Most compensation plans are a lot more complex than they need to be for all types of reasons and as a result, you might end up in a compensation plan that isn’t a great fit.
In this post, I’ll share with you the different types of multi-level marketing compensation plans, their pros and cons, and what kind of activities you’ll do the most.
Using this knowledge you can decide which compensation plan fits you the best or if you should run away from the model.
Now let’s get into it!
What is an MLM compensation plan?
An MLM compensation plan is a structure that helps companies decide how they will pay the independent workforce.
There are a lot of variations when it comes to MLM compensation plans but ultimately they’re based on 3 factors.
- The number of sales made by a distributor
- The recruiting efforts of the distributors
- The performance of the recruits
The variation in compensation plans mostly occurs in the recruiting structure. Let’s take a look at a few of these compensation plans.
Unilevel compensation plan
A unilevel compensation plan uses a structure where all the recruits of a distributor are placed on the same level directly under the main distributor.
As a result, there’s no limit to how “wide” the level can become.
Most distributors in a pyramid with a unilevel compensation plan get rewarded in both the width and depth of their organization.
Most MLM companies start with this type of compensation plan because it’s simple and stimulates distributors to grow their organization in both ways.
Pros:
You can benefit from growing your organization in both width and depth.
Cons:
There’s a limit to how many levels deep you get compensated for.
Earnings mostly come when you go in depth which means it often takes a while before you start earning money.
The capability to earn residual commission on multiple levels is great but looking at the structure investing in width would be more logical.
This means maximum earnings would technically be achieved when you focus more on getting as many people as possible on the first level.
If you like the act of personally recruiting people this would be the best option.
Binary compensation plan
The binary compensation plan differs from the unlilevel compensation plan in that it limits growing in width instead of depth. So what do I mean when I say this?
It means you’re only limited to having 2 people on the level beneath you. This same rule also applies to your recruits.
So basically you’re building 2 separate organizations under you which are called your 2 legs.
Instead of getting a fixed percentage residual income based on the sales of all your recruits, the commission is based on the “weaker” leg.
The weaker leg is the leg that brings in less sales. This plan is designed to encourage people to work on both legs actively.
Pros:
You can grow your organization in depth without limits.
Your recruits will be motivated to sell and recruit more
Cons:
If people stop working and the weaker leg “shrinks” your income will gradually become less.
A growing gap between the stronger and weaker leg can cause people from the stronger leg to quit because they aren’t getting rewarded for their efforts.
The binary compensation plan requires recruiting but managing your downline will be a lot more important.
Placing them in the right position and constantly ensuring a balance between the 2 legs.
Matrix compensation plan
The Matrix compensation plan is a combination of both the unilevel and the binary compensation plan in that they both have a lot of room to grow in width and depth.
There is a limit however to how much they can grow in width.
After someone in your downline reaches a specific number of recruits on your first level something occurs which we call a breakaway.
This means that member from your first level will break away and start their organization under them.
The members of a matrix compensation plan don’t get paid based on the performance of one side but are paid based on the sales of the entire “matrix”.
That being said, how much money you make differs per level in this compensation plan. The ones at the bottom earn significantly less than those at the top.
Pros:
Filling out the entire matrix structure benefits everyone which supports teamwork.
No need to worry about a weaker leg and a gap appearing because of the lack of work from others.
Cons:
The lowest level benefits the least of everyone working together which might demotivate them.
At the start, filling up all the slots in the matrix by recruiting will be the most important task but after that, it’s mostly managing people so they get more sales.
The only time you’ll be actively recruiting is when slots in the matrix open up because of breakaways or people quitting.
Other MLM types
The unilevel, binary, and matrix compensation plans are the most popular plans but there other types.
4. Stairstep plan
The stairstep plan is a compensation plan that involves not breaking away from the entire organization but just your level.
An example of this could be that you are in someone’s downline on the second level. The moment you reach a certain rank you can move up to the same level as the person that sponsored you.
5. Hybrid compensation plan
The hybrid plan is a combination of multiple compensation plans. An exacter explanation is hard to give since the creator of the plan dictates what is combined and how it works.
Generation compensation plan
The generation compensation plan is fairly similar to the unilevel plan. There are a few differences such as not only recruits but also customers being placed in your downline.
You get paid based on the product sales of your entire organization.
6. Board
A board plan is similar to a Matrix compensation plan in that you get paid based on the performance of the levels below you.
When one of your recruits reaches the point where he has a specific number of recruits and levels he gets his organization.
7. Monoline
As the name says, every member can only recruit one person under them. There’s no limit to how deep the downline can go. You get paid based on the performance of the people below you.
The ones who benefit the most are the ones that joined the monoline early.
What type is the best to join to earn money?
There is no best compensation plan for earning money.
There’s only the plan that fits you the most in terms of the requirements needed to get paid. Some focus more on sales, others on recruiting, or managing recruits.
That being said, watch out for an imbalance between sales and recruiting because you might be joining a pyramid scheme.
Nevertheless, you’ll be doing all 3 activities, but at least you know what you’re getting yourself into if you know how the compensation plans work.
