MLM Compensation Plans Part I The Binary – How Many People Do You Need?

There are four basic types of MLM compensation plans  – Stairstep, Matrix, Unilevel, and Binary.

With advantages and disadvantages to both, the short of it is, many people have difficulties making a full time income given the way these plans are organized.

Some will pay only 8 to 10 levels deep (ones based on the Matrix), which cuts out the largest portion of the volume paid to the distributor.

Others have unlimited depth (the Binary), but have limitations which are a little more difficult to realize until you may have done a lot of work and realize you are being underpaid.

The first question anyone should ask when considering an MLM compensation plan is how many people will you need in your downline to make your target income.

You need to determine the number of distributors you will need to make $100, $500, or $10,000 per month (a six figure income). This is crucial if you intend to replace a full time income with network marketing.

Every network marketer knows that it will take work to succeed in this business, but the trick is finding the company that will pay the best.

Most people have been convinced that theirs is the best, but keep in mind that there is always going to be a constant battle between the MLM company and it’s distributors, for the money of course.

Even when there is a CEO of a network marketing company who was previously a distributor, the company must survive, and so it has to come first in terms of the compensation plan payout.

But what often happens is that you are talked into believing the pay plan will make you lots of money, while you overlook the reality, which is, how hard will you have to work for your money?

First of all, if you are being paid under 20% of your downline volume, you are being grossly underpaid.

If you are making money only on the wholesale price of a product, then this percentage is rather much lower than that. So when a company drives the behavior of recruit – recruit – recruit, by having a retail price that no one would reasonably pay, then the majority of distributors are only making the wholesale margin.

Breakage

Each MLM company tries different methods to make the comp plan work both for the distributor and the company, but the company always gets the breakage. The breakage is any profit that is left unpaid to distributors.

Breakage occurs for example when there is a level beyond which, or a portion of your group product volume on which you do not get paid, bonuses or compensation that you do not qualify for, or product cost that is hidden between the supplier and the company.

The Binary Plan

Now, in a binary plan it is true, you have only two sides, a left and a right, to build, and after you put in 2, everyone else has to go under one of those two.

This seems simple when explained, and creates an excitement when there is the possibility you will get help in building your downline.

You must also have sponsored a minimum of two people on autoship, one on each side, and often must reach a minimum group volume on each or on your lesser side which is usually much larger than your own personal volume in order to qualify for any commission.

No big deal really, right?

As in any pay plan, putting people under your downline members generates excitement as it helps them out. Building by depth only, and not by width does give some the advantage that the person above is probably going to put people under them.

But the down side is that you will only ever be paid a percentage on your lesser side.

That is, you will never be paid on any more than 50% of the total volume in your downline.

When your sides are equal, you are making the best possible commission.

So calculating your numbers, realize that not every person will stay on autoship, and you won’t get paid on every person in your downline who IS on autoship..

Balance is Key!

The most difficult part is keeping these sides balanced so that you can be paid on the potential of the larger leg.

Let’s say that you have personally sponsored a power player on your left side.

This person is your greatest dream team player, and starts enrolling people daily (maybe they even had a list from a previous company, a team who is following them now to yours!)

And let’s assume that at this point your sides are pretty well even, or maybe that your right side is even a bit ahead.

Everyone is in the category of average distributors, some breaking even, some not, some on autoship and some enrolling 2 or 3 people.

Then as your star player takes off like gangbusters, signing up more people than you ever thought possible, your left side quickly pass your right side, and you will have to focus on the other side to take advantage of that volume.

The pay plan that I am in also pays a coded bonus on unlimited depth, and so as long as the business is growing, I receive bonus money that exceeds the commission percentage anyway.

But most companies do not have this advantage.

Fear of Loss

What the non-flushing binary system does is create the fear of loss, that if you take yourself off of auto-ship you are saying good bye to all of those potential points.

This keeps people in the game, working to catch up.

Now you could say why not stay and find another star player? Yes, as the odds are if you keep at it that can happen. Or you could give up and let it go to your upline.

Statistically Speaking…

The facts are clear and well known in the industry: the average distributor sponsors 2.7 people into a business for the life of their distributorship, but with a binary that generates a coded bonus in addition to commission the chances are that it becomes easier to sponsor new people in due to the excitement.

In any comp plan, you will want to determine how much money you want to be making, and then determine the number of distributors in your organization will be needed to reach that figure on back end commission.

Then you might be qualified for bonus money in addition to commission.

For this you will have to determine how many people you would need to sponsor on a regular basis, or how many people you will need coming into your team (sponsored by people under you).

With a coded bonus this may not need to be personally sponsored (the coded bonus pays you for people signed up by people you sponsored or people that sined up under people you sponsored, etc., sometimes indefinitely.

If you would like to see a company that has a compensation plan paying out 67% on the wholesale dollar, with a 10% commission in addition to several other bonuses on the front and back end, check out this incredibly solid opportunity with me!

To Your Success!