Do You Think Your Company Has The Best MLM Compensation Plan? Misconceptions About MLM Compensation Plans Revealed
Almost every Network Marketing program has a Compensation Plan that they claim has "one of the highest pay-outs in the MLM Industry", and is the best MLM compensation plan around, so you have to be very careful not to believe all the hype and the hot-air, and you must check things out properly.
Adding to your difficulty in determining what in fact is the best MLM compensation plan, is the deliberate slight-of-hand practiced by some Network Marketing companies. If you don't read between the lines, what you think you see is not always what you actually get.
It's also an unfortunate fact that some companies claiming to have the best MLM compensation plans, not the majority thankfully, have deliberately structured their plans so that the average person will earn very little in order for the Company itself, and a few select "MLM heavy-hitters", to make the majority of the money.
I don't have enough time or space to go into a detailed analysis and evaluation of each and every MLM Compensation Plan. That would take a whole book. But I will try to enlighten you regarding some of the general shortcomings and hidden traps that can suck money right out of your pocket.
Read This Alert First:When we talk about MLM programs and their Compensation Plans, bear in mind that we are talking about genuine Network Marketing programs, not the garbage programs, money games, gifting programs, chain letters, recipe and stamp programs, and pyramid schemes we all get in the mail or sometimes via the Internet.
These programs typically have no legitimate product, and others have included a barely useful product simply to try to stay ahead of the law as they continue to literally “steal” money from the wallets of the unsuspecting. We briefly discussed them in the "Avoid Illegal MLM's" section of this site, and you can go there to see how to spot them.
If you participate in any of these types of programs, don't be surprised if the Postal Inspector comes knocking at your door, or you get a threatening letter from your State Attorney General’s office. Stay away from any of these types of programs at all costs.
OK, lets get started. There are four basic types of MLM Compensation Plans,..The Matrix Plan,..The Breakaway Plan,..The Binary Plan,..and the Unilevel Plan. The following brief overview is designed to enlighten you on some of the "income eaters" in these Plans, so that you'll be able to make good and intelligent decisions when trying to determine what is the best MLM business opportunity for you.
The Unilevel Plan:This is the type of Compensation Plan that most new companies have gone with in the last several years. It is usually very simple and easy to understand. It pays a set percentage of the Product Purchase Volume on each level, and is usually 5 to 7 levels deep, with unlimited width potential. There are no "Break-away Legs" to rob you of current income. A Personal Monthly Product Purchase Volume is usually required to receive commissions, and this usually ranges from about $25 per month to as much as $300 per month.
Income-eater #1. Most of these Plans pay only 5% to 10% commission on each of their first few levels. This is not sufficient to quickly provide enough income to keep the "average" distributor involved and motivated, and low earnings or zero earnings is one of the main causes for a high "attrition" or "drop-out" rate. At a 5% commission, you would need 20 new distributors under you just to break even with your own Monthly Product Purchases, and you haven't even started to make a profit yet.
The Solution: Make sure that your Unilevel Plan pays a high commission of say 20% and 40% on its first and second levels. You and your downline will then be able to make more money with a lot less distributors, and drop-outs will be dramatically reduced.
Income-eater #2. If you have one or more "legs" of your downline that extend down below the last level of payable commissions, usually the 5th, 6th, or 7th level, you will be paid nothing at all on the Product Sales Volume below that level. Although it is very unlikely that the "average" distributor will have an extremely wide and full downline at those levels, it is certainly likely that they might have one or more "legs" that extend down below those levels, and would then not be paid at all on those distributors.
The Solution: Make sure that your Unilevel Plan pays you an “Infinity Bonus”. That is a bonus commission paid on product purchases no matter how many levels below you the distributor is located in your downline.
Income-eater #3. As mentioned in Income-eater #2 above, you should make sure that your company has something called an "Infinity Bonus" to solve the problem of getting paid on sales volume in your downline below the normal payment levels.
This "Infinity Bonus" typically pays from 1% to as much as 10% on the Product Sales Volume of distributors below the regular commission paying levels. At first glance this might seem like the "best thing since sliced bread", and that you’ve found MLM gold, but, if you look at most Plans closely, you'll soon discover that it's just a “phantom” payment that could soon disappear.
Why? Well, in many Plans that have this provision, if anyone in your downline qualifies for the same amount of "Infinity Bonus" that you qualify for, you do not receive any of the "Bonus" on the group of distributors under them. That's right, you receive zero, zip, nothing. You work hard to build your business and, overnight, your check is suddenly and dramatically reduced.
In some Plans that have a gradually increasing "Infinity Bonus" that you have to qualify for, you will receive the difference between the percentage you qualify for and the percentage your downline distributors qualify for, until they catch up to you, and then you receive zero, zip, nothing.
It might sound great at first, but think about it. If it's easy for you to qualify for this "Bonus", almost everyone will qualify, and you won't be paid...........and if it's very difficult, only a few will qualify and the other 99%, probably including yourself, will not be paid anything. It's a win-win situation for the company, and a >b>losing proposition for you.
The Solution: Make sure that your Unilevel Plan has a “Generational Bonus”. That is compensation that is paid to you on the sales volume of a downline distributor who has matched your “Infinity Bonus” qualifications and their downline is then placed in a separate “Generation” group, and you are paid a commission on the entire sales volume of that group.
The Matrix Plan:Also known as a Closed Matrix, this plan has a specific width and a specific number of levels. Typically it's 2 to 4 distributors wide on everyone's first level, and 6 to 12 levels deep. The main attraction to this type of plan as promoted usually by the Company as well as its distributors, is the great "spill-over" factor. Since each distributor is limited to just a small number of people on their first level, the theory is that many will recruit a lot more than allowed, and that these additional recruits will "spill-over" and be placed under people in the levels below.
Income-eater #1. Don't hold your breath waiting for this "spill-over" effect to happen, unless you believe in flying pigs. The truth is that most distributors are lured into this type of program with the promise of an easy, effortless ride to wealth, based on other people’s efforts.
Many dreamers sign up because they assume that everyone else is going to do all the work, and they wait in vain for their downlines to grow, and then drop out after they discover that not much is happening, because most of the other participants are sitting around waiting for the same thing.
If you put a pencil to it, you will see that if you were on the 4th level of a 3 wide by 7 level deep Matrix program, you would need 177,147 "spill-over" distributors to be recruited in order for all of your levels to be filled. Good luck.
The Solution: Make sure that you don’t join a Program that has a Matrix Plan with the expectation that you will receive “spill over” distributors from your upline. Even though it is possible that you may get a few distributors, it will never be a substantial amount. You should therefore expect to build your downline yourself, and treat any “spill over” you get from your upline as “icing on the cake”.
Income-eater #2. The larger commissions are usually placed on the lower levels of this type of plan, with the upper levels being very small by comparison. Since most distributors get discouraged and drop out at some point, very few ever get to build their downline to the lower levels, and therefore the Company almost never has to make those larger pay-outs.
The Solution: Make sure that your Matrix Plan has profitable pay-outs on the first few levels, so that you can earn a reasonable amount without having to fill out the entire “matrix” down to the last payment levels.
The Breakaway Plan: This type of Compensation Plan originated in the 1970's, and has been the most successful in the Industry's history. It has genuinely created many millionaire distributors with some of the best known Companies over the years.
The theory is that when a personally sponsored distributor reaches a certain level of “Group Sales Volume” (Total product sales volume in their downline), they "break-away" to form their own separate group. You will earn a smaller commission initially on their entire group, but supposedly end up earning a lot more than you would have before, as the product sales volume in their group increases.
Income-eater #1. This type of plan used to work extremely well for distributors, but not any more. There are now just so many companies vying in competition for the amount of potential distributors available, that building the large downlines required to make this type of Plan very profitable is next to impossible. You would need an unrealistically high product sales volume in order to earn any decent money.
"Breakaway Group" commissions paid are usually in the 1% to 3% range, with some a little higher. If you use 2% as an example, you would need $100,000 of Group Sales Volume to earn just $2,000 per month. If each distributor was buying $50 worth of products each month, you would need 2,000 distributors in that ‘break-away” distributor’s downline to produce $100,000 in volume. And that assumes that everyone is buying products every month. This is just not realistic for the average person.
There are numerous instances of distributors reporting that their monthly income dropped from say $2,000 to $200, after they were successful enough to build a downline that qualified for their company’s break-away “promotion”. Some promotion huh?
The Solution: I would analyze the qualifications very carefully before joining any company that had a “Breakaway” compensation plan, and make sure I fully understood what was required to earn commissions on “break-away” groups. Personally, I would not join a company with a “Breakaway” plan, but that’s up to you.
The Binary Plan:This type of plan is generally very complex and confusing to the average distributor. It is essentially a 2 distributor wide Matrix all the way down to infinity. But while Matrix Plans and other Compensation Plans pay a pre-set commission on each sale in your organization, the Binary Plan pays a commission only when a certain “group sales volume” is attained, and the sales volume usually has to be equally balanced in each of the two "legs" (the downlines under your first two distributors) of your group.
Income-eater #1. Since you are usually allowed to "buy" additional distributor income positions, it is technically possible for your up-line to become your downline, as is often promised to new recruits. But this is extremely unlikely to happen. If you are in the "strong" or "deep leg" of your upline person (the “leg” with the most distributors), they will choose to create a new "income position" for themselves on their "weak" or “short” side in an effort to attain the required balance to both of their "legs".
And also, if you are in any side, "strong" or "weak", and are say 7 levels down from this upline person, you will have only one chance in 64 that a new "income position" they may choose to purchase will be placed under you. So don't expect your upline to become your downline.
Income-eater#2. One of the so called "benefits" that distributors will promote for this type of Plan is that there is no "front end loading" (i.e. a requirement to purchase a large amount of products when you join). But in reality, since many Binary Plan Companies recommend and encourage you to purchase not just one, but usually three "income positions" when you join, not only should that be considered "front end loading", but in addition to extracting more money from your wallet, it is also making it more difficult, if not almost impossible, for you to achieve an equally balanced downline under each "position".
Income-eater #3. These Plans are sometimes promoted as being able to put more money in your pocket faster than any other. You'll only believe that if you're uninformed and don't know how they work. With most Binary Plans, the size of the downline required to earn say a mere $50,000 to $60,000 per year is so large as to be totally unrealistic for the "average" distributor in today's Network Marketing environment. Don't take my word for it. Put a pencil to the numbers and you'll be shocked.
The Solution: If you insist on joining a company that has a Binary compensation plan, please at least make sure that they do not require you have “balanced legs” in order for you to be paid. Personally, I would not join an opportunity with a Binary Plan, but that’s up to you.
Conclusion:So, with this new information, you should be in a better position than before to determine which is the best MLM compensation plan. But please remember, the MLM compensation plan is just ONE part of the puzzle, so don’t elevate its importance at the expenses of the others factors that go into achieving MLM success. Click below to continue your MLM education.