Understanding MLM Compensation – Part I
Understanding MLM compensation plans can at first glance seem daunting. It is my hope to shed some light on this subject for you with a general overview. There are basically 4 types of pay plans that are being utilized in network marketing today. Each has its own strengths and weaknesses.
These MLM pay plans are structured like a flight of stairs. Each step represents a higher level of achievement. As product volume and group volume increase, the higher you ascend on the staircase. The higher you rise, the greater your commission rate and bonuses on downline production.
The people in your downline are also climbing the same set of stairs. When they reach a certain level of achievement, they and their downlines “break away” from your team. It is generally at this point that the volume of the breakaway group is no longer included in your monthly production quota and your commission from this distributor and their group is generally reduced. Interestingly enough, you have the potential to make more money from the breakaway leg, because you are paid on the total group volume of that leg
In a typical MLM matrix plan, strict limits are set on both the width and depth of the organization. For example in a 3 x 6 plan, you are allowed 6 levels of depth, but your frontline is only 3 people wide. The first three people you recruit will full up your first generation line. The fourth person will then “spill over” onto the next generation level.
Unilevel MLM Compensation Plans
A typical unilevel plan resembles stairstep MLM compensation plans in many respects, with the exception of breakaways. There is generally a limit set on the number of levels from which you can earn commissions; however, there is no limit on the width of any generational line. Advancement to higher achievement levels and higher commission levels are achieved by meeting specified monthly volume goals.
Binary MLM Pay Plans
Similar to a “2 x ?” matrix plan, a typical binary plan only allows for two people on the frontline of your organization. Your organization divides into two legs, “a right leg” and a “left leg.” Commissions are generally paid only on the weaker leg, usually determined by lower sales volume during the current payout period. Generally no commissions are paid on the strong leg.
Over the next few days I will be taking a closer look at each of these forms of MLM compensation. I will give you the advantages and disadvantages of both, so that you can be better informed about the compensation plan of any MLM company you are considering, or are currently involved with.
Filed under: MLM Compensation
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