Every network marketing company has a different compensation plan. Unfortunately, when people get excited about an opportunity or the potential of earning large bonuses, they fail to study the advantages and disadvantages of the company’s plan. This often results in a struggling MLM career and many people quit due to sheer frustration and being unable to meet some of the company’s goals.
Since you don’t want to end up like this (in the group of quitters), it is vitally important that you take the time to study your compensation plan at the beginning of your MLM career. Asking important questions now will save you time, effort, and money, especially if you discover this plan is not the right one for you.
Here are the advantages and disadvantages of four primary network marketing compensation plans:
- Stair step breakaway. The advantage of this compensation plan is that you can go as wide as you want. If you have 50 people, everyone can be placed on your front line. If you have 5 out of the 50 people who are doing well and want to really build, you can build 5 legs underneath them and not really worry about what everyone else is doing.
The disadvantage of this plan is that if you place a heavy hitter under a dud, you won’t qualify for your company’s bonuses and commissions. Also, the fact that there is a break away component isn’t good. For example, if you have 5 legs with $10,000 worth of volume in each leg, when your downline reaches a particular volume, they can break away. Sometimes, this can be as much as 10-12% of your volume. Other times it can mean losing all the volume. This is not a pretty picture is it?
- Matrix. A matrix plan basically means how many people you can have on your frontline and how many levels deep you can build your team. Matrixes can be 3×5’s, 5×7’s, 3×9’s, etc. For example, if you are in a 3×5 matrix, you can have 3 people on your frontline and can go 5 levels deep. Many times with a matrix, there will be a lot of talk about “spillover” which sounds wonderful to many people.
All the “spillover” talk leads right into the disadvantage of a matrix. All the “spillover” mumbo jumbo really promotes a welfare mentality. People think they won’t have to do any work. As professional network marketers, we know this is not the case! It’s not a “sit back and let all the people come sailing in” type of business. You have to build relationships and talk to people.
Another disadvantage of a matrix is that you have to guard your front line positions very carefully. These positions are really like gold. If your upline sponsor puts a dud in your frontline due to “spillover” and wants you to build for them because you are an awesome builder, you’re toast! Make sure nobody ever does this to you.
Also, it’s very likely that you will be able to build deeper than 5 levels. Unfortunately, with a matrix, you won’t get paid on volume for the levels that go below our example of 5. This is not a good thing at all!
- Aussie 2-UP. It isn’t known where the word “aussie” comes from, as this doesn’t really have anything to do with Australia. Anyway, in this plan, you would give the first two people you sponsor to your upline. Everyone else you get to keep. What is the advantage of this type of plan? Hmmmm, let’s see. Zero!
Since the industry standard is that most people only sponsor just 2.7 people in their network marketing company, can you imagine having to give them away right from the start? Ouch! Now, if you are a hard-hitting, sponsor monster that loves to sell big ticket items as promoted by many aussie 2-ups, this is the plan for you. For the rest of us, this just doesn’t work.
Keep in mind as well that with aussie 2-ups, there really is no residual income. The day you stop selling is the day your income stops. So, carefully evaluate if this is the type of plan you want to commit to.
- Binary. This plan promotes having a two-legged team. The advantage with this network marketing compensation plan is that it pays on volume and you can build the two legs as long as you want. The disadvantage is that you have to balance both legs and the pay is based on the legs being balanced.
You have probably heard people bragging about having thousands of people in their downline with this plan. What they don’t tell you is that they are barely making any money because all the people are in the strong leg. They also don’t tell you they are struggling to build since they can barely get the weak leg moving. Unbalanced legs equal no money! Keep this in mind when you look at a binary MLM compensation plan.
Before you enter the world of network marketing, it is crucial to your success that you understand the type of compensation plan each company offers. Do not scan the plan and sign quickly on the dotted line. Read each section carefully and ask lots of questions so you truly know how you will be compensated and what your requirements are for compensation. Knowledge is the key to your success.
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8 responses so far ↓
Bob Firestone // May 15, 2008 at 6:22 pm
The comp plan was the biggest thing holding me back from MLM opportunities in the past.
I was shown the binary and saw a way for the company to make large amounts of money on the breakage.
Overall I like the matrix but if you are getting into the business for the spill over you are wasing your time.
EDC Gold & Diamond Insider // May 26, 2008 at 3:56 pm
I tend to disagree. I am a member of what is considered an aussie 2 up. There is actually benefit in passing up the first 2 sales, so long as a new member chooses their sponsor wisely!
The first 2 sales are meant to be training sales, a “reward” for the sponsor who helps the new member to get set up, learn how to market and close those first 2 sales. This is the same type of structure used in real estate and many other commission-based sales platforms. In reality, a new member could messed over if they don’t take the time to choose a good sponsor or mentor. However, if proper research is done and a new member aligns himself or herself with a sponsor who will help them to get off the ground, the 2 sales are a small price to pay for being guided in the right direction.
I will admit that there are flaws in this particular compensation plan, but those flaws can be easily overcome. The opportunity I’m a member of (aa few others) operate on what is now being called a modified 2 up comp plan. In the case of my business opportunity, instead of passing up the first 2 sales completely, a new member is able to split those sales 60/40 with their sponsor (with the new member receiving the 60%). This still gives incentive for sponsors to help their new members, but also motivates the new member and allows them to break even with just those first 2 sales in many cases. Our program also offers 4 elements of residual income (we call them team payments) which help members to earn even when they take a break for working their own business (so long as they still provide guidance and support for their own members). As long as we each do our part (the sponsor helping the member and the member putting forth a decent amount of effort), it’s a win-win situation for everyone involved!
The aussie 2 up comp plan doesn’t have to be as negative as many make it out to be. It really falls on the opportunity seeker to do the right amount of research and choose their sponsor wisely, and on the sponsor to also be a mentor and provide the necessary amount of guidance and support to deserve the pass-ups. If anyone is going to go this route, I suggest you get into a modified 2 up, so that there is more benefit for everyone!
Linda Stacy // May 27, 2008 at 8:57 am
Thanks for stopping by and for taking the time to share your experience with and expertise on the 2-up plan.
I absolutely agree that incentive for sponsors to mentor team members is a good thing. And the modified 2-up seems much more reasonable to me. Still, for most new direct sellers, that first sale is the most exciting one… it seems so disappointing to not be rewarded for it.
I’m much more familiar with party plan company compensation plans which all have a long-term incentive for training and motivating new team members… residual income. It sounds like your company offers a residual income opportunity as well. Do you not find that sufficient incentive for mentoring your team?
Thanks again for your perspective on this.
Robert Morgen // Jun 20, 2008 at 3:43 pm
Great post!
I rarely see the comp plans explained very well. Good Job.
Thanks,
Robert
http://SpiritualEntrepreneur.biz
GBG Residual Income // Jul 30, 2008 at 10:25 pm
Wow, I never heard of the “Aussie” and quite frankly, I dont know who would ever want to sign up for that. The company that I am with has a 2×10 matrix, and I am loving the spillover. I always love to read about new companies and I am seeing the “matrix” style become more and more popular with newer companies.
Because of the spillovers resulting from a matrix, many new joiners can start getting checks from doing the bare minimum. Thats how I got started, I was skeptical at first, but once I started seeing checks pretty much from doing nothing at all, I knew mlm’s really worked and I never looked back since.
Very good post!
Linda Stacy // Jul 31, 2008 at 9:56 am
Thanks for stopping by and for your comments GBG.
It can be difficult to evaluate and decide on which compensation plans are better. Most of party plan type companies use what seems to be a much simpler approach…. straight percentage commission on personal sales and on team sales.
I’d like to see people be much more cautious about promoting with words like “getting checks from doing the bare minimum” and “seeing checks pretty much from doing nothing at all.” In reality, someone has to be doing something, selling something, or no one will make any money at all. Going into a business thinking you will make money for nothing only leads to disappointment… it’s just not going to happen.
Yes, MLM’s work, but only when people work them.
GBG Residual Income // Jul 31, 2008 at 5:15 pm
You are right. Joining any company thinking you can be a couch potato and be rich is something that I am against. I just know from personal experience, that when i received my first check, it lit a fire under me and really go me going.
I’m not sure I would have had the motivation to keep going if I didnt get a check when I first signed because of spillover, even though it was very small lol, it atleast showed me the great possibilities of mlm.
Linda Stacy // Jul 31, 2008 at 8:03 pm
Great point…. that first income check is always exciting and motivating, even if it is small.
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