Multi Level Marketing
Compensation Plan: A Review
One of the most important aspects to consider with a company is the multi level marketing compensation plan — what dictates how distributors earn commissions and bonuses. Following is a brief explanation of the major types of plans and variations.
Major Types of Plans
There are many different varieties of multi level marketing compensation plan out there. They often have exotic names. But they tend to be variations on four major types of plans….
The Unilevel Plan
This is the most basic and most easily explained multi level marketing compensation plan. 1st Level is filled by individuals that you personally sponsor, or recruit. The 2nd Level is filled by individuals that you 1st level downline members sponsor, and so on for the consecutive levels. There is a limit in depth that the company pays you. Most companies only pay commissions to a depth of 7 levels or so, however, an infinity bonus (explained later) is usually provided on levels beyond 6th and 7th levels.
PROS: Simple, easy to explain
CONS: Lack of flexibility
The Stairstep Breakaway Plan
Initially, this multi level marketing compensation plan is similar to a unilevel, but once a distributor meets certain performance criteria, they can advance in rank and "break away" from his or her original sponsorship line. The original sponsor still receives a percentage override on the sales of the entire breakaway organization.
PROS: Accepted by regulatory agencies, Easy to modify, Driven by volume and performance
CONS: Generally complicated and hard to explain, Generally requires high personal purchase volume requirement, tends to promote inventory loading (a large investment in products).
The Matrix Plan
This plan looks like a grid. Unlike a unilevel, each level in a matrix plan is limited to a certain width. For example, in a 3x5 matrix, each level can have only three downline members and limited to a depth of 5 levels.
Unlike a uni-level plan, once your 1st level is full, each subsequent person goes to the next level until its full, and so on. That’s why this plan is also sometimes referred to as a forced matrix plan. Each person you sponsor is “forced” into the next available slot, which may not be directly under you.
If you get in on the first levels of your sponsor’s matrix, and they personally sponsor a lot of people then, you MIGHT get some “spill-over” or people placed underneath you. Common matrix configurations are 2x2, 4x7, and 3x8.
PROS: Opportunity for “spill-over”
CONS: Attracts loafers or “dead weight”
Another name for the forced matrix is a “socialist” or “welfare” matrix. Since some of your new donwline could be placed under other in your downline who may be doing absolutely nothing, and they will possible earn commissions from people under them they didn’t have to place there.
In a binary plan, each downline member is placed into one of two legs. Each one of your downline members also places their recruits into two legs as well. What results is series of matrices. There is no depth limit on payment but there is usually a finite amount that can be paid out for each leg.
PROS: Simple to explain, Group cooperation promoted because payout is based on group volume, unlimited depth, Payout is often on a weekly basis.
CONS: Requires balancing of volume in each leg, Legal problems (distributors tend to promote the plan rather than the product)
VARIATIONS / ADDITIONS
Following are some multi level marketing compensation plan variations that are out there today.
A Fast-Start, or Fast Cash bonus is usually given as an incentive for personally sponsoring people. It can range anywhere from $10 to $200. The FTC does not consider it legal to make money by simply signing people up, since that is the concept used by a pyramid scheme. However, a fast-start bonus, if your marketing focus is product, is just an initial commission from the company for recruiting someone into your downline.
An Infinity Bonus is an additional commission, above and beyond the normal multi level marketing compensation plan pay structure, based upon the total group volume of your organization. It is usually on the order of 1-2% extra. That doesn’t sound like a lot. However, by definition, an Infinity Bonus won’t come into play until later in your business when you have a large organization. Then, 1-2% can be a nice addition to your monthly income. An Infinity Bonus can accomplish two things:
1) Allow you to make a commission from your entire organization.
2) Ensure you get help from your upline or provide it to your downline.
With some multi level marketing compensation plan structures, you can get “blocked” out of the Infinity Bonus if someone in your downline meets the volume requirements to qualify for, because the bonus can’t usually be paid twice on the same downline. However the downline member that “blocked” you out, by definition, would have a large organization. You would still receive a normal commission, according to the normal pay structure, from that large organization. Additionally, you won’t qualify for this bonus unless you’re already making thousands of dollars a month; plenty enough to not worry about getting blocked.
As with any organization, there will be people in your downline that will not perform, or even purchase product, for whatever reason. To counteract this situation, most companies have what they call a monthly “roll-up” or “compression”. If a downline doesn’t purchase product in a given month, the person on the next lower level will “roll-up” to the next level. This keeps your organization from looking like “Swiss Cheese”--with a bunch of holes where people aren’t doing anything.
In almost all network marketing compensation plan, lower levels pay a lower commission. Therefore, compression helps you maximize your monthly commissions by propagating your higher levels with “actual” distributors. Like the Infinity Bonus, compression won’t really be a factor until you have a larger organization (in the hundreds).
Sometimes referred to as Mega-Matching, usually in a binary-type of multi level marketing compensation plan. With a binary plan, you earn commission from every person in each leg, whether you personally sponsor them or not. A matching plan will “match” the commission of every person you “personally” sponsored into your organization.
This was just a quick network marketing compensation plan overview.
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