all of the commissions earned by that salesperson or their downline.

In some companies, this can effectively double a large chunk of your earnings.

Fast Start Bonuses

One final popular bonus is the Fast Start Bonus, also called the Fast Cash bonus. Typically, this is a reward you get for recruiting lots of people into the organization (i.e. sponsoring them).

Since the FTC forbids making money simply by signing people up for an organization (that would make it a pyramid scheme), companies need to disguise this reward in the form of a Fast Start Bonus. You might earn that bonus after recruiting 5 or 10 members, for example.

Roll-Ups and Compression

One of the inherent problems with MLM compensation plans is that distributors are left with holes in their downline.

You’ll inevitably have salespeople who don’t perform up to expectations. This can take a huge chunk out of your monthly earnings.

Some MLMs use roll-ups and compression to combat this problem. Every month, you can “roll up” or “compress” your network of distributors in order to maximize profitability and reduce waste.

Understanding Multilevel Marketing Ranks

Ranks are another unique quirk of the MLM industry. MLMs love throwing around terms like “Emerald” and “Diamond” when talking about their top salespeople.

But how do these ranks work and what exactly do they mean?

Well, the specific terms vary widely from company to company. Some companies give their top salespeople the rank of “diamond executive”, for example. A new distributor might only be a “Marketing Associate” or “Distributor”.

Typically, your commission percentage varies according to your rank. Depending on your company, new distributors might make only 5% commissions, while the highest ranking distributors earn 45% commissions.

There are a few common themes across most MLM company rankings:

-They use precious gem terms to define different ranks at the upper level. Diamond, Emerald, Ruby, and Sapphire are popular gems used for ranking (going from highest ranking to lowest ranking).

-At the lower levels, distributors typically receive average middle management-type names. A new recruit might be titled “Distributor”, for example. As you progress through the ranks, you’ll typically earn titles like “Marketing Associate”, “Supervising Manager”, “Regional Manager of Sales”, and “Consultant”. These terms mean different things at different companies.

-Some MLMs also further distinguish their upper levels by colors. Some top executives might be a “Blue Diamond”, for example.

And just remember, to rise rank in any direct selling compensation plan structure, you need to learn how to generate MLM leads to grow your funnel and turn prospects into customers/builders.

How to Choose the Best MLM Compensation Plan

Ultimately, your goal when searching for MLM compensation plans is to find the plan that works best for your unique needs and characteristics.

To help you make your decision, consider all of the following:

Good MLM plans typically have the following characteristics:

-The MLM is affordable to enter, and salespeople can buy a modestly-priced sales kit (not a lucratively-priced sales kit)

-The plan rewards people primarily for direct sales as opposed to giving away override commissions

-The plan rewards people who personally sponsor others, and then rewards them further when those sponsors do well

-The plan rewards distributors who sell products directly to the end consumer as opposed to just your own downline

-The plan rewards you for being a good salesperson (like when you have high personal volume, high group volume, and high monthly volume)

-Does the plan give away certain non-monetary incentives, like cars or vacations? Do you like those incentives? Or would you prefer cash? Sometimes you can receive cash in lieu of the non-monetary rewards.

-The plan has a reasonable monthly maintenance requirement

Bad MLM compensation plans typically have the following characteristics:

-The plan does nothing to discourage deadweight distributors and non-producers

-The plan encourages inventory loading by forcing distributors to buy exorbitant product orders each month knowing that most distributors will be stuck with that inventory instead of selling it

-The plan offers commissions of 60% or more on product sales, which typically indicates that the product is grossly overpriced and won’t survive on the market for very long

-The plan emphasizes gimmicks, recruitments, or weird bonuses instead of product sales

By carefully taking the above characteristics into consideration and reading real distributor reviews online, you can easily find an MLM compensation plan that gives you the greatest chance of success.