Monday, September 17, 2007

MLM Compensation Plans - The Good, The Bad, and The Ugly Part 1

If you've done any research at all trying to find a top network marketing company to work with, you've probably discovered there are many different compensation plans that are being utilized today. Gone are the days where there were only three or four companies to choose from, all with the same basic structure. Today there are literally thousands of companies, with various compensation plan setups. While the creativity involved in designing the modern mlm compensation plans may be impressive, it doesn't necessarily bode well for the distributor base. This article will provide some of the good points, and the bad points, of the common plans being used today.

The compensation plan that was used from the very beginning and is still being used today is the Stairstep Breakaway. While this plan has been responsible for creating HUGE incomes for successful full time distributors -- also called heavy hitters -- it can be a very brutal plan to make money with for the part-timer. This is due to what is called Open Volume.

When you signup a new person and they build their business volume to a certain level, they break away from your personal business volume and you then can earn a percentage on their business moving forward. However, you need to maintain a certain level, often quite large, of open volume -- volume outside of the volume in the break away business -- in order to qualify for these payouts. So, if you have a person break away from you and build a very large business but you can't maintain a large amount of open or new business, you'll be unqualified for commission and only paid on the new business volume, NOT on the break away volume. This can lead to stockpiling product in order to qualify, not to mention a very disgruntled distributor base. Some of the top mlm companies have recognized this and adjusted their compensation plans to pay generous commissions on new, open volume, but the distributor still feels they are leaving money on the table because, in fact, they are!

To combat some of the inherent problems with the Breakaway Plan, some companies began using what is called a Matrix style plan. In a Matrix you are normally only required to purchase a small amount of product per month for personal or retail use in order to qualify for commission, which is a good thing. Distributors are arranged in a matrix, let's say a 3 by 10, and your are paid a certain percentage on all 10 levels. Sounds pretty good, but watch out for the double edged sword called spillover.

What this means is that if you are working a 3 by 10 matrix plan you can only sponsor 3 people on your first level, and everyone else you sponsor would need to go under one of the original 3. This is what is commonly known as spillover. While this sounds like a great way to promote team building at first, the problem with this setup is that it tends to breed laziness. Many people see this plan and signup never intending to do any business building work at all. They are waiting for all the spillover from people that are actually working their business! Instead of rolling their sleeves up and going to work, they are looking for a freebie. Consequently, it is very difficult to build a large business when people are coming on board expecting to do nothing and get paid for it.

Hopefully this information has provided some insight into the Stairstep Breakaway and Matrix mlm compensation plans. In Part 2 of this series, I will dive into the two other common plan designs in use today and uncover their strengths and weaknesses.

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