Monday, June 1, 2009

MLM Compensation Plans

Each mlm company has its own MLM compensation plan. Basically these are the following compensation (payplan). The companies may try to enhanced their own marketing plans, however, each plan is derived from any of the below:-

1. Stairstep Breakaway Compensation Plan- This type of plan is characterized as having representatives who are responsible for both personal and group sales volumes. Sales volume is created by recruiting and by retailing (selling) product. Once predefined personal and/or group volumes are achieved, a representative moves up a commission level. This continues until the representative's sales volume reaches the top commission level and "breaks away" from their upline. From that point onwards, the new group is no longer considered part of his upline's group and the multi-level compensation aspect ceases finally led to the said group to "Breakaway". The original upline usually continues to be compensated through over-ride commissions and other incentives integrated in the payplan so that any previous effort is worthwhile. This "breakaway" group is sometimes referred to a qualifying leg (network organization) before you can be paid for other legs built.

2. Unilevel Compensation Plan- This type of plan is often considered the simplest of compensation plans or the most tradional plan of all plans. Infact, accordance to each country's regulation, there are companies using unilevel payplan to pay its sales associates. There is for instance insurance and real estate agencies using this method to reward their sales people and these companies may not fall into the network marketing jurisdictions/laws. Anyway, Uni-Level plan pays commissions primarily based on the number of levels a recipient is from the original representative who is purchasing the product. Commissions are not based on title or rank achieved. By qualifying with a minimum sales requirement, representatives can earn unlimited commissions on a limited number of levels of downline recruited representatives.

3. Matrix Compensation Plan-
This plan is quite popular in the early stages of network marketing whereby it is similar to a Uni-Level plan, except there is a also limited number of representatives who can be placed on the first level. Recruits beyond the maximum number of first level positions allowed are automatically placed in other downline (lower level) positions. Matrixes often have a maximum width and depth. When all positions in a representative's downline matrix are filled (maximum width and maximum depth is reached for all participants in a matrix), a new matrix may be started. Like Uni-Level plans, representatives in a matrix earn limted (capped) or unlimited commissions on limited levels of volume with minimal sales quotas.

4. Binary Compensation Plan- This is one of the favourites among many multilevel marketing compensation plans which allows distributors to have only two front-line distributors. If a distributor sponsors more than two distributors, the excess (extra recruits) are placed at levels below the sponsoring distributor's front-line. This interesting "spillover" effect is one of the most attractive features to new distributors since they need only sponsor two distributors to participate in the compensation plan. The common limitation is that each distributor must "balance" their two downline legs to receive commissions. Balance is accordance to the payplan design such as 2/3 vs 1/3 or equal balance. This means balancing legs typically requires that the number of sales from one downline leg constitute no more than a specified percentage of the distributor's total sales. Whatever the amount of payplan, the plan can be designed to pay more to the frontline or to the upline or both.

5. Hybrid Compensation Plan- This compensation plan is constructed using elements of more than one type of compensation plans which means hybrid combines several features mentioned above in one.

Whatever the calculation in any marketing (pay/compensation/income plan) REMEMBER there is ALWAYS a product cost, profit margin and miscellanous expenses. That means however, whatever smart design there is, any design should not and can not OVER-PAY its distributors. This has HAPEPENED in the industry whereby such companies will go bankrupt and closed down. This happened when the company bosses could have employed overly ambitious mathematician, unqualified, inexperienced programmers or the software design has bugs or flaws or lacking of security features.