If considering a home-based business in network marketing, you’ve probably been exposed to the idea of the MLM compensation plan. What exactly is this, and how can you best evaluate and choose the best network marketing MLM compensation plan for yourself?
This review of network marketing MLM compensation plans has little meaning apart from the ability of a company to attract prospects. To do this, a marketing system is essential, in addition to quality products and, of course, an industry leading compensation plan is vital.
The MLM company compensation plan is essentially the rules whereby the distributor force is paid. The structure is one feature. The formula used for commission percentages paid (sometimes according to level in the plan) is another factor. In addition to payment on sales volume, most MLM network marketing compensation plans also pay out various bonuses, more often than not as a share of the MLM company’s revenue or profit.
Most MLM network marketing compensation plans can be described as one of four categories: binary, stairstep breakaway, matrix, or uni-level. Here is a brief explanation of each:
- Network Marketing Binary Plan – The first level in a binary system is limited to two people and there can be infinite depth. Generally this type of plan involves more work, since MLM companies using this system pay only on balanced left and right volume. This plan can have the highest synergy, because of the tendency to easily stack team members very quickly in a “power leg.” Approximately 14% of MLM companies use a binary plan
- Network Marketing Stair step Breakaway Plan – The stair step breakaway structure has unlimited associates on the first level with limited depth to generally 10+ levels. The plan pay includes two phases: stair step which pays higher percentages according to your rank in the company and a breakaway phase paying additional levels after achievement of a certain sales volume. These are the oldest type of pay plan, and although still highly successful, not as accepted as they were in network marketing’s early era, due to lack of synergy. Approximately 39% of companies including Amway, Herbalife, Mary Kay, Neways, and Nu Skin still use this type of plan.
- Network Marketing Matrix Plan – This type plan has first level width 2 to 7 and usually is 5 to 50 levels deep. This type of pay plan has been on the decline, possibly due to the problem of recruits who fill the matrix, but do nothing. Although Melaleuca uses a 5×7 matrix, no other major company using this model has been successful. About 8% of existing companies use a matrix plan.
- Network Marketing Unilevel Plan – This plan features an unlimited first-level width with a depth of commonly 5 to 10 levels. Approximately 37% of companies use this type of strategy which has built-in incentives to both acquire and follow-up with customers. Unilevel plans are often improved by adding a fast start bonus and dynamic compression to improve team synergy.
What factors are most important in a company’s compensation plan? Factors to consider include the percentages paid out in product sales, and the likelihood of bonuses. The best plans will include the fairness of strong upfront commissions as well as the prospect of sizable bonuses for the highly experienced professionals.
Most MLM companies that are worth considering will print a range of actual pay statistics, such as typical income by associates, possibly grouped according to level of participation. Part time distributors should have a correspondingly lower expectation of weekly, monthly or annual income.
A good measure, rather than the number of millionaires produced by a company would be the number of six-figure earners. In our experience, the best companies “spread the wealth” across the board, yet provide a means for the highest super-achievers to be compensated at extraordinary levels, probably even into seven-figure income.