Network Marketing Compensation Plans
Unilevel, Stairstep Breakaway, Binary, Matrixes and Forced Matrixes.
To many, only knowing the difference between one or two of these names is quite common. This is an inherent problem in MLM and Network Marketing, confusing partners and prospects alike.
A discovery moment
This is to assist our readers in understanding that there are tricks and tips that can be utilized to maximise the appealing factors of compensation plans, and this leads to a more effective and easy to sell partner program.
Of course this is a valid subject, as the different types of compensation plan models have their own inherent flaws and disadvantages when looking from a logical and ethical perspective.
Various compensation plans
A Unilevel compensation plan is not a separate category of network marketing plans, but more of a ‘’feature’’.
Unilevel means, that your first level, or direct referrals are placed on the first line, without limitations. This first level, or level 1 in your compensation is limitless, and everyone you recruit is placed in this level.
When this feature is used in a partner program, there is a side effect that leads to people being extremely focused on only recruiting people directly.
They have no interest in helping their downline, because most compensation plans pay you more for your direct recruiting.
A valid question to ask yourself is this:
Am I being paid more for signing up recruits, or for the products they sell?
If the answer is no, your are not in a network marketing company.
You are in a scheme that is tricking you into selling expensive “Business kits” or “product packages” and the only reason that this company is not shut down by the FTC is because of a lack in resources.
A stairstep breakaway is a compensation plan, usually around 2–7 ‘’levels’’ deep. These types of model are usually presented as a stair, where partners advance through ranks, usually somewhere in between 3 and 12 gradually advancing titles.
Commonly used is words like “Diamond, gold, double diamond ect.” or “team leader, team coordinator, sales director etc.”
Usually these plans require you to have a certain amount of referrals who have reached a certain rank. Some also have group sales volume requirements along with the ranked affiliate requirements.
These plans can have both a unilevel feature or they can be ‘’forced’’ meaning that there is a limit of the amount of people that can be placed in your first level.
Did you spot the issue here?
There is very little focus on personal sales, or sales from recruits in this type of plan.. Are you selling the product or the compensation plan?
A binary model is a compensation plan that limits the amount of people that you can have in your first level, to two people, also known as the left and right legs.
Usually there is no limit in place of how far your earnings from a downline is. Usually when you fill up a certain amount of positions you ‘’cycle’’ giving you a cash bonus.
Some companies allow people to purchase multiple positions in these plans, and if that is the case for your company, you should be aware that having more than one position in a company is illegal due to the MLM laws.
A Matrix compensation plan is by far one of the more simple ‘’features’’ that a plan can have.
A matrix is usually presented by being an ** by ** matrix.
An example could be a 3 by 7 matrix. This means that there are 3 positions below ever person who joins, and compensation is paid through 7 levels of depth.
This above example is what is known as a forced matrix, because the amount of people you can have in your downline is limited, and if you recruited 4 people, one of them would ‘’spillover’’ to the first person on the second level who has the least amount of people on their first level.
This spillover effect is sometimes advertised as guaranteed. Nothing in this world is guaranteed — don’t fall for it.
This model is quite popular for network marketing companies who work on a subscription based model. This leaves the people who sell the memberships with a steady monthly income.
It is important to realize that if the only way to become part of the products being sold is by signing up as an affiliate, partner or otherwise have access to the selling through the compensation plan, the model is illegal.
Being an affiliate should be a conscious choice, and in no way forced or heavily promoted while selling any product through a network marketing model.
Many matrix models allow you to earn a percentage of sales from each of your own sales, and a percentage of sales made from your downline.
What determines the quality of a compensation plan also comes down to the amount of money that is being paid out based on the total cost of the product being sold.
Many companies will pick around 60–95% to pay out. This is largely determined by the cost of the product and the profit margin. If the product is a subscription, the cost of the product is usually quite low and therefore a very high percentage can be paid out to the affiliates.
The total amount the sales is usually spread out over the depth of the levels (In our example, 7 levels).
Usually the company will give you quite a high percentage for your personal sales, and use the remainder to fill into the up lines earnings.
A good thing to look at is your commissions from the highest levels in your matrix. What is the combined commissions on your first 3 levels in relation to the total paid out in the 7 levels?
Are the 3 levels structured with the leapfrogging effect, and are the commissions on the first 3 levels greater than 50% of the total payouts?
What is leapfrogging?
Leapfrogging can be explained quite simply. It relates to whether or not a company decided to utilize an ethical way of motivating people to work together.
Here is a visual example of how a matrix might look. The percentages represent the amount of money you are being paid for your customer sales, and for the customers from your distributors on the first 3 levels.
Direct sale — 25%
Level 1 – 15%
Level 2 – 10%
Level 3 – 5%
The leapfrogging method would look like this:
Direct sale — 25%
Level 1 – 10%
Level 2 – 15%
Level 3 – 5%
Which would you prefer?
The leapfrogging effect actually encourages you to work together with your downline, and help them get customers and distributors.
This also contributes to the breakeven rate for your downline, helping them to stay active and not fall out of the program.
Ethics in compensation plans
One of the more important questions when analyzing a compensation plan is this:
Do I have to recruit or qualify to increase my earnings from sales?
Ask yourself — If the company is profitable, why are they limiting my earnings? Wouldn’t the partner program be a lot more attractive if everyone was equal from the beginning, earning the maximum for their efforts?
Companies who do this, have misunderstood a very important fact in Network Marketing. People join them to make money. The compensation plan is supposed to motivate them to earn more money, by selling their products.
What’s to come?
This article is going to be part of a larger series covering key points of network marketing, multi level marketing and making money online companies.
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