What is the Best Compensation Plan
Compensation plans are all typically unique to each company. There are only seven primary compensation structures in the home based business industry each with certain advantages and disadvantages. The seven structures are as follows: breakaway, matrix, unilevel, phase, binary, Australian 2up, and multi tiered affiliate. Once you understand how each of these compensation structures works you will recognize that any other compensation structure regardless of name is merely a hybrid of the seven.
The easiest to understand is the multi tiered affiliate program. When you refer someone who refers someone you get paid for both to either two, three, or more levels. Typically these stop at three levels but are considered multi level marketing even with just two levels. Advantage is that usually there is no limit to the amount of front line referrals. Disadvantage is that typically a good amount of referrals are needed to make any significant money and you do not get paid on referrals that go below the second or third level. Note if you were just paid for personal referrals it would be called a single tier affiliate program. A single tier affiliate program is not considered multi level marketing.
Breakaway is the oldest compensation plan that any mlm programs may still utilize. Made popular by the earliest mlm programs the breakaway is just that. When a person beneath you reaches the same level by rank as you they would “break away” to start their own business. You may still receive some commission on their business but it is typically only a fraction of what was made prior to the “break” occurring. Advantage is that while your income dropped on break aways, the more you have the higher rank you can achieve thus increasing your residual earning potential on new recruits. Disadvantage is that advancement of rank and income is stunted or even retracted if break away legs quit. Historically one of the lowest paying compensation plans in the industry.
The matrix became popular in the 80’s. With a matrix you are restricted to a certain amount of front line recruits and pay goes down a certain number of levels. Many hybrids of the basic 5X7 matrix have been created over the years. Some additions are fast start pay, bonus pools, generational pay, front line expansion, rollup and compression. Advantage is the plan is easy to understand and it suggests the chance that some recruits could be placed under others by the upline. Disadvantage is that payout is limited to a certain depth and width is constricted. Payout is better than the breakaway but without enhancements not much better.
The unilevel payplan is similar in concept to the matrix but does not limit width or depth. Because of this it is a favorite pay plan for network marketing top earners. Advantage is the plan is easy to comprehend and explain. No restrictions or perfect world requirements. Disadvantage is that payout below the top seven to ten levels can be a very small percentage. Does not promote placing people under people.
The phase program also known as the airplane, or the 2X2 matrix. Also became popular in the 80’s and utilized primarily by cash gifting programs. The funds going into the program from new recruits goes to pay out the one individual at the top of the plan. Advantage only if you’re the person at the top. Disadvantage is that everyone has to bring at least two people and those people all have to bring two people and those people all have to bring two people in order to be pushed to the top and begin receiving “gifts”. If the perfect world does not happen advancement to the top will stall and will not continue until more recruiting occurs. The chance of losing funds is much higher than the chance of any funds being paid out.
Binary pay plans as the name suggests have a left and right side. The binary has evolved over the years to eliminate the chance of the company paying out too much money. To counter this some plans have added features that create breakage for the network marketing company. Some of the features that create breakage are requirement to balance both sides, volume flushing, and restricting the amount of times you can cycle. Typically the binary is used as a front end pay plan for quick money with a separate back end plan to generate a monthly residual. Advantage is that if you are positioned properly you can build one leg and get paid. Disadvantage is that regardless of how many people are under you on any one side, if you do not get the other side going, you make nothing.
The Australian 2 up program’s name comes from the way the program works. The first two people recruited from “down under” you come up to be added to your front line. This pattern repeats for every one of your personal recruits. Another variation is the Australian 1 up. Same concept but your first recruit is sacrificed to your upline. Advantage to this plan is that you get paid to infinity on the people’s people that were sacrificed to you. Disadvantage is that with this plan most people will put the two worst recruit’s in the program first. So the dog and cat you just recruited first go upline and you are free to be paid on the next recruit.
For questions about your compensation plan or help determining the right compensation plan for you, fill out the contact form on top of this page to ask our experts.