Best MLM Compensation Plan

How Will You Know?

The MLM Compensation Plan...

It’s a good idea to become familiar with the basic structure of direct selling and network marketing before you study MLM compensation plans. If you're not yet familiar with this, make sure to read our previous articles on this site.

So, what's the best pay plan?

You’ll want to have a basic understanding of the kinds of sales compensation plans out there so you can make a good informed decision when considering what company you want to work with.

Of course, MLM compensation plans aren’t the only or necessarily most important thing to consider when selecting a company. But if you get stuck in a company with a really poor structure, you may feel like your hands are tied.

In direct selling, you won’t have to be concerned with all of the above. Typically, pay is based on the individual sale of a product or service. You sell something, someone buys it, you get paid. That’s it.

You won’t have to think about levels, pay structure and everything else that goes with MLM. Sometimes the commission percentage is higher, because it’s a one time sale.

Higher dollar products usually are a one time purchase and cost more for the consumer, like a water filtration system for your home.

However, this isn’t always the case.

There are direct sales companies that do sell lower priced items like cosmetics or vitamins, that may generate repeat business. But you’ll only get paid on each individual sale, and you won’t have the opportunity to build a team that generates further income.

If you want more information on this type of company, please read our article The 3 On-Line Business Models Everyone Must Consider Before Starting....

Revolutionary New Pay Plan

There really aren't that many different compensation plan structures in MLM. We'll get into the differences in a little while, but first, let's make sure we understand the difference between MLM compensation and straight Direct Sales compensation.

With Network Marketing (MLM), you get paid for the sale of a product or service and usually it’s for something the customer will use over and over.

Yes, this is also a type of direct sale, but with Network Marketing, you also have the opportunity to get paid on the sales of those people you recruit.

Now this is where it can get tricky with the compensation plans, and trying to figure out what the best MLM compensation plan is. As we promised, that's coming right up :)

The Direct Selling Association DSA explains the structure perfectly:

“ In a multilevel structure you can also build and manage your own sales force by recruiting, motivating, supplying and training others to sell those products. Your compensation then includes a percentage of the sales of your entire sales group as well as earnings on your own sales to retail customers. This opportunity has made multilevel marketing an attractive way of starting a business with comparatively little money.”

So now it’s time to take a look at the 4 basic MLM compensation plans in network marketing.

Some companies have adopted a mix of these plans, or added other elements to them. But it’s important to at least understand the basics.

That way, when someone’s explaining their pay plan and why it’s the best, your radar will go up and you'll be able to tell if what they’re claiming is true! So, you can decide what the best MLM compensation plan is for you.

Which one of these is the best MLM compensation plan for you? Take a look at the features of each. This is a simplified explanation, but will give you some idea what will be a good choice for you…

Alright Already - Show Me the Money

You are allowed to recruit and get paid on as many front-line distributors as you want. When any one of your front-line distributors meet whatever sales requirements is determined by your company, she gets to “break away” from your organization, and form her own.

You move up levels based upon the volume you do and get paid on every generation under you as you move up.

When someone breaks away from your group, you’re paid on their new group as well. It’s usually a much smaller percentage, but huge income can be made because of the massive numbers of people that replicate through the system.

• The Unilevel Plan. This MLM compensation plan is much easier to explain to people than the break away plan. It’s fair, simple, and easy.

Companies rarely get into any trouble with industry regulators when they use this type of plan. This plan pays commission on a specific number of levels as opposed to generations which can run over 20…

The Unilevel has no breakaway system, but is similar in that the only way to make a lot of money is to build a lot of distributors across on your front line.

In this type of plan, each level beneath you grows larger than the level above it. So your 5th level down should be much larger than your 3rd. So the further across your front line gets, the larger each consecutive level down.

This plan is very straight forward and difficult to mislead anyone about what it takes to be successful.

• The Forced Matrix Plan. This MLM compensation structure, in our opinion, is the most limiting discussed so far. We’ll look at the 3 X 7 matrix as an example.

You are on the top level and you sponsor 3 people on your font line. They in turn sponsor 3 people, and so on… so your second level is 9, your third level is 27, all the way down to your seventh level.

When this level is filled in, your team has 3,279 people.

The draw back to this kind of structure is that, realistically, everyone doesn’t build 3 people under them. If EVERYONE did this, it would be wonderful.

But the reality is, that if you want to be successful in this type of structure, you have to take personal responsibility to fill all slots at least five levels down.

As a strict forced matrix, we would not recommend this kind of structure. However, there are companies that have expanded the matrix concept and improved upon it.

If you take away the restrictions of only building down from your first 3 people, and open it up to an unlimited horizontal front line, with 7 levels down… Now you have a very powerful solution.

We know of one company who not only did this, but instituted a 100% matching bonus check, so that you get paid 100% of what each of your personally sponsored distributors is making.

There’s only one company we know of that’s doing this, and that’s why we’re in it… That’s as close as we get to a sales pitch : )

• The Binary Plan. In our opinion, is worse than the forced matrix. In the binary plan, you only have two legs to your organization.

The premise is that all you have to do is sponsor two people, and then teach them to do the same. Pretty cool huh? Not really…

With the binary plan, distributors have to balance the sales volume on each of their two legs. Naturally, the two legs will grow at different rates. The distributors have to constantly be on top of each leg to make sure they are growing evenly.

If they don’t grow evenly, which they rarely do, the distributor will only be paid on the shorter leg.

Disclaimer time. There are people making significant sums of money in every MLM compensation plan that we’ve covered. Do your research and choose the one that best fits you.

One more important thing to keep in mind. Make sure you find out what happens when a distributor anywhere in your down line drops out. Does he/she still get paid on everyone under them?

If not, what about the money generated from their down line?

Ideally, there should be a system in place so that when someone drops out, the person under them is bumped up to the next active up line member. That way, the people who remain in the organization, and are working it, will always be compensated for their efforts.

Be thoughtful out there and investigate every opportunity thoroughly.

MLM Compensation Plans to Home Page