There are many variations of MLM pay plans, and each company will often have their twist on the plan so even if many companies use the same plans the commissions you can end up earning will vary significantly. There is also a lot of misleading information promoted by the different companies. Herbalife for example claim that they return 73% of their turnover to their distributors. If you check their annual reports the reality is that they return less than 30% to their distributors. So you really need to choose wisely if you want to earn money from MLM.
The matrix compensation plan is the single most common MLM compensation plan. Most people express matrix plans with two numbers afterward like so: 1 x 3. In this case, 1 x 3 means that for every one person at a level, they have three distributors underneath them, and cannot have any others. Some plans go as big as 3×7 or 3×12, the commissions start to look amazing, but the reality is that no one will ever fill a 3×12 matrix, so what is the point then?
The defining feature of the matrix compensation plan is that the number of additional distributors per original distributor is limited. This means that when a distributor recruits another distributor, eventually the capacity is reached, and the recruit overflows to the next distributor down the line.
Some matrixes split and you re-enter. You will then have to pay a new fee which is used to generate commissions in this new matrix. This is a model mainly used for Ponzi’s so be sceptical if this is the model.
The disadvantage of the matrix plan is that recruiting new associates is typically far more lucrative than moving product.
A Binary Plan is a two legged (Left leg, Right Leg) structure where the each new distributor or member are placed in either the left or right team. One team is known as a power leg while the other team is a profit leg or a weak leg (weak as this is the team you need to focus on building yourself while the power leg you should get help from your upline).
Since each person only has two positions directly under them we have a lot of spill-over in the binary. This means that when someone adds their third person he will come under someone else, benefitting more than just the person who introduced him.
Binary plans normally pay volume (points), which is paid to everyone who is active, from where the sale took place and up to the top. This creates a potential massive volume of points, but points are of course not money. To generate commissions from your volume you are required to balance your two teams, for example 1/3 or 50-50. For each slot of points you normally either get a pay cycle or a percentage pay from your weak team.
The binary is great to get people motivated, but it has had its problems as it has been used extensive for MLM scams. Therefore make sure there is a real product involved.
Much like the title implies, the unilevel compensation plan allows for each distributor to recruit as many people as they want, with no limits. This leaves the possibility for an aggressive person to grow a huge organization, all of which contribute directly to their lone bottom line.
Unilevel plans shine for their simplicity and the clear-cut nature of how much profit flows to the top. Commissions can be a simple percentage, and everyone can easily figure out exactly how much they stand to make from a given transaction.
Unilevel plans rule for their ease of entry for people who are new to the MLM scene. They are often combined with the binary plan to ensure that everyone can make some money (many find it difficult to balance the binary plan).
The downside of the unilevel is that it normally don’t generate massive commissions, but it is fair and easy to work.
The board plan is also known as the 2×2 matrix cycle or the cycle plan and relies on a tight limit to the number of people within each unit of the compensation plan. To start with the board compensation plan, each top level person is limited to two immediate distributors and each of those to two more.
The original distributor on the board collects a membership fee from each of the people on the board, until the board is filled out with six people. Once the board reaches six people, the cycle pays out to the originator of the board, who leaves.
The second level members then become the originators of their fresh boards and can collect fees themselves.
The party MLM compensation plan is more of an entire MLM style than it is a way to be paid. In the party style of MLM, consultants organize in-person social events to make sales of their products and rely on their distributors to be willing to purchase products frequently.
The product should sell well in retail if the party scheme is going to work. Unfortunately, the payment details of the party scheme can vary substantially from party to party, but the gist of it is that the original distributor takes most the money.
The Australian Binary compensation plan is less common than the standard binary plan or the matrix plan, and for a good reason: it’s way more complicated.
In the Australian binary plan, the structure of distributors to their recruits is static, but the terms of commissions between each distributor and their recruits can differ. Furthermore, when each distributor recruits new people, those people go to their distributor and not the person who recruited them.
This means that most distributors get very little out of the compensation plan, even while recruiting. Most Australian binary plans have to offer wild incentives that flow back down the line to retain their distributors.
The generation compensation plan is a variant of the unilevel compensation plan that introduces special distributor recruiting restrictions and also bonuses to certain people within the stack.
In the generation compensation plan, the original recruits are divided between those that can make recruits of their own and those that cannot make recruits. Those that make recruits do so and fill the rank of their distributor rather than their own.
There is an exception, though. One distributor can make an unlimited number of recruits-another generation-at a level lower than themselves. Thus, they open up an entirely new level of recruits who pay into their pocket, which in turn pays into the original generation’s original distributor’s pocket.
The generation compensation method is two parts exploitative and one part brilliant. The distributors who are the most skilled at recruiting remain as assets for making a new entire generation, whereas others can recruit in smaller quantities to fill the ranks of their generation.
Smart generational MLM compensation plans offer a way for the originator of a generation to let rewards trickle back down to their rank and file.
The stairstep plan is another variation of the unilevel plan which allows for enterprising distributors to break away from their supplier once their team has grown to a sufficient size and met sufficient sales benchmarks.
The benefit of the stairstep plan is that each distributor has a huge incentive to try their hardest to recruit new members and make as many sales as possible. After all, breaking away from the supplier means that they end up with a much larger share of the profit than before.
The incentives of the breakaway system often incentivize distributors to egg their recruits into massing inventory, as it both prepares them for their subsequent breakaway and also artificially pumps up their revenues.
The monoline MLM plan is a basic matrix plan that is only 1×1. In general, the line is segmented such that commission percentages are static throughout the line, and relatively equitable. This means that the originator of the line won’t benefit as much from making new recruits of their own after the first few are recruited, which may stifle growth.
Conversely, the monoline incentivizes the last people in the line to recruit like wild before easing off, thus leading to the monoline’s reputation for rapid growth spurred by those at the end.
The monoline is simple and can work with any volume of profit or any number of recruits. The line can extend indefinitely, and profits split via simple commission percentage.
The spill over compensation method is similar to the binary method and relies on restricted level size and upward profit sharing. Each distributor recruits another, who fills the rank beneath the distributor until there is no more space.
Once there’s no more space, additional recruits spill over to the next level down.
The spill over method is favoured by many because it’s easy, cleanly extends to any organization size, and makes it easy for every recruit to become fully established as a distributor of their right. The downside of the spill over method is that the share of profit for each recruit is quite small. Most revenues flow directly to the distributor.
The commission’s schedule of the spill over method is thus the most sensitive part of the plan. If there are too steep commissions, recruits will not join. If the commissions are too poor, dropouts from the middle ranks of the company may leave the rigid structure a complete mess.
The Australian X-Up is a bit like the unilevel compensation plan. Some descried the Australian X-Up as unworkable because sales are passed upwards to a supplier as well as recruits. The X part of the compensation plan refers to the conditions under which recruits pass from one person to another.
At first, recruits are passed from the distributor upwards to their supplier, along with the majority of commissions from sales. After a certain benchmark passes, recruits are held by the distributor rather than their supplier, though profits continue to flow upward.
Once each distributor’s new recruits have passed their revenue and recruitment benchmarks, they can then recruit other new recruits, who become theirs. Thus, the people at the top of the Australian X-Up get rich first, and always receive recruits first.
Those at the bottom have a very long way to go before they can reverse their fortunes. Eventually, the people at the bottom of the Australian X-Up scheme have enough recruits and enough revenues that they can reverse the flow of commissions such that they no longer contribute the majority of their earnings upward.