Wednesday, September 19, 2007

MLM Compensation Plans - The Good, The Bad, and The Ugly Part 2

As stated in Part 1 of this article series, there are many different mlm compensation plans being utilized by not only startups in the industry but also the top mlm companies as well. There really is no standard per se -- it more or less comes down to the goals of the company either short term or long term.

The next compensation plan I'd like to discuss is the Binary. This is a variation in a sense of the Matrix, in that a Binary only allows you to place 2 people on your first level. Everyone else that comes into the program, either from your efforts or those of your upline support team, go below the original 2 people. Therefore, you only need to focus on building 2 legs in your business, often called the Left leg and Right leg.

Again, on the surface it sounds pretty attractive. However, let's drill down a bit deeper. Network marketing companies that use a Binary compensation plan typically require you to balance the volume between your left and right leg organizations, usually in a one third to two thirds ratio. The leg with only one third of the business volume is known as your weak leg. So in order to kick out commission payments -- known as cycles in this type of plan -- you'd need about a one third to two thirds ratio in your business volume to maximize the payout of the plan, since your payout is based on the volume amount in the weak leg. That's the big rub here. If you have a runaway leg that takes off for you -- many people are lucky if they can build 1 runaway leg in any plan -- but your weak leg goes close to or completely nowhere, you get virtually no payout on your group business volume. All that volume will either roll-up to your qualified upline -- probably a heavy hitter -- or to the company itself.

Not so attractive now, is it? Companies always do well with these plans because so much volume tends to go uncollected. Also, I know of many top mlm companies using a Binary that tout their big money earners, many of which are collecting roll-up payouts from their downline members who can't seem to balance their business volume and collect commissions. Some companies try to fix the inherent problems with matching bonuses and other methods, but I have yet to see a binary plan that is beneficial to the average part-time distributor.

In an effort to level the playing field for the average person, many top mlm companies have started using a Unilevel plan. This plan is very simple -- what a concept! To qualify for commission, you are normally required to purchase a small amount of product each month for personal or retail use. Then you are allowed to sponsor as many new distributors as you'd like on your first level, and you are paid a certain commission percentage down through a set number of additional levels -- usually 5 to 10. This negates the laziness factor brought on by the spillover concept in a Matrix, since new distributors have to actually build a group to get paid. It also solves the frustrating balancing factor of the Binary because you'll get paid on all the volume that is within your payout levels, no matter where the volume happens to be.

Although this may not be a favorite among the big guns that can build huge organizations that go down many levels deep, it is truly a simple and fair plan for the average person looking to make some additional income or even replace their income and go full-time.

In Part 3 of this series, I'll wrap up this overview of common mlm compensation plans and offer some suggestions on where to go moving forward.

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