Compensation MLM Plan

What is Compensation MLM Plan ?

Simply put, an MLM compensation plan describes the process by which MLM companies pay their independent salesforce aka distributors for the sales they have personally made and the sales of distributors they have enrolled into the system.

In a broader outlook, MLM compensation plans are what keeps MLM businesses alive and kicking. They reflect an organization’s culture, values, and ethics. Effective compensation plans recognize, reward, and incentivize distributors perfectly.

It can be defined as a sturdy business structure with bonuses, commissions, revenue and profitability markings. Structured on pure mathematics, an MLM compensation plan with even a hairline flaw can break the business.

One big advantage of an MLM plan is that you get to know it better when your business progresses and you can make alterations to suit your business stability. However, this advantage is a must-do for maintaining the strength of your network marketing business.

How do MLM plans work ?

Different compensations work differently. Their commission structure and bonuses vary. Major compensation plans pay distributors for the personal sales volume and for the sales made by their downlines. Some compensation plans also pay commissions up to certain downline levels.

Types of MLM Compensation Plans

Multilevel marketing is vibrant with a wide variety of compensation plans to its credit. There are 3 types of major compensation plans—Binary, level and Matrix. Rest are hybrid versions of these plans. Each has its own unique characteristics and MLM organizations choose to decide which plan to employ based on their business interests. This decision is also dependent on various factors such as product pricing, the cost to customer ratio, organizational goals, etc.

Binary MLM plan

Often called the ‘two-legged’ plan, Binary is one of the most popular compensation plans in MLM. It limits the number of downlines to two i.e. one can only add two people under them as distributors. These two downlines are placed on the left and right sides called the right and left leg consecutively.
The payment in Binary MLM plan is mostly based on the sales volume rather than sales levels. It is calculated based on the weaker leg sales, also called the ‘pay leg’. This improves teamwork and collaboration. The simple structure is also easy to understand making it the most suited plan in MLM businesses. The highlight of the plan, as cited by its proponents, is its weekly commission payouts as they don’t have to wait for a month to enjoy the benefits of their hard work.
Binary MLM plan takes into consideration the group volume rather than the percentage of sales of multiple distributor levels making it less susceptible to penalization charges on recruiting. Businesses looking for rapid expansion choose a Binary plan but for it to grow stronger requires distributors

Level MLM plan

Level MLM plan goes by its name with only a single level of frontline distributors under each sponsor. There is no position advancement in the Level plan regardless of their performance. All the distributors of a single sponsor stay right under them.
Unlike in the Binary compensation plan, commission payment rests on factors such as level and the hierarchy of each distributor. Compensation also depends on the profit percentage. MLM companies decide the number of levels in which the commissions are paid and the commission percentage varies for various levels. The plan boosts individual performance with higher commission payouts ensuring ways to effective distributor engagement.
Every compensation plan has a Level structure, hence it is also called a ‘Universal plan’. Level plan also supports businesses of all sizes.

Matrix MLM plan

Matrix MLM plan is identified as a sturdy structure with limited width and depth. This allows only a limited number of distributors at each level. For eg: A 3*3 matrix allows 3 distributors in width up to 3 downline levels as shown in the image above. This width limitation doesn’t let all downlines be directly under the sponsor. Sponsors are forced to place their downlines under other previously placed downlines earning the plan its name, ‘forced matrix plan’. Matrix MLM plan also allows distributors to join in a new position in the tree once they fulfill the set criteria. This increases their scope of earning more commissions.
Limited width is however good for novice distributors who sign in with influential leaders who help them fill their grid easily. This could also lead to inactive distributors. It turns out that Matrix MLM compensation plan is good for companies too. The limited plan structure gives companies more control over payout volumes.
However, Matrix MLM plan unveils unlimited earning opportunities in a limited income position.

Single Leg MLM plan

Single Leg MLM plan has the simplest structure among all other MLM plans. It has only one leg and the downlines are placed vertically based on a first-come-first-serve basis. This single-line structure helps distributors fill up their downlines, easy and fast, without the need for any mandatory spaces to fill up.
Single Leg compensation plan pays you for the sales of your downlines up to unlimited levels or as set by the companies.

How do I create an MLM compensation plan ?

MLM compensation plan is a complex structure that needs to be thoroughly researched and understood before stepping out to set it up. It is not a one-time process, it requires consistent ongoing focus. The factors that compound an MLM plan are the same that determine the longevity of your MLM business.

Which is the best MLM compensation plan ?

Each plan has its own strengths and weaknesses yet each is unique in the way it drives success to your business. You cannot give ‘the best MLM compensation plan’ a name, it depends on your business idea and profitability interests. However, the most popular among the compensation plans are Level, Binary and Matrix.
Molding it perfectly to suit your business makes it the best compensation plan for your MLM business.

How to analyze an MLM compensation plan ?

Before you adopt or readapt a compensation plan, you need to look into a few things before you get off on the wrong foot.

• • Make sure the compensation balances both customers and distributors equally.
• • A good compensation structure provides growth opportunities and rewards in the right amounts for distributors thus engaging them in the long term.
• • Understand the overall payout percentage; if calculations are not your cup of tea, consult with a professional consultant.
• • A compensation plan that is overly generous can collapse early.
• • Watch out for the compression strategy of the compensation plan.
• • A plan with a lock-in feature wherein a distributor who reached a certain level cannot be demoted because of a sudden drop in performance keeps their achievements safe.

An MLM plan serves as the foundation on which successful MLM businesses are built. Care has to be taken in minute detail coupled with ample research of your market, sales target and customers, to develop a plan without flaws. Remember, your compensation plan is your business’s terms and conditions by which you pay your distributors. Paying too much can upset your business and paying too little can upset your salesforce. Setting the right balance is the best of both worlds.
Build your plan perfectly and watch it build your business.