Compensation plans are ultimately the way in which you get paid in a network marketing business and therefore it is important that you understand how they work.
Maraming types ng compensation plan in MLM industry. Pero pag uusapan lang natin ay ang most popular types of plans.
1) The Stairstep
* Purely for illustration purposes only, not an actual plan.
The
Stairstep or step and ladder plan ay popular sa mga traditional MLM.
Everyone has probably been exposed to this plan at some time in their
MLM career. It is a simple plan that has requirements that you must meet
to get up the “Stairs of Success”. Every step is a promotion usually
based on achieving a certain volume and each promotion or rank gives you
a larger cut.
Demotion
in stairstep plans ensure a distributor’s group commits to a certain
volume every month. The plan generally guarantees a certain level of
income for the particular rank achieved. Demotion in this plan means
that you must maintain a certain volume every month (or quarter or
fiscal year) in order to maintain that rank or you will lose the income
of that level. Let us say for example, Anthony achieves a sales volume
of P200,000 in his entire team (for a certain time frame) and that
promotes him from Leader to Champion, certain companies require him to
keep up that same sales volume or during the next cycle he will be
demoted back to a Leader. In certain plans, there is no demotion in
rank, so the group sales are accumulated for reaching the next level.
Maintenance
in this plan plays a key factor in how building a solid group will
look. If there are low repeat sales for the product being marketed,
expect the minimum entry fee to be higher than the average MLM. This is
because low repeat sales means less maintenance hence the majority of
the income comes from recruiting new blood. If nobody does maintenance
in a Stairstep plan, having a high rank doesn’t earn you money so don’t
be a fool if someone tells you that the ‘minimum’ income for a ‘grand
emperor’ is P100,000 a month – it all depends on the volume generated.
On the contrary, plans with maintenance involved do guarantee an income
or else you will not achieve that rank.
This
plan is one of the oldest and longest plans around. The advantage of
climbing the ladder gives major incentives for distributors to work
harder and fight for the goal. The larger your group the more levels you
can earn override commissions on even up to infinity levels as long as
your downline is of a lower rank than you. There is also a fair system
involved. Lets say if your downline works harder than you and sponsors
more people, he can actually have a rank higher than you and that is
when breakaway in certain plans come into play (discussed in the
breakaway plan below).
The
disadvantage however, is once a downline reaches a certain rank (lets
say you need 3 directly sponsored Leaders to qualify as a Champion), one
of them becomes a Leader while you focus on making the remaining 2
groups to Leaders, the first Leader might be neglected in the process.
The other disadvantage is if the downline is too far deep in the
organization (lets say your downline’s downline all the way down 10
generations), some distributors may neglect helping them because the
monetary incentive is too small.
2) The Unilevel
The
Unilevel is a simple “Number of levels” that the company will pay you,
and usually there is no promotion or rank. You make money by getting a
certain override off of the volume, and usually there is a requirement
of volume to qualify for a check. The advantage here is you don’t have
work your butt off during certain seasons to fight for that rank. You
can sponsor as many people as you can and your income comes from a large
volume of people in your organization. For example, you can personally
sponsor 5 people, and these 5 will look for 5. after 4 generations you
will have 5 to the power of 4 in your organization (780 people) and the
calculation of your sales volume will give you a straight forward
income. If you've been in this industry, or are investigating, you must
realize that the “5 who sponsor 5” is a myth that never happens. This is
just an example of how you will be presented this particular plan. The
disadvantage to this pay plan, is there is no incentive for developing
many different groups (called legs). In spite of conditions in a plan
imposed by the company (that you have to sponsor a minimum number of
legs) some unilevel people tend to let the ‘strong’ downlines do all the
work by waiting for their downlines to sponsor MORE people than
themselves, which is a poor reflection of leadership. In the Unilevel,
there is no demotion (the only demotion is leaving the company) and
maintenance plays a key part in the long term income.
3) The Binary
The
Binary is an interesting design for a Comp Plan. It usually has 2
“legs” that you can have “Business centers” in, and you have a volume
requirement to get paid on each leg. Most binary plans have what is
called “balancing” -- you must balance the volume from each both A and B
group to make sure you maximize your commissions. Some plans may use a
1/3 – 2/3 balance instead, in which you must have 1/3 of your volume in
one leg, and 2/3 in the other leg in order to complete a payment cycle.
In the illustration above, the A group is the strong leg (or the giant leg) while the B group
is called the weak leg (or the profit leg). A has more people than B
(assume they all produce the same volume per person). B needs to find 2
more people in order for U to ‘balance’ hence maximizing U’s income.
The main advantage of this plan is spill over. Allow me to illustrate
U
sponsors 2 friends. In a binary, the company limits each distributor to
have a MAXIMUM of 2 people. A and B were previously recruited by U. U
needs to ‘balance’ his group by helping B find 2 people. But let us
assume that B is not actively building the business at the moment, so
what does U do? He finds and sponsors 2 people HIMSELF and places both of them under B and they become B1 and B2. This is called SPILLOVER.
The advantage of spill over is that when everyone works as a team, the
tree will fill very fast as all uplines and downlines work together to
balance each other’s networks. It is also immune to the problems in
unilevel or stairstep plans with downlines being too deep in the
organization. A binary can be balanced depending on which side the downline is in and not how deep.
The disadvantage however, is that this plan is particularly attractive
to lazy people who don’t do any work and expect free handouts from their
uplines. Imagine what will happen if everyone waits for their upline to
place people under them? It doesn’t develop strength. The other
disadvantage to these plans is achieving balance. In most cases there is
a strong or outside leg that your sponsor will build. Everybody on that
leg is encouraged to build that leg straight down. Then it is up to
everyone to build their “inside” leg. This makes it extremely difficult
to achieve balance if you are not a recruiting master, and most plans
don't pay until you reach balance.
4) The Breakaway
This
plan has been said to have become somewhat unpopular in the industry,
as you could lose the business you build, once it gets to a certain
level of success, and it “breaks away” to no longer be a part of what
you get paid on. It usually appears in stairstep plans. Let's use the
example above in the stairstep illustration.
If
I am a Champion and my downline builds his organization faster than me,
and qualifies as an Emperor before me, 2 things might happen.
Depending
on the company’s pay structure, I will not be eligible to receive
overriding commissions from my downline Emperor’s group. Hence the
‘breakaway’ his bonuses will be ‘passed up’ to MY upline Emperor or
Grand Emperor. In some cases, the ENTIRE group breaks away and join MY
upline so even if I do qualify as an Emperor later on, I will not
receive bonuses from his group!
Today,
more and more companies are acknowledging the breakaway problem and
have started rewarding leadership development bonuses (such as a fixed
bonus percentage over the entire group even those that have broken
away). This system has still worked out well in the past though, because
it gets people working harder to prevent the breakaway from happening.
In
MLM (just like in life), companies reward PEOPLE who work hard to build
their groups. If a downline works harder than his upline, he should get
paid more – hence it is more fair to them. So in this case if an upline
doesn’t work hard enough, he shouldn’t blame the company if the
downline breaks away.
5) The Matrix
The
matrix or sometimes called a FORCED MATRIX is like a pre-order tree. A
computer driven plan puts people into your group by into the next
available slot regardless of who sponsored them. These plans usually
have a certain width and depth to them, such as a 2 by 2, 3 by 9 or a 5
by 25 matrix. This means that when you have 3 people on your front line,
regardless of whether you personally sponsored them, or they come from
spillover, the next person to join the organization will go on your
second level. These plans work well if there are a lot of people that
are recruited and WORKING TOGETHER TO FILL THE MATRIX. When you recruit
someone, the computer searches down for the next open slot, and
positions them there. There are some plans that allow you to override
the commission of those that you personally sponsor even though they are
not positioned directly under you within the tree.
How the computer works is like this:
If A sponsors a new friend, he will go into the next available spot in A's group, which will be the third spot under B. The next spot would then be under C and so on through the group. If D doesn't do any recruiting, then he'll have to wait for A to
fill in his matrix. These plans sometimes pay only when an entire level
is filled up, or sometimes a fixed amount per distributor by level.
Once again, the advantages here is that if every single distributor in
the tree all work together to fill the matrix the duplication result is
fantastic! Imagine if everyone finds 3 and everyone else does the same
thing, the matrix will be filled very fast. This means that even if you
don’t look for ANYONE to join the company, you will get paid when the
tree reaches a certain level. Which brings up the biggest and most
obvious disadvantage. If everybody waits for everyone to fill the tree
they will be disappointed. This kind of thinking is EXTREMELY WRONG and
will ruin the company. Furthermore, unless there is a cut off system in
the marketing plan, (for example, after the sixth level the person at
the highest position will have to reinvest again at the bottom of the
tree), the guy who ‘came first’ will get all the commissions and not do
anything. By placing a cut off point, everyone who reinvests again will
fill the tree faster as the deeper you go down the tree, the more people
are needed to fill each level.
6) The Australian Two Up (some company modify this to 3 up, 4 up, etc.)
This
is a marketing plan that is very unique. Basically, the two people you
recruit are “given” or “passed up” to your upline sponsor and the rest
of the recruits are yours. Here is an illustration:
Assume
that each person you recruit, you are eligible to earn P100. U sponsors
Q1, Q2, A and B. You earn ONLY on A and B but not on Q1 and Q2 as those
sales go to your UPLINE SPONSOR. Q1 and Q2 are called your qualifying
sales. Basically by finding Q1 and Q2, you have qualified to earn from A
and B and subsequently C, D, E and as many as you would like.
Similarly,
A recruits A1, A2 and Z. The sales of A1 and A2 go up to U and the sale of Z goes to A. As long as U keeps Q1 and Q2 going, he is eligible to earn as wide as he wants and as deep as he wants! (A1 and A2 are now part of U’s group. This will multiply by 2 each time it goes deeper enabling him to earn income up to Infinity levels!)
The
biggest disadvantage of this plan is that sometimes people are selfish
and will only leave U with ‘weak’ distributors (for example, Q1 and Q2
are slow learners) while capitalizing on the stronger ones in A and B
(leaving the strong ones for themselves). Some might even purchase dummy
accounts (known as ‘cats and dogs’ or ‘potatoes’). This leaves their
upline with non-moving legs and creates a hollow organization. Some
companies deal with this problem by giving bonuses or special overriding
mechanisms where you get special bonuses for building them, or even
removing the ‘qualified’ status should Q1 or Q2 drops out.
Another
disadvantage to this plan is the product generally isn't a physical
product at all and usually very high priced. This makes it difficult to
build a very large organization as the pricing is out of reach of many
people, plus they have to sell two before they even start to see any
commissions. Some localities have even declared any sort of Two-Up plan
illegal, so be aware and find out the regulations regarding the plan
being offered.
7) The Hybrid
A
hybrid is a combination of any of the above plans. An example would be a
Forced Matrix with Unilevel benefits (ensuring that those who actually
WORK to fill the tree get paid even more), or an Australian Two Up with
matrix (to offset the disadvantages of distributors being pass up).
Many companies are combining the advantages of many plans to help distributors maximize their income.
REALITY
CHECK: Regardless of how good any plan may sound, NONE OF THESE PLANS
WILL MAKE YOU MONEY IF YOU DON’T SPONSOR ANYONE AND DEVELOP THEM. Only
YOU can make the plan work. Without you, the plan is dead. DO NOT get
too complicated about Compensation plans. Keep it simple while
explaining to your prospects and make sure you understand that you CAN
MAKE MONEY with it if you work your plan.
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