Compensation plan of MLM marketing is one of the most important thing. Better is the compensation plan, better will be your income in short time & less work. In this article we will discuss about best 3 compensation plans of MLM marketing
Although there are dozens of MLM plans, but i am going to explain you only the most popular plans.
The 3 Main MLM Compensation Plan Types [Unilevel, Matrix & Binary] The Unilevel, Matrix and binary compensation plans. Chances are, if you’ve spent time in the MLM industry, you’ve heard of at least one of them.
Best 3 compensation plans of MLM/network marketing
- Unilevel Plan
- Matrix plan
- Binary Plan
If you don’t know about MLM/network marketing read this What is MLM/network marketing does it still work today? Then start to read to read this article
Let’s Start with first one….
Unilevel Plan [MLM Unilevel Basics, Pros, Cons]
Chances are, if you’ve spent much time in the MLM business, you’ve heard of unilevel compensation plan. Nowadays most direct selling companies use this commission type. we’ll cover all of the basics for you-how a unilevel works, its strengths, and its weak spots.
Basics of Unilevel
As its name suggests, a unilevel is a type of level commission. That means that the pay structure is based on the number of levels of distributors a person has beneath them. Qualifying for payment, though, usually depends on a person’s rank.
To move up in rank, most companies ask distributors to meet specific requirements. For example, having certain amount in group sales volume during a commission run. As distributors earn higher ranks, they can be paid on more of their downline levels.
For example, here is a simplified unilevel payout model:
Distributor X, a 1-star rank, can earn a commission on one level of downline sales. Distributor Y, as 2-star rank, gets a commission on two. Z qualifies for three levels. And W as a 4-star rank, earns a commission on four levels of sales. Also V earn five level commission.
Most unilevel commission get a lot more complicated, but a basic payout structure stays pretty much the same. A higher rank means more levels and more earnings.
One of the reasons unilevel have been so successful is the fact they naturally encourage building an organization. That organization is deep and also wide. Distributors want to build deep organizations-ones with a lot of levels.
More levels means more sales dollars ready for commission. As soon as the distributors advances and qualifies the next bracket of earning.
But having wide organization – with a lot of people on each level maximizes distributors paychecks by giving them a greater number of people making sales and generation commission. As an bonus, those higher volume numbers also help them qualify for new ranks faster.
Another advantage of unileves is a flexible commission structure. Like we said before distributors are free to build deep, wide or any other way. Generally, this flexibility is a very positive quality.
Unilevel are also flexible in size. Because they work for both big and small commission, direct selling commission can use them in a lot of different places in their comp plan.
Unilevel commissions were made as an alternative to the breakaway plan type. This plan is very easy to understand and explain. Also easier to making them a lot more successful.
Over the years, as all compensation plans of MLM marketing plans have changed to accommodate global markets and a modern world. Their details and rules are very complex. Thank fully, the core unilevel model is so easy to visualize and understand that the basics are still simple to describe.
Stacking is at the top of the list for unilevel cons. Here is a example of how stacking works using our simplified unilevel payout model.
In stacked group, distributor X has enrolled four false distributors between her and the real recruits. Creating artificial layers. This way, the real commissions amplify as they make their way to her through the fake accounts. raising her earning from $20 to $100.
But they often don’t realize how harmful it is to their upline. They also miss out the benefit of having a both deep and wide organization. Losing their chance to max out their earnings long-term by chasing a quick paycheck.
In the first, unstacked group, Distributor X earns a 5% commission from the sales of her first-level distributors. If each of them generated $100 in sales, she’d get a $20 commission check for the run period.
Need Commission supplements
Another disadvantage to using a unilevel as your company’s core commission. This is the fact that they don’t inherently pay beginning or high-earning distributors very well.
Beginning distributors struggle to see a good return on the time they have put into growing their organization. However high earning distributors, on the other hand tend to outgrow the plan. In say a 5 level unilevel model, any sale on the sixth level or farther is out of their reach.
Another drawback comes from the unilevel plan’s age. Unilevels are not getting any younger. there is some risk in going with a “safe” commission at your core.
Finally, this is the oldest & safest plan. Most of the big companies like Amway, Herbal life etc. Use this plan. Here you get maximum earnings from your upper levels. But as the levels go further deep, your earning decreases.
How The Matrix Compensation plan of MLM marketing Works
The Matrix compensation plan is one of the most popular and most used plans in the multilevel marketing industry. The matrix plan it is set up to have a pyramid structure with a fix number in the width and columns.
It is easy to recognize a matrix plan when you see one because many people use it as an example of how you’re paid when you do network marketing. Due to that fact the matrix compensation plan restricts the number of people.
You may hear representatives during the presentation describe how you get paid in the following terms:
- You get three.
- Then your three people also get three.
- after then those people also get three, etc.
- when you get to your seventh level you’ll get paid 7% on all customers in that level.
So in the above example, if 2187 representatives of level 7 have 3 customers each, that equals 6561 customers. If those 6561 customers have a monthly subscription of $25 per month that equals $164,025.
You’ll get paid 7% of $164,025 which equals to $11,481 per month.
The MLM company will determine your compensation according to what they think is fair. Every company pays differently and can adjust the compensation for growth of their company.
Let’s understand this in depth
Direct sponsor Bonus
Even though you aren’t allowed to primarily only get paid for introducing others to the opportunity. There are bonus potentially available for adding people to your down line.
For example, If your company may say for every three people you personally sponsored you’ll get a bonus of $100.
There is also a downline commission. These commission usually are not much until you grow your team toa considerable amount of people.
For example If you are in network marketing company that requires a monthly subscription for a particular product. Every time the customer pays the monthly subscription you get a small percentage of sale.
Advantages of the MLM Matrix Plan
- Advantage of the matrix compensation plan is that once you introduce the required number of people on your first level. You can focus on turning your front line distributors into leaders.
- This help you to duplicate faster as well as help your organization grow faster.
- Another advantage of matrix plan is people are encourage to help each other.
It’s one of the most popular compensation plans of MLM marketing. You have limited width on your first level. Maximum, you can sponsor 5 people in the first level of downline. If you sponsor more members than maximum then it will be spillover and gives the benefit to your downline. Popular matrix plans are:
- 3*5 matrix plan
- 4*7 matrix plan
- 3*9 matrix plan
Before going further If you want to start your direct selling business read How to start MLM and network marketing business.
What is a Binary Plan? [Binary pay leg commission Basics]
Binary compensation plans are a direct selling industry staple. Distributors either love binaries’ unique rules and strategies or are frustrated with their inflexibility.
Still it’s a major contender among the three main comp plan types. And also has brought a lot of companies huge success. Read till the last to learn about how binaries differ from unilevel and matrix compensation plans of MLM marketing.
A binary compensation plan is defined by the way it’s structured. The word binary means that there are only two options. For example on or off, 1 or 2. When we’re talking about binary compensation structures,the two available options are for building a downline.
Distributors only have only two options for placing new recruits- on the left or the right side of their downline. This is the biggest hallmark of a binary compensation plan of MLM marketing.
We’ll explain a little more about that later, but for now let’s take a second to go over how to earn commissions in a binary plan.
The Pay Leg Commission
MLM binaries pay their salesforce with something called a pay leg commission. Distributors are paid based on downline sales volume. But in most binary plans, only one leg’s earning count toward commissions. And that leg is the pay leg.
The pay leg is almost always the lesser earning of the two sides. The other leg is commonly called a reference leg.
Most binary plans don’t pay any commissions for the reference leg’s earning. But some have decided to include the reference leg in a small part of the commission. For example, 2/3 of commission earning could come from the pay leg, and the other 1/3 could be generated by the reference leg.
Incentivizes a supportive build strategy
Some people are surprised to learn about fact of binary plan. That the binary building structure is one of the best in the industry for teamwork and motivation for distributor groups.
Let’s go over an example, consider for instance, that a leader has two very different downline legs. One that came with a lot of team building and sales experience and one that didn’t. If she was only paid on the higher performing downline, she’d naturally want to spend all of her time building it up and helping it succeed.
Capped commissions protect your payout
Remember earlier, when we talked about how binary payouts are very different than in other commission types? Let’s get into that a little more.
It’s pretty common for binary compensation plans to pay distributors on unlimited downline depth in their pay legs. Usually about 10% on each qualifying sale. If you are following along closely, you’ve probably figured out that unlimited commission, and you are right!
SO how can binaries afford to run this model? The secret is capped commissions.
The practice of capping commissions is an invaluable tool for direct selling binary plans. If you have a binary plan, make sure to talk to your compensation strategy team to come up with a payout system.
That system makes sense for your company and, most importantly protects your budget.
The lingering “do-nothing” mindset
Unfortunately, binary compensation plans have a history of being mispromoted by leaders. In the past, distributors used the idea of spillover to get new representatives to join.
Eager business builders showed some recruits a binary model, with its limited number of downline spots. And promised their upline would build their downline.
Basically, the message was:
“your upline will build your downline.”
This is another popular selling point for binary compensation plans. This is the fact new distributors are sometimes told they can “inherit” a massive reference leg with huge earning potential.
New recruits need to understand how pay leg commissions work and that building their own pay leg is the only way to take advantage of a reference leg.
This is is one of my favorite compensation plans of MLM marketing. and this is also called as 2*n matrix plan. You need to recruit only 2 members, one on left and one on right. Your 2 members will recruitment 2 members each. You get same commission till unlimited levels.
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