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Understanding Your MLM Compensation Plan

Author: kevin03
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In network marketing, there are many types of compensation plans. Unfortunately, many people do not take the time to study the advantages and disadvantages of each plan. Failing to do so can be a costly mistake and result a struggling MLM career. I failed to do this in one company and ended up quitting due to sheer frustration. Now, that I know what to look for, things have gotten much better.

Since you don't want to end up like I was at one point (in the group of quitters), and to avoid wasting your time, effort, and money in a plan that won't work for you, it is vitally important that you take the time to study your plan. Here are the advantages and disadvantages of four primary network marketing compensation plans.

1. 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?

2. Matrix. Matrix's can be 3x5's, 5x7's, 3x9's, etc. For example, if you are in a 3x5 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. You see, all the 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 posistions very carefully. These posistions are really like gold. If you 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!

3.Aussie 2-UP. I'm not sure 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. 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 who 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.

4. Binary. This plan promotes two legs. 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.

I know 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 equals no money! Keep this in m ind when you look at a binary MLM compensation plan.

As you can see, there are clear advantages and disadvantages with these four networking marketing compensation plans. Now that you know what they are, you can make an informed decision about what type of plan will work best for you.