Network Marketing Compensation Plans

One of the most important things to look at when choosing a network marketing opportunity is the compensation plan.  Unfortunately it is also one of the most confusing. 

While the compensation plan may not be the deciding factor when choosing which company to work with, it can contribute significantly to your success if you understand how it works - and to your failure if you don't.

There are several different types of compensation plans used in MLM today.  One of the oldest is the Unilevel plan.  This is also one of the easiest to understand since you are only allowed to sponser one level on your team.  In other words, everyone you sponsor is on your front line.  This makes it easy to explain to prospects which may help in your recruiting efforts.  However, if you are recruiting from your warm market (i.e. friends and family) it can make it difficult since you will be setting them up to compete against each other since they are all on the same level.  If the opportunity you are considering uses this model for their compensation plan, be sure you are comfortable recruiting from your cold market in order to build a large frontline organization.

Another common compensation plan is the Stairstep Breakaway plan.  In this plan, members of your team can advance up the ranks and when they reach a certain level, they are allowed to break away from your line and start an organization of their own.  This allows them to earn larger commissions and so is a great incentive for them to work while they are still in your downline.  However, while you normally would receive an smaller "override" commission from the breakaway organization, your overall commission can take a serious hit initially.  But if you are comfortable in your ability to recruit and train new team members, this can be a great plan for building long-term residual income.

The Forced Matrix plan has a limited width and depth for which you will be compensated.  For example, in a 3x3 matrix plan your frontline will consist of 3 team members and you will earn commissions only 3 levels deep.  If you recruit a third person, they will automatically be placed into the downline of one of the first two.  The Matrix plan can help you recruit since new team members can rely on this to help build their business while they gain experience.  This plan also encourages leaders to assist their team in building their organizations once their own frontline is full.  However, since it is very hard to explain and can give the appearance of the dreaded "pyramid scheme", it can make it make it equally difficult to recruit new team members.

The newest compensation plan to arrive on the scene is called the Binary plan.  As the name suggests, this is based on the number two.  Therefore, you would be allowed to have a maximum of two team members in your frontline.  Any one you enrolled after that would automatically be placed under your existing frontline members.  This encourages the team to work together since everyone benefits from building a strong downline.  Another advantage is that most companies allow their members to start another downline (commonly called business centers in this plan) once they have reached a certain level with the first. 

Many companies also offer additional incentives to their compensation plans, such as cars (think Mary Kay's Pink Cadillac or FHTM's Lexus). 

This is just a brief description of the different network marketing compensation plans.  For a more indepth analysis of the advantages and disadvantages of each, I recommend checking out the Network Marketing Business School.