Multi-Level Marketing

Are you thinking of joining a Multi-Level Marketing Company? Don't just rush into it without understanding how it works. Every individual who joins a multi-level marketing industry joins for different purposes, It could be because they want to be financially free, or they want to spend more times with their family, or they want to gain freedom of life etc, But many of them don’t achieve their goals and one of the reasons for that is because they fail to understand the compensation plan of the company that they want to join.

 Multi-Level Marketing abbreviated as MLM and commonly known as Network Marketing or Direct Selling is a controversial marketing strategy for the sale of products and services of a network marketing company where the revenue of the company is derived from a workforce (known as Independent distributors) selling the company's products or services, while the distributors are paid a percentage commission of their recruits' sales; the recruits' are known as the distributor's downline, while members above the distributor are known as the distributor's upline.

Understanding multi-level larketing compensation plan is a very essential if you need to achieve success in MLM. Most people (especially those who have not been a member of any MLM company before) attends a company’s seminal and after a good presentation, the only thing they learn is this:

You will join the business,
You will invite new prospects,
You will move up to higher levels,
Then You will earn millions”

but they are unaware and less concerned about the requirements to reach higher levels, they are unaware about the way commissions are being paid before they can earn millions, they just invest their money in a business that they do not understand but fail to invest in themselves knowledge about this business. Since they do not know exactly what they are doing in the business (which they always think they do), they end up moving no further from the position they are to where they want to be. Understanding MLM compensation plan is a great advantage to every multi-level marketer and the disadvantages of not learning the compensation plan of your network marketing Industry are:

You will find it hard to recruit new members:  You will not be able to illustrate and give a good explanation to people when prospecting? Surely, when you are presenting the plan and your prospects at some point may get confused and they will ask questions, and since you don’t have a clear understanding about your marketing plan, you will also get confused yourself and you may begin to give silly answers to their questions.

You will have a bad planning:  You will make plans based on what you know (plans to maximize your income) and expect so much out of it. But since the plans are not in-line with the actual compensation plan system, you will only end up getting disappointed. You need to learn how it works for you to know exactly what you have to do.

What is a Compensation Plan? The MLM compensation plan which is also known as the Marketing Plan is the strategic method in which Network Marketing companies use to compensate their distributors. It is a system that reviews to distributors the way by which they can earn from the company. Sometimes, people who join Network Marketing company find it hard to get what they wants because they fail to understand that the company's marketing plan may not be suitable for them. When they finally realise, they decide not to join another MLM company not knowing that there are other dynamic compensation plans used by different networking companies that can be sustainable to them and can enable them achieve their goal in a short term.

Below are the most common Marketing Plans you will likely find:

Matrix Compensation Plan

The matrix compensation plan is also known as the Forced Matrix Plan. This compensation plan uses a fixed number of width which determines the maximum number of downlines that each distributor can have on their first level, and a depth which determines the maximum number of levels that each distributor can receive commissions from. The forced matrix plan is represented by the formula “width x depth”, e.g. 4 x 7, 5 x 7, 3 x 9, 2 x 12 etc.

For example, In a 3 x 7 forced matrix plan, 3 indicates that each distributor will have a maximum number of 3 members on their first level (i.e. when you recruit 3 new members, your downlines also recruit 3 new members etc), while 7 indicates that each distributor will be paid commissions up to the 7 levels.

You = 1

1 x 3 = 3 (level 1)

3 x 3 = 9 (level 2) 
.
.

729 x 3 = 2187 (level 7)

At level 7, there is a total of 3279 downlines which you will earn commission from. Your commission do not exceed that level, thus, you cannot earn from 8th level and above. The forced matrix plan limits the number of referrals that each members can have on all their levels depending on the value of the width, and also limits the level of commissions to be received the distributors depending on the value of the depth.

The most beneficiary feature of the forced matrix plan is the spill over feature. Spill over involves placing new referrals under your existing downlines because the amount of people in that width (level) is complete; once the recruit in your first level has been completed, every other referrals will spill over to your next level. This dynamic feature keeps downlines motivated because they can eventually have new referrals placed below them by their uplines and this speeds up the growth of the business encouraging distributors to be more active. You aid downlines in building up their network as uplines also aid you in building up your network and this creates positive effects and expansion to the team. Matrix plan is a really awesome plan.

Binary Compensation Plan

This plan is recognized as the best, easiest and one of the most successful marketing plan among other MLM compensation plans. The binary plan is also known as “2 x n” matrix plan;  where n = number of levels. 

There is no maximum value or limit to “n”, therefore, n is infinite. Binary specifies number “2” which mean each distributor can only have a maximum of 2 downlines on their first level, but there is no limit to the depth or the amount of levels that a distributor can have or earn from.

Distributors using this compensation plan are referred to as to as business center, each business center have their network divided into two group, the left group and the right group. When a member is places on the left group and another on the right group, the first level is completed and new members be spilled over to the second level.

Example: when you recruit two members on your left and right group, they will also recruit 2 new members to their left and right group, then you will have 4 new members on your level 2. Which means you are entitled to earn commissions from 6 downlines.

       Left - -     You     - -  Right

           1              |             1               = 2  downlines (level 1)

     1          1        |        1          1        = 4  downlines (level 2)

  1    1    1    1     |     1    1    1    1     = 8  downlines (level 3) ... till infinity

In binary compensation plan, commissions are paid based on the volume of group sales (known as binary point) and not based on levels. When the required volume of sales on the left is equivalent to the volume of sales on the right, the sales volumes of both group are merged and you will receive what is known as a match sales bonus. Match Sale Bonus is a direct cash reward.

Example: If 400 pts is the total binary point required to yield a match sales bonus, 200 pts from your left group plus 200 pts from your right group will be merged to give you a match sales bonus. The match sales bonus varies by the company but it is always a considerable pay. Let $10 be used as match sales bonus for the example.

Now if you have 8 downlines on your left that has attained 200 pts each, then your total binary point on the left is 1,600 pts. The point will remain dormant waiting to be paired with a binary point on your right. Once a sales volume of 200 pts is accumulated on you right, the match sales bonus occur and you will receive a reward of $10 whilst 1,400 pts remaining on your left group waiting to be matched by another binary point on your right group. thus, you should be expecting 7x the match sale bonus on equivalent group sales.

The binary plan is a very simple plan which encourages and motivates downline as their network continually expand due to spill over feature and unlimited depth to earn from downlines.

Unilevel Compensation Plan

Unilevel marketing plan is the most commonly use plan in MLM industries. The unilevel compensation plan allows you to have unlimited number of first level downlines but a limited level of commission based on depth. In the unilevel marketing plan, distributors can sponsor or recruit as many new members as possible and the new member will be placed directly under them, but there is no spill over in the unilevel marketing plan; every distributor gets their own downlines.

Commissions paid out to distributors are usually paid to a specific depth or level, the commission levels vary with the MLM company. Distributors can be paid up to the 5 levels, 6 levels or even 9 levels regarding the rank that the distributor has with the company. However, to receive commissions, you must accumulate a certain volume of sales (points). Your rank in the company, the levels you can earn from and the percentage of the commission you will receive depends on the total volume of sales you have accumulated i.e. As your sales volumes increases, your rank also increases. Sales volume can also be accumulated from downlines' sales volume.

For each person you recruit, you will earn commissions from them and from the people that they recruit up to a certain level. You may need to accumulate a personal sales volume (PSV) before you can get any commission from your downlines. Some common ranks / titles used by unilevel plan are “Manager – Director – Emerald etc. To move up to the manager step, you need to accumulate a certain sales volume and you will be eligible to earn commissions from your downlines up to a specified levels deep.

Once you accumulate the higher sales volume required for you to reach your next rank, you will be promoted and be eligible to earn a higher percentage from your downlines up to a specified levels that higher than the previous. If you don’t meet the personal sales volume required to earn commission, you will not earn any commissions from your downlines.

E.g, When you become a Manager, you earn 2% commission from your level 1 downlines and 4% from your level 2 downlines. When you increase in rank to Director, you are eligible to earn the manager's reward plus 7% commission from level 3.

NB: The percentage of your commission is based on your rank and depends on the company's offer. 

If you are not good at recruiting, unilevel marketing plan is to your disadvantage because it does not encourage team work. Members have to find downlines themselves. The good thing about this plan is that it builds active members and helps them develop themselves personally. In simple term, it eliminates laziness. The unilevel plan is a very simple plan and can be easily explained to prospects.

Stairstep Breakaway Compensation Plan

The stairstep compensation plan which can simply be called the stairstep plan is a marketing plan has the same method of compensating distributors as the unilevel marketing plan. In the stairstep plan, distributors can have unlimited number of downlines but with limited level of commission in which the percentage of the commission is based on rank.

What is the difference?

For the sponsor: The sponsor moves up the stair (moves to higher rank) as he continues to accumulate a percentage of the sales volume of his team, his team continues to grow until it grows to an extent where a portion of his team breaks away from him and he earns smaller amount of commission on the group.

For the breakaway downlines: The downline continues to advance in rank by moving up the stairs and earn great commissions until they reach a certain stair where they break away from their sponsor and are no longer part of the sponsor’s team.

The breakaway team is illustrated in the diagram above as a team colored in blue.

A downline breaks away from his sponsor and begins to handle his own team independently giving him allowance to earn from the sales of the team and therefore, he is entitled to continue earning greater percentage of commissions. Once broken away from the sponsor, the volumes of the group sales are no longer counted as part of the sponsor’s sales volume; the sponsor only gets a percentage of the breakaway downline sales each month as a bonus provided he accumulate the pesonal sales volumes required to earn the commissions. The disadvantage of this marketing plan is that the sponsor will lose a large number of downlines which will reduce the volume of his accumulated group sales and thereby reducing his earning.

Example: You were suppose to get commissions for 45,000pts of your team’s group sales volume, and one of your downline named James possesses 37,000pts of that sales volume, if James breaks away, you will be left with 9,000pts because James is no longer part of your  team, thus, you will get commission for 9,000pts and will no longer be eligible to earn from james' team.

Sponsoring and developing leaders is the key to success in this compensation plan. Though, most modern erupting MLM companies do not make use of this marketing plan. The breakaway plan is the oldest marketing plan used in MLM and is rarely encountered in newly established MLM companies but they are still used by old existing successful MLM companies.

Hybrid compensation Plan

This is when a company combines more than one of these marketing compensation plans in a single Multi-Level Marketing industry. Hybrid plan is awesome because it gives you a chance to earn in different ways, using different compensation plans in one company. E.g. A unilevel plan combined with a binary plan.  The best Networking companies in the world today uses this marketing plan. They create multiple method of income for distributors using this plan and also give them the chance to make choice on the marketing plan they know how to work on best, but they design it in a way that you cannot earn in one marketing plan without the other. As you focus on one, you earn from all. Although,

There are many more marketing plan in existence than the compensation plans listed above because every company wants to be unique, but these are the most common plan you will encounter in Networking companies. But what ever marketing plan you discover that your company is using, try to understand it and plan your way to success not deviating from the compensation system. Here's the secret hint, Networking is a key to every man success.

I Wish you good luck in your multi-level marketing business and if you still thinking of becoming a part of  the Network Marketing Industry, I encourage you to think right and choose wisely before participating.