There are many different varieties of compensation plans out there. They often have exotic names. But they tend to be variations on four major types of plans.. Let’s examine the different types of payments that a Network Marketer can receive.
The Matrix Plan
- Limited to a certain number of recruits at each level. E.g., in a 3×5 matrix, each Level down to Level 5 can only sponsor 3 downlines.
- New members may be placed underneath uplines who did not directly sponsor them. E.g. In a 3-wide matrix, the 4th distributor you sponsor would be placed under one of the first 3 distributors you personally sponsored (your first-level distributors).
- This “Spillover” can be attractive to novice distributors if they sign on with strong leaders who help fill their grids. Also, it works well in companies where most of the products are used by the distributors, rather than sold to outside consumers.
- Criticised by regulatory agencies because they sometimes look like “a game”. Nevertheless, several major companies operate matrix plans.
- No successful record in the industry, and they foster sleeping downlines.
The Unilevel Plan
- Members do not advance to positions above basic distributors, regardless of performance.
- Easy for company administration and to explain to potential recruits.
- Limited in depth of levels of payment. Sponsors “thin” in support.
- Over time, most companies that start with unilevel plans evolve to look more like a stairstep breakaway plan.
Uni-Level MATRIX plans
- Unlimited Width BUT Limited Depth.
- You may recruit unlimited number of members in your first level.
- E.g., you earn commissions from your 10 downlines. If each of your 10 downlines sponsor 10, you will have 100 people at Level 2. A Typical Uni-Level will pay down 5 or More Levels (Limited Depth). If each person were to continue to get 10, Level 3 = 1,000 people, Level 4 = 10,000 People and Level 5 = 100,000 People.
Forced Matrix Pay Plans
- Similar to Unilevel Matrix BUT limits amount of people each person can have in their first Level.
- E.g., 3×9 matrix where maximum member for Level 1 is 3, and Level 2 is 9.
- Advantage is Spillover. Spillover occurs when you sponsor more people than can fit in Level 1. Hence, you are able to help your downlines fill in their Levels as well.
Fast Start Bonus
- Seldom the only part of the compensation plan. Often used as an extra incentive to sponsor more people.
- Typically a Lump sum payment of up to 100% of the First Months Membership for anyone you sponsor
- Often used with Forced Matrix.
- Usually a Monthly Recurring Bonus and is paid each month on everyone you personally Sponsor.
- Used with Matrix Pay Plans.
- When a downline reaches certain qualification, they break away from your team and you no longer receive the Matrix payout on that team member or anyone in that part of the Matrix (the Break Away). However you will receive a Monthly Commission of the entire Group Volume of the Break Away Unit.
- flexibility to motivate distributors to perform and advance.
- has a good track record, is easy to modify, is accepted by regulatory agencies, and is driven by volume and performance.
- The primary disadvantage of this plan is that it is sometimes so complicated that it’s difficult to explain to new recruits. Another disadvantage is that if the company does not monitor its distributors, they tend to get involved in inventory loading. And sometimes, there is an unreasonably high ongoing monthly personal purchase volume requirement.
Nevertheless, the stairstep breakaway plan remains the most tried-and-true type of plan out there today – and the most likely to survive in the decades to come.
- Often used with Matrix Pay plans.
- Allow you to earn down an Infinite number of Levels if you meet the Qualification. You could be blocked by someone on a lower level who also qualifies.
- 2 Legs. You would earn a commission on the Entire Volume of your weakest Leg. a distributor is allowed to occupy one or more “business centers,” each limited to two downline legs. Systems in place to earn Commissions at a later (via a Carryover) on your Strongest leg.
- Compensation is paid on group volume of the downline legs rather than a percentage of sales. Sales volume must be balanced in the two legs to be eligible for commissions, which are paid at designated points when target levels of group sales are achieved.
- No depth limit on payment but each matrix has a finite amount that can be paid out, thus necessitating involvement in multiple two leg matrices. Payment in binaries is often on a weekly basis.
- Simple to explain. Group cooperation promoted because payout is on group volume and requires balancing of volume in each leg to be eligible for payout.
- More democratic because of limitation on payout in each matrix. Unlimited depth of payout, and the allowance of looping or re-entry.
- Controversial unfortunate origins in the early 1990s in fraudulent gold coin programs, and its use later for other questionable products did not help. By the end of the 1990s, and after many legal challenges, the binary was not in great favor, and only companies like USANA, that had applied the concept to consumables, seemed to be around.
- Legal and business problems. Companies and distributors tended to promote the plan rather than the product, creating accusations of a “money game.” The multiple business centres approach was often presented as a “purchase of a business center,” or an “investment”.
- The required balancing of sales volume between legs meant that hard work might not pay off and income would be forfeited. Finally, the multiple re-entry or looping created a “game-like” atmosphere in which an individual could end up in the downline of someone he or she had sponsored. For the distributor looking long term at a distributorship that might be sold, this “looping” also made it virtually impossible to place a value on a distributorship because no continuous downline genealogy could exist.
Important aspects of a compensation plan to check out:
Most plans pay between 35 and 45 percent of the company’s wholesale purchase volume, and about 30 percent of suggested retail volume. Look for a plan that gives health profits, without going overboard. A plan that is overly “generous” to its distributors can run itself into financial ruin.
When distributors fail to qualify to earn the commissions or bonuses on their purchase volume in a given month (usually because they fall short of the minimum purchase qualifying amount), the commissions they would otherwise have earned are called “orphan” commissions. Avoid plans in which orphan commissions return to the company. A plan should be structured in a way that orphan commissions “roll up” to the next qualifying distributor that month, rather than return to the company. This approach is also called “compression.” Orphan commissions from terminated distributors should be handled the same way.
Look for a plan that has the lock-in feature; that is, when you reach a certain level, you “lock in” and cannot be demoted because of a temporary drop in monthly performance.
The compensation plans of most companies offer at least some perks for top performance above and beyond commissions and bonuses. These come in many forms: company cars, health insurance, free training, lead and co-op advertising programs. A few publicly traded companies even offer stock or stock options.
“Does it emphasize getting products or services into the hands of consumers; or does it emphasize making money by finding new recruits? If it falls into the latter category, run away – fast. In the end, it’s the product – not the compensation plan – that drives success.