MLM Compensation Plans
Multi-Level Marketing (MLM) is a popular business model in the world today. Its rise is attributable to the desire of many people to earn a significant income from the comfort of their homes. An integral part of MLM that drives its success is the compensation plan. It’s the lifeblood of the business, determining the financial reward that an associate will receive. This article will explore four types of MLM compensation plans, the pros, and cons of each plan, and provide examples of earnings from each plan.
Unilevel Compensation Plans
The unilevel plan is considered the most straightforward MLM compensation plans. It involves the recruitment of members who are placed directly under the recruiter on the frontline. All members sponsored by the recruiter will be in the first level, thereby forming a single-level downline. The recruiter earns a commission for each person their downline members recruit.
One of the pros of the unilevel plan is its simplicity. It is easy to understand, explain, and implement, thus making it highly attractive to beginners. However, it has its drawbacks, such as limited support from upline members and the absence of rank advancements.
Earning Example: If you sponsor ten individuals, and each of them recruits ten more, you will have a hundred people on your first level. If the commission is 5% and each person in your downline earns $200 monthly, your earning would be $1,000 ($200 x 100 x 5%).
Binary Compensation Plans
The binary compensation plan operates on a two-leg structure. It comprises a right and left leg, each representing two frontline associates. Commissions are paid when the sales volume of both legs matches a specific amount. If there is a surplus volume in one leg, it is carried over to the next commission payout period.
The binary plan is advantageous as it offers regular payments, typically on a weekly basis. It also fosters a team-oriented environment by promoting group participation. On the downside, it may attract legal concerns as distributors often prioritize recruitment over product sales. There is also the risk of not being able to adequately support downline members due to the simultaneous growth of multiple businesses.
Earning Example: If the sales volume on both legs matches $10,000 and the commission is 10%, you will earn $1,000. Any remaining volume will be carried over to the next payout period.
Stairstep Breakaway Compensation Plans
The Stairstep Breakaway Plan is one of the oldest MLM compensation plans. It operates similarly to the unilevel plan, but with a twist. Once a certain level is attained, the distributor breaks away from the upline to start a new line. Commissions are then earned from the sales volume of the new line.
The stairstep breakaway plan is suitable for individuals who are adept at high-volume recruitment. It offers the advantages of rewarded performance, easy modification, and acceptance by regulatory agencies. However, it is complex to understand and explain to recruits. Additionally, it may lead to inventory loading to meet volume requirements.
Earning Example: If you break away at a volume of $20,000 and the commission is 5%, your earnings would be $1,000. You will continue to earn this commission from the sales volume of the breakaway line.
Matrix Plan Compensation Plans
Also known as the forced matrix plan, it operates by restricting the width of each level. Distributors are tasked with adding more people, and their downline members fall under their line. For instance, in a 5 x 7 matrix, there are five distributors at each level, extending down to seven levels.
A key benefit of the matrix plan is the potential to create a robust downline, thus generating more profits. However, it is not widely used due to criticism as a pyramid scheme.
Earning Example: In a 5×7 matrix, if the commission is 2% and each distributor earns $100 monthly, your earnings will be $700 ($100 x 5 x 7 x 2%).
In conclusion, understanding the compensation plan is essential when venturing into an MLM business. While each plan has its merits and demerits, it is crucial to consider the one that best suits your marketing skills and business objectives. Therefore, it’s advisable to conduct thorough research and understand the compensation structure of any MLM company before joining. This understanding will equip you to make the most of the opportunities available in the MLM industry.
MLM Party Compensation Plans
The MLM Party Plan is a popular method in MLM businesses that predominantly deal with products designed for home use. Under this plan, a host or hostess organizes a party or social event where they present and sell the company’s products to guests. The host or hostess then receives commissions from the total sales made during the party.
One of the primary benefits of the MLM Party Plan is its social aspect. The relaxed atmosphere provided by such settings often leads to more sales as potential buyers are put at ease. Furthermore, hosts can develop close relationships with their customers, encouraging loyalty and repeat business. However, the downside to this plan is that it requires significant social skills and a broad network of contacts. Also, it may not be scalable or suitable for all types of products.
Earning Example: If a host sells $1,000 worth of products at a party and the commission rate is 10%, they would earn $100 from that single event.
Board MLM Compensation Plans
The Board MLM Plan, also known as the Revolving Matrix Plan, operates on the concept of a limited number of spots available in a board. Once a board fills up, it splits into two sub-boards, and the top member moves up a level or ‘revolves’ to start a new board. This member earns a commission each time they revolve to the next level.
A significant advantage of the Board MLM Plan is its potential for high earnings due to the revolving mechanism. It can also be exciting and motivating for members to see their progress through the different levels. However, it can be challenging to understand and explain, and may discourage potential recruits who are not comfortable with its complexity. Furthermore, if recruitment slows, boards can stagnate, hindering progress and causing frustration.
Earning Example: If each revolution from a board earns a distributor $200, and they revolve five times in a month, they would earn $1,000 that month.
Generation MLM Compensation Plans
The Generation MLM Plan is based on generations rather than levels. Each complete downline from a distributor until a new distributor is considered a generation. Commissions are paid on the sales achieved by these generations.
One of the pros of the Generation MLM Plan is that it encourages distributors to support their downline members, as their income is directly tied to the performance of their entire generation. However, it can be difficult to explain and manage due to its structure based on generations rather than levels. Additionally, lower-level distributors may feel discouraged as they contribute to the earnings of higher-level members.
Earning Example: If a distributor has three generations, each earning $10,000 a month, and the commission is 5%, the distributor would earn $1,500 a month.
Monoline MLM Compensation Plans
The Monoline MLM Plan, also known as the Linear or Single Leg Plan, involves every new member being placed in a single line. Commissions are earned from every new member who joins after them, regardless of who recruited them.
The primary advantage of the Monoline MLM Plan is its simplicity; everyone benefits from each new recruit. This can motivate members to recruit more since they know every new member will benefit them directly. However, this plan can lead to uneven earning potential, with those who join early earning significantly more than those who join later.
Earning Example: If a distributor earns $10 from each person who joins after them, and 100 people join after them in a month, they would earn $1,000 for that month.