Understanding Compensation Plans

You may often hear many MLM and Party Plan companies touting they have the highest payouts or the best compensation for their distributors. So what is a compensation plan? What are the aspects you should look for in a compensation plan?

A compensation plan is a set of rules that determines how distributors (often called reps, independent business owners, or team members) earn commissions, overrides, bonuses, and other compensation.

The two most popular types of compensation plans in the MLM and Party Plan industries, are the Unilevel Plan and the Binary Plan. We know there is many other types of compensation plan structures such as Forced Matrix, Matrix, Stairstep Breakaway, Hybrids, Unigen etc…, but we will just focus on the two most popular.

The Unilevel Plan

Structure:

In this plan, there is only one line of distribution. So everyone you recruit will go directly under you. There is also no width limit and commissions usually get paid out to a defined depth level. With this plan you can recruit as many people as you want and it will grow the length of your downline. Party plan companies typically use this structure since it is more retail focused.

Compensation:

Is is very typical to have compensation calculated between 3-10% of total business volume to the specified level which is usually 5 to 8 levels

Advantages:

• It’s very easy to implement unilevel, because of it’s simple and complex-free structure
• Unilevel can be more lucrative than any other compensation plan if you recruit good leadership in the downlines
• Faster Bonus and solid residual income
• More retail based so they are less likely to be scrutinized by the FTC compared to Binary Plans

Disadvantages:

• Unlike binary plan, Unilevel doesn’t pay unlimited  levels
• You typically don’t see fast downline creation
• No spillover or check matching

The Binary Plan

Structure:

This plan works on the distribution of a right leg & left leg. Since compensation is based on group volume, binary compensation is only achieved through teamwork and combined efforts of downlines.

Compensation:

In binary, the compensation is commonly calculated between 8%-10% of the total business volume of the weaker leg. Therefore, It’s imperative to sustain each leg equally so you must maintain effective compensation.

Advantages:

• Spillover (after signing up the maximum number of distributors permitted on your first level, any person you sign after this maximum ‘spills over’ to the next level. And if the next level is also filled, to the one following it.)
• Binary plan pays up to unlimited depth
• Check match
• Rapid Expansion of downline is possible

Disadvantages:

• You can’t benefit from all your downline recruits. Only from one leg
• Very complex downline structure, which includes spillover and checkmatches
• Flushing- If one leg becomes stronger than the other leg there is a loss of time, money, and work