MLM Training Understanding MLM Compensation Plans

MLM Training: Understanding MLM compensation plans is critical in the success of any MLM distributor. You may not fully understand each component, but you must understand the basics.

This is the first of a series of articles I will be doing on MLM Compensation plans. This first post is on some basics. In the next few articles we will cover several of the company specific plans. MLM plans like; XanGo’s Unilevel compansation plan. MonaVie’s Hybird Binary compensation plan. Pre-Launch company Yoli, and their new Hybird compensation plan, and how it differs form MonaVie. We;ll look at the Primerica and Pre-Paid Legal compensation plans, and a few of the other new and unusual MLM compensation plans.

MLM Compensation Plan Basics. (excerpts from my upcoming release “The MLM Chronicles – Book I)

The marketing and compensation plan of a MLM company, is more important than having the pefect product. Over the last 27 years, I have seen companies with great products fail in 36 months, while companies with average products last for decades because they had great marketing and compensation plans.

All successful marketing plans are built around great compensation plans. As you research which compensation plan is best for you and your team, you should keep in mind, they all have their own advantages and disadvantages. Each company has their own matrix of margins for their products and overhead; however, there are a few things you should know.

The key principle to remember in margin comparison is, if the company pays the distributor too low (less than 25%, of the wholesale price) you might not survive. If the margin is exorbitantly high (over 63% of the wholesale price), you might earn a lot, but the company will not last long term, their margins will be to tight to earn a profit.

Basic MLM Compensation Plans


The Stairstep compensation plan
is one of the purest types of compensation plans and accepted by the FTC as a viable compensation models. It is one of the easiest plans for new distributors to understand. Every step is a promotion usually based on achieving a certain volume and each promotion or rank gives you a larger cut.

Troy’s Truth: The Law of Averages show that if you work with downline members even out of your payline (10 generations deep) that eventually some of them will move up into your pay level and could very well reach your frontline.

The Unilevel compensation plan is simply “a specific number of levels” which the company guarantees you will be paid based on predetermined criteria. Usually there is no promotion or rank involved (unless it is a hybrid plan which we will talk about below.) You make money by getting a certain override off of the group volume, and usually there is a requirement of monthly personal volume to qualify for a check past your first level.

The Binary compensation plan is by far my least favorite and one of the hardest for a new distributor to grasp and maximize for full income. It usually has 2 “legs” also known as “Business centers” and you have a volume requirement to get paid on each leg. There is what is called “balancing” in the Binary…you must balance the volume from both A and B business centers to make sure you maximize your commissions. In the illustration above, the A group is the strong leg (or the power 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 Breakaway compensation plan has been said to have become somewhat unpopular in the world of fancy Hybird plans, 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 compensation plans.

The matrix compensation plan, sometimes called a FORCED MATRIX is like a pre-order tree and also does not rank as one of my favorite compensation plans. A computer driven plan puts new distributors into your group, and they go in to the next available slot. Most Matrix compensation plans are seen as “3 by 9” or “5 by 25” matrix. the Matrix does work well in the early stages, if there are a lot of people who 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.

The Aussie Two-Up compensation plan, is a compensation plan that is very unique, and is hated by the FTC and IRS. Over the last few years the IRS & FTC have gone after companies founders and top distributors and put them into federal prison because they do not see this as a compensation plan, they see it as a scheme. Concept “HYIPs” typically use this type of plan. Basically, the two people you recruit are ‘given’ to your upline sponsor and the rest of the recruits are yours.

A hybrid compensation plan, is a combination of any of the above features. An example would be a Stairstep/Breakaway or a Matrix with Unilevel benefits (ensuring that those who actually WORK to fill the tree gets paid more), or an Australian Two Up with Stairstep advancement (to offset the disadvantages of distributors being too deep in an organization) Many companies are combining the advantages of many plans to help distributors maximize their income.

Troy’s Truth:
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.

Never Give Up,

Troy Dooly

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17 thoughts on “MLM Training Understanding MLM Compensation Plans”

  1. Art, I am a rep. with a company …Zoom Mobile. I am not completely new to MLM industry, but have know started to educate myself with the comp. plans details. — I read your post..can you inform me the benefits and negatives of the Binary….. Zoom Mobile uses both a Binary as well as a Unilevel compensation plan(s)

  2. Pingback: Breakdown Of MLM Compensation Plans with Troy Dooley
  3. Hi Troy,
    Am new to this site, thanks for agreeing with me on the binary comp. plan. I have a been with Trivita Wellness for six yrs and have made a income with their wellness products, and they do work. Trivita plan is not the binary plan.

    Stay Healthy
    Fred Romero

  4. @ antonia laforce

    If you really like travel and the industry and looking for a home you may want to check out TraVerus. Troy did a great peace on TraVerus.

  5. Troy,

    What a wonderful subject… especially for those who are mathematicians, engineers, accountants… you know… us geek-headed, pocket-protector, slide-rule, hackers (am I dating myself??).

    Wow… compensation plans… definitely plan to comment on each of your posts in this series. I had a 400 page book almost finished on MLM compensation plans 10 years ago. Each time I was ready to publish it… something new comes out… a new twist… or a totally new spin. I don't think I'll ever finish that particular book. One of the reasons I'll never finish it… is because after studying and/or participating in just about every compensation plan that's ever been devised in the last 40 years… I've found my ideas or opinions change over time and experience.

    For instance… you have not mentioned that you were going to review the "coding-bonus" type plan that created million-a-month earners in a well known company, and that many companies still use today in modified forms. At one point in my MLM journey… I personally thought the "coding bonus" plan was the ultimate plan… well, on paper it looked good… but when I actually got involved in company that had one… it turned out to be a nightmare in so many ways. But later… another company came out with a modified version of the coding-bonus that solved the inherent problem and it rocked!!! (The details of this are not important… what's important is that EVERY plan has its weaknesses and strengths… its upside and downsides… its pros and cons. And that our experiences with a plan are more important than just our "opinions" or objections about a plan. Also… over time… our opinion or judgement about a plan may and probably will change dramatically.)

    As posted in another response on the breakaway plan… the compensation plan really doesn't matter (unless its a Ponzi scheme or there's no real product involved). If we can build a network of customers and representatives… we will make money from a legitimate company with… no matter what type of compensation plan it is. Furthermore… if we focus on the compensation plan as the primary reason for getting involved in our opportunity… we will certainly fail… because people are joining for the wrong reason… and they leave for the same reason (the comp plan).

    There is no perfect plan… and there's only so many ways to slice up the $. As to understanding a plan… to be completely frank… the only people that really truly understand a company's compensation plan are the programmers that write and administer the commissioning engines. Even if we think we understand a plan… even if we talk to the programmers (most companies won't let you talk to them)… in most cases there are little nuances and aspects to the plan that cannot be explained or detailed in a compensation plan brochure… that don't show up until we do a major analysis of our commission report. Sometimes we spend so much time analyzing our plan and commissions… we forget or neglect building and supporting our network.

    Some of the highest well-paid, long-term earners in MLM do not completely understand their company's plan… nor are they capable of explaining it… and those that do understand it and are capable of explaining it… won't explain it (at least not in great detail). We must realize that MOST people will never understand a plan completely… even the simplest of plans… and MOST people would never be able to explain the plan if they did understand it. Therefore… understanding a plan… explaining a plan… is unduplicatible. What is duplicatible?… acquiring new customers and recruiting new representatives… building a network.

    Now… with all that being said. Binaries. I was once one of the most anti-binary advocates on this planet. Today… I believe the evolved "modern" binary/hybrid plan is overall… easiest to understand, the fairest to all involved, and the most lucrative to the average networker and leader who wants to make the really big$. I'll wait to explain why when the segment/post comes out on binaries.

    Until next time,

    Art Meakin

  6. Matt,

    You make an excellent point. And as this series progresses we will cover each compensation plan in more detail.

    Stay tuned my new friend, we will cover each compensation plan, along with the variations and hybrids out there.

    Never Give Up,

    Troy

  7. Matt,

    Excellent comment. I look forward to reading your article.

    Thank you for taking time to share with our community.

    Never Give Up,

    Troy

  8. Many bemoan the fact that with a binary you are forced to take some initative to build out your "profit leg" but if you have a strong power leg you ONLY have to build one leg. With many unilevel plans you are infact build out a number of legs.. which is easier… one or many?

    In the next few days, I will email you an article that has changed my mind about the binary and why if done right… [that is a caveat with ALL compensation plans] it is in fact the most enduring and most profitable for the distributor and does not have the "breakage" that Peter alluded to or that is found in many other compensation plans. When you receive the article, pleast take time to poke holes in my arguements.

  9. Generalizations are never good and when you do so you run the risk of mis-informing people. Not intentionally, but simply by trying to sum up everything in a simple definition.

    Troy, I am not big on 50/50 binaries where you must balance your legs to achieve maximize your pofits. But that is not ALL binaries.

    There are some exceptional companies out there that have a 1/3-2/3 ratio where you need not balance you legs and infact you would penalize yourself if you did. These type of binary allows the young marketer to simply concentate on building one leg.

    I would hope that you would discuss the success and longevity of companies that have employed the various types of compensation plan. There are some that sound on their face to be a "fair system" [such as a force matrix] but never have the success and viability.

  10. Peter my friend!!!

    Thank you for stopping by and saying a few words! For those who do not know Peter he is one of the best MLM Leaders in Canada. If you are blessed to be on his team, congratulations. If you are looking for a top notch leader, then give him a call.

    Never Give Up,

    Troy

  11. Hey Troy:

    First – CONGRATULATIONS on your new Website – it’s a Winner! :>)

    COMP PLANS – Love your efforts on giving us a ‘good’ education on our industry Compensation Plans. With your written + video explanations – and sampling some actual companies – this makes for an interesting [and an easier] way to better understand them.

    I guess we all have our ‘favorite’ Comp Plans. Like you, the BINARY is not one that I prefer, as I see it more like a ‘game’ – and often, with too much ‘breakage’ going to the company. The FORCED MATRIX[with its so-called ‘spillover’ enticement] is likewise, not one that I like.

    Personally, I prefer the UNILEVEL Plan best, for many reasons – two of which are – I see it as the simplest to understand and – the easiest to explain (if either of these tasks are difficult, I believe that’s not only a ‘roadblock to succes’s, but possibly even a ‘red flag’.

    Among the things I myself look for — (1)- are there a lot of ‘hoops’ to jump through, in order to be profitable? — (2)- is it fair and balanced (is it good for both part-timers and full-timers)? — (3)- does it reward the ‘right behavior’ in the field, with Affiliates (a BIG one)?

    Again, my thanks for all that you do for our industry. I look forward to more of your “outstanding” coaching, my friend.

    Sincerely / Peter A.

  12. Antonia,

    This is a great question. If you are already in TVI Express, then I would be very open with anyone you sponsor, letting them know there are some concerns based on some of the activity in the FTC against the MLM Travel Industry. The services are fine. The main issues I raise come from years of watching what happens, and what is currently taking place with the FTC and State AGs.

    If you are earning more from retailing Travel than you are from the Matrix compensation plan, then you’ll be fine. Just realize if you are earning more from the Matrix, you might wake up one day and find the compensation plan has been cancelled.

    Never Give Up,

    Troy

  13. Antonia,

    You ask a great question. But do you really think the Government can stop an Internet Based company from operating? Especially when they can’t stop fighting amoungst themselves long enough to figure out regular issues?

    The FTC and SEC go after the companies where they receive the most complaints or where they believe they can get the fastest cash. The SEC couldn’t even figure Wall Street scams.

    Never Give Up,

    Troy

  14. It’s interesting what you say about binary’s not being your favorite as I have always had a hard time wrapping my brain around this concept – and I do like to think of myself as a bright girl.

    I look forward to your book release(s). Do you have any idea of what the cost will be? Will they be ebooks or physically printed books?

    Cheers!

  15. Great high level overview. Just a question: How do you plan on addressing bonus models? I think every company has some version of a bonus, but not sure how you think this fits into compensation “plans.”

    Keep up the good work, and the new layout for the site is growing on me!

    Brent

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