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Compensation Plans Explained

One of the most important yet least understood aspects of a network marketing opportunity is the compensation plan. Believe it or not, sad to say, the majority of distributors involved in network marketing could not give you a superficial, let alone intelligent, in-depth explanation of the various compensation plans being utilized in the network marketing industry. Nor could most distributors give an accurate explanation of the very plan they are involved in with their own opportunity. For this reason, too many distributors to count, get involved with opportunities that may not be right for them or realistic for their efforts.

The purpose of this guide on understanding compensation plans is to give you the real nuts and bolts of the various compensation plans in our great industry as well as some of the basic pros, cons and nuances of each plan. Following are areas that will be covered:

* How each plan works;

* The differences between various plans;

* There respective strengths and weaknesses;

* Designed for either full or part-time basis;

* Geared toward personal consumption, retail sales, or both;

* Why many companies utilizing difficult plans are so successful;

* Why many companies utilizing easier more duplicatable plans fail;

* How to see the subtle nuances and red herrings in plans that can be so enticing, yet deceiving, but are so successful time and time again in attracting distributors.

However, what this guide will not do is tell which plan to choose. Only you can do that and it must be in conjunction with the other important elements of the opportunity such as Management, Products, and Support.

Aside from the basic mathematics involved, careful consideration must be especially given to the products that fuel the compensation plan. There are basically three categories of product lines: consumable, durable and service related. We can’t tell you how many companies we have seen fail that had great products, but unfortunately, abysmal compensation plans specifically due to a poor marriage with these product categories. While there are aberrations to this, most of the time this is a because of a lack of variety, size and/or expensive pricing. For example, what are the chances for success for a company with only a couple of products but with high sales volume requirements. Unless the product is addictive, success is questionable. What’s really ironic is that programs like this have no trouble attracting distributors. That’s the easy part. And it’s mostly due to the hype surrounding the perceived high payout of the compensation plan. The unfortunate outcome was that once in the program, these distributors had a very difficult time making any money even with a good work effort. The fact that these situations keep happening over and over truly reflects the overall ignorance of compensation plans by distributors.

Well, wouldn’t it be great if every distributor could understand compensation plans cold before they got involved with an opportunity. This would, without question, create a more intelligent distributor and help to make Network Marketing a more credible and productive business as a result, and ultimately put added pressure on companies to design better and more rewarding compensation plans thereby providing you, the distributor, the opportunity to have a more realistic opportunity to make money. This is the main reason most distributors get into the Network Marketing business to begin with.

There are numerous compensation plans being utilized in Network Marketing today. And we strongly encourage each and every one of you reading this guide to spend as much time as you can looking at different plans. Study them until you really grasp what they represent in a mathematical perspective. Try to find the nuances and red herrings inherent in many plans that make them so attractive at superficial first glance. Really look at the plan you are considering, rip it apart, and consider how realistic it may be for you to achieve success as well as its duplicability for the masses.

Before we get into actually explaining the different types of plans, take a look at some basic things most people miss while others take for granted in the recruitment process;

1. Where in the plan and what percentage of commissions are being paid. Are commissions in the plan loaded/higher in the front, middle or back end? This will certainly determine, to a large extent, the work effort required to make a good check, as well as how soon that money will come.

2. If you have been in the industry a while, you may have noticed that many distributors in their prospecting have the habit of saying that their company’s plan pays out a certain percentage, like 75% for example. Two things to keep in mind here. One is that you don’t earn 75%. You will earn what the commission is on a given level and assuming different percentage commissions and sales volume occurring on different levels, you must find the % average (commission check divided by total volume). Most plans will average out between 3-6% per level or generational group of distributors' total sales volume.

3. Remember the word BREAKAGE. Again, the company may say on paper that it pays out 75% on its end, but in reality it may end up only paying half or 35%. There are a number of reasons for this happening, all resulting due to breakage. They are as follows:

a. All companies receive the benefit of being on top of the compensation plan ladder. Therefore, even with the maximum number of pay levels from the company being achieved, there is usually no way it can ever pay 100% of the paper-stated pay-out. This is especially true of young companies where there hasn’t been any significant depth created. Occasionally, a company will pay out all possible commissions by taking its commissions and putting them into some bonus pool usually only accessible to the big distributors.

b. The number of front line distributors to the company is also important to this equation. If all the front liners do not build to maximum commissionable depth, again some or a lot of the stated payout will flow to the company itself.

c. Many compensation plans will pay different percentages of commissions depending on status. Therefore, if most of the distributor force is at the lower levels, the company will not come close to paying out what may be claimed on paper.

d. Many companies pay additional bonuses for performance and these bonuses are figured into the overall paper-stated payout. Obviously, only a small percentage of distributors will achieve these bonuses, thus resulting in a lower overall payout for the company.

4. Another area of compensation plans analysis that is causing some confusion, and one that is being played up now, is the so-called advantage of getting involved with lower $ volume personal consumption plans versus those that are more retail focused with higher $ volume requirement.

We would certainly agree (assuming the other important criteria of selecting a company are there) that the low $ volume personal consumption-type plan companies are more duplicatable and easier to attract distributors into. But keep in mind that the majority of those distributors that come into these opportunities are just going to want to personally consume and probably not be focused on building a business. Considering that you earn commission income based on $ sales volume, it only makes sense that with these programs, massive on-going recruitment will be necessary to create the kind of sales volume needed to make any kind of respectable income.

On the other side of the coin, the higher retail $ sales volume plans are generally going to be more difficult to duplicate efforts in and will generally have higher attrition rates but, will nevertheless by nature of the higher $ volume requirements, invariably create more volume on which you will be paid. Most of these plans generally, tend to attract the big hitter business builder types.

The reality is that we have seen many of both of these compensation oriented- type plans fail. The bottom line is regardless of which plan you get involved with, you will have to develop strategies to continuously attract new distributors into it in order to create the all important $ sales volume. This will be facilitated by good company and upline support, the value and your commitment to the products, and overall opportunity. But, also remember that it takes money to build a successful network marketing business. There is mailing, telephone, and marketing materials costs involved, and this must play a part in which company and compensation plans you should get involved in.

There is no doubt that you can be successful in any plan out there just as long as you know what your commitment will be to make it work for you and your organization.

THE UNILEVEL

So, what exactly is a UNILEVEL plan? For one thing, it is the all-time silliest named compensation plan we know of. Let’s break it down. There’s "Uni," meaning one, and there’s "level," meaning, well...level. So it’s a one-level plan, right? Not quite.

So it’s called a Unilevel because there are no stairsteps, or stages, to transcend. Right? Everybody stays at one stage. Wrong again. Because there’s only one level of volume you need to achieve? Nope. One level of bonus percentage. Keep trying. Okay, it’s called that because your downline is built...one level below the other!!! Bingo! We have a winner.

Actually, we're being facetious. We frankly have no idea who coined this title, or why. Regardless, Unilevel plans are, in general, the purest, simplest form of compensation structure. There’s no width limit (a set number of levels) usually ranging from three to nine, and varying bonus percentages on each level. The more volume you, and/or your organization moves within the defined depth, the more you will earn. Occasionally, there may be a "number of active distributor" quota that must also be met to achieve higher stages of bonuses, like the ever popular "Infinity Bonus". No one ever breaks away, no one passes anybody up in the hierarchy, and everyone’s volume always counts toward their upline’s monthly volume requirements. And most Unilevel plans incorporate roll-up and compression which enables an active distributor volume to reach deeper, previously uncommissionable, pay levels by temporarily moving that volume up over levels with inactive distributors.

Being such a simple, straightforward form of compensation plan, it is one that can usually be explained, and understood, by most people in a matter of a few minutes. It lends itself well to the duplication process so key to successful recruiting. Unilevel plans seldom overwhelm anyone, and are rarely intimidating to the new, inexperienced distributor.

Some companies trying to attract business builder types have added additional perks in the form of bonuses. You can find car bonuses, quick-start bonuses, monthly profit sharing plans, prize awards, and so forth. Even still, these plans are first grade math compared to many Breakaway, and even some matrix plans out there.

One of the few disadvantages to this plan is that they usually do have finite depths. If the plan pays down six levels, then anyone on your seventh level on down won’t earn you a dime, unless the plan employs a roll-up or compression feature. Even then, you may only pick up two or three more levels, and only on certain legs. Of course other bonuses like the now popular Infinity can change this equation and has added some spunk to an otherwise straightforward plan. The Breakaway plan which will generally pay on the "group volume" of generational Breakaway distributors, with each group possibly containing numerous levels of individual distributors. Technically this means that a traditional Breakaway will generally pay down many more levels of distributors than your standard Unilevel. Matrix plans historically have paid on finite levels as well, but the number of levels is generally deeper than in the Unilevel, but of course commissions are usually spread thinner. Of course, if you ever build an organization to the point where you have a significant portion of your downline extending beyond pay level, you have a problem a few thousand people out there would dearly love to have. So let’s keep things in perspective here.

A few Unilevel plans have tried to mimic Breakaway depth by paying small percentages down as many as 20 or 30 levels. One plan we've seen (some time ago) paid down potentially 49 levels! Unfortunately, this company didn't have any history of actually paying full bonuses down the maximum number of levels and this was with over 30,000 distributors on the books. Frankly, there is not enough mass in any one downline, in any of these companies, to really put this type of pay structure to the test.

One thing that has always concerned us is that the more levels you spread the bonuses down, the smaller the bonuses on each level. There’s only so much out of each wholesale dollar that can be paid out in commission. If it’s 50%, then you can pay down 10% down five levels, or 5% down ten levels. The former will pay quicker and better in the beginning, the latter will pay off even bigger, but weeks, months or years down the line. One’s a "front-end." heavy plan, the other’s superior on the "back-end". MLM purists will insist these terms only apply to Breakaway plans. I’m using them here, as many do, to simply address the earnings potential as a distributor begins to build his/her organization, compared to the point when the downline has filled to the bottom level of bonuses.

The economics of MLM dictate that, regardless of the plan type, the more of each wholesale dollar a company devotes to bonuses (to pay greater, or deeper bonuses), the more wholesale dollars they have to charge for the product to maintain the same profit margin. The higher the wholesale price, the higher the retail price. The higher the retail price, the lower the volume that’s moved. Lower volume, lower bonuses paid out to distributors overall.

Fortunately, Unilevel plans have unlimited width. Due to the potential loss of your organization extending beyond the bottom pay level, many Unilevel enthusiasts will try to go as wide as possible. Good for them, not so good for all those front line recruits looking for some individual attention. And this is becoming even more of a reality due to "Infinity Bonuses" being paid for building a large first level of personally sponsored distributors in order to qualify for these infinity bonuses.

As an incentive to build deep, many Unilevel plans will "dog pile" bonus percentages on the third level (there’s a buzzword that we guarantee won’t stick). Dog piling refers to the old schoolyard practice of kids piling themselves on top of one another until the bottom kid passes out. In other words, level one and two may pay 1%, and sales on level three could earn you as high as a 40 - 50% commission. Then the other levels drop way down again. The advantage here is that distributors will tend to pile (dog pile?) their recruits on level three. This results in spill-over, much like a matrix plan. You benefit since your first and second level are your upline’s third, and they’re dog piling below you.

Although not being a Breakaway plan, and rarely requiring excessive personal or group volume requirements, you won’t find nearly as much motivation or incentive in this type of plan. But then, you won’t find as many people motivated to stockpile or front-end load to meet the criteria for these lofty incentives either.

Unilevel plans do tend to lend themselves well to those who just want to personally consume, who have a fear or aversion to selling, who wish to take a more passive approach to their opportunity. Not to say there are not healthy incentives in some Unilevel plans to retail. There are. And, of course, many folks pursue their Unilevel opportunity vigorously, on a full-time basis. But in general, Unilevel plans do tend to require less effort and attention, and yes, generally and historically have paid less than Breakaway plans, and roughly the same as matrices.

The key word in that last statement was "historically." Relative to the age of this industry, Unilevel plans have very little history. Of the 180 most prominent MLM companies in the US, 62% of them are some form of Breakaway, 18% are Unilevel, and 12% are Matrix plans and 6% are Binary. And most revealing of those companies over seven years old, 86% have Breakaway plans.

Following are some other things to consider when looking at getting involved with a Unilevel:

1. Do you get paid on every commission level or are there volume or active distributor requirements?

This varies from one program to the next. Many pay on every level simply by meeting you Monthly Product Volume. However, some Unilevels are trying to attract business builder types by putting in some additional requirements to get paid higher or deeper levels of commissions or bonuses.

2. What are the volume and/or active distributor requirements to get paid those deeper and/or higher levels of commissions?

This is very important as it can change a plan that has been more or less designed for a part-time participation to one that requires a more full-time approach. Remember that an active distributor requirement is the same as a volume requirement and this can be over a $1,000 per month to qualify for commission beyond perhaps your 4th level of distributors.

THE STAIRSTEP/BREAKAWAY

The stairstep/breakaway compensation plan is without question the most common of all compensation plans. It is also responsible for most of the really big money being made in the network marketing industry. However, this big money is being earned by a small percentage of those distributors involved in breakaway opportunities. Curiously though, the percentages of big earners with any compensation plan is generally small in comparison with the number of distributors involved with any given plan and company, sort of following that famously quoted 80/20 rule- 80% of the money will be earned by 20% of the people. What does set the breakaway apart from most other plans is that they are definitely geared to a full time effort. As a result, attrition is higher with breakaways as well as the expense involved in working and building a distributor base with them. Because of this higher investment and higher attrition, breakaways have suffered a bad image. Needless to say, most of this can be traced to a lack of information provided about the focus and work effort generally required to be successful with this type of plan.

Stairstep/Breakaways have two sides to them. The (front) stairstep and the (back) breakaway. The front side of the plan generally has 3 or 4 increasing rank positions that can be achieved by meeting progressively higher $ sales volume requirements over a specified period of time. All the distributors under you are considered part of your personal group and their and your personal $ sales volume combined helps you to stairstep to these progressively higher rank positions at which point you will breakaway. You will generally earn higher commissions on the lower rank distributors under you (in your personal group) and this commission will decrease as they too move up the stairsteps to the breakaway side. When you do breakaway, your group comes with you as well as their $ sales volume which combined is called group volume. With most breakaways there is a set/defined personal group volume that has to be met each month in order to qualify for commissions on other breakaways There is also a personal $ sales volume requirement that you as an individual have to do each month. This personal $ sales volume generally applies to both the front and back side.

When someone you personally sponsored in your personal group qualifies as you did to breakaway, they officially breakaway from your personal group and take both the distributors and volume that are underneath them from you. They are now considered one of your first generation breakaway groups and you will earn on a monthly commission on this entire group by meeting the plan's monthly defined personal group sales volume requirement. With most breakaway plans, the more first generation breakaway groups you have the more generations deep of breakaways you will qualify to be paid on. Keep in mind that what makes a breakaway more of a full-time work program is that you have to constantly meet your monthly personal group sales volume in order to be paid commissions on your generational breakaways. However, if the goal is to have as many first generation breakaways as you can, you will continuously be losing distributors (as they breakaway) in your personal group whose volume will have to be made up in order for you to meet the monthly group volume requirement. This means lots and lots of recruiting for new distributors. Easier said than done.

Distributors involved with breakaway plans seem to have a notorious reputation for "pumping up the volume" in various ways, such as front-end loading their new recruits, and stockpiling product to meet monthly volume quotas. They artificially try to meet the quotas necessary to fend off the slow dismantling of their downline.

We cannot iterate enough that the breakaway plan is a work program, there’s no question about it. It takes diligence, salesmanship, and an ability to train character traits only a small percentage of the American population genuinely possess. Unfortunately, most distributors of these plans take a shotgun approach to recruiting. They just throw out the net and haul in anything that swims by the good fish — and the bad.

Many promoters of the breakaway assert that they also pay down "infinite" levels. Actually, this assertion is almost correct. Due to the nature of most breakaway plans, they do in fact pay deeper levels than most Unilevel and even Matrix plans, sometimes as deep as 5-10 levels or more in each breakaway group. So, a six generation breakaway plan could in actuality pay on upwards of 30-45 levels of distributors. Not too bad.

A more commonly recurring theme among breakaway critics, seems to be the idea that companies install such plans for strictly self-serving, greedy, or even malicious reasons. They are aware of the wealth they create at the top by volume constantly rolling up to the first few distributors who came on board at the beginning, distributors who are, of course, family members and friends of the corporate officers, who were installed at the top for just that purpose, to capture this tremendous up-flow of cash.

First of all, we're not so sure there is a problem with corporate heads designing a pay structure that makes them a lot of money. We've owned (separately) six companies, and we can’t think of one time we designed one to not make us money. And we've never seen a company go out of business because their sales force wasn’t making enough. It’s when the owners aren’t making enough that they decide to fold the tent and move on. Frankly, we think it would be comforting, especially in this industry, to know that the owners of our opportunity were — satisfied. It's when companies design compensation to make themselves money instead of distributors. But any kind of plan can be designed to do that.

Secondly, there’s the problem of distributors showing off the checks of those few "top" distributors, who sometimes make upwards of half-a-million per month. Incomes, we agree, that can never realistically be achieved again in that opportunity. Alas , several years later, the best one could hope for might be a mere ten- or twenty-thousand a month. Such disappointment, we hope, we soon experience. And again, this isn’t a flaw with the plan, it’s a flaw with the recruiting tactics of the distributor base, and perhaps the supervision of the company.

Thirdly, having consulted with several start-up opportunities, we can assure you, most companies choose breakaway plans for no other reason than simply because "everyone else uses one!" They just assume, since it’s the most common form, it must be the best. Believe us, they rarely have any hidden agenda. Sure, some do. But these guys are usually easy to spot, don’t hang around long, and do not permeate this entire industry, such as some breakaway opponents would lead you to believe.

Breakaway plans are not for everybody. They usually do not involve passive approaches, or just spare-time pursuit. The real challenge that exists with these plans is getting that point across to those that participate, not how to change the plan itself. Those that are too lazy don’t have the financial means, are too shy, or whatever, can always hook up with a more laid-back type of plan, like a matrix program that involves just personal consumption of the products.

Let’s say you bought an airplane from a slick airplane salesman, who convinced you that you could fly this plane, even though you’ve never flown a plane before in your life. "It’s easy," he tells you. "Anybody can do it." It will really get you to where you want to go much faster. And it’s a piece-of-cake to operate. Here’s a 30 minute video that will show you how. Just call if you have any questions. "Trust me." So the next day, you hop in the plane, taxi it down the runway, rev up the engines, grab hold of the stick (it’s an old plane), and suddenly... you become overwhelmed by all the gauges, dials, controls, lights, and buttons. You shut it down, and walk away disgusted (or God forbid, try to take off anyway!).

Who was at fault here? The airplane manufacturer? Of course not. The plane was operating perfectly. How about the airplane salesman? Definitely. He dramatically overestimated the ability of his client, or underestimated the complexity of the vehicle. And how about the poor guy who bought the plane? How much effort do you think it would have involved for him to get the real picture here? About as much effort as it takes to determine the complexity, and personal workability of a breakaway comp plan. A few phone calls! This guy could have looked inside the plane before he actually bought it. In other words, you don’t have to fill your garage full of product first, then figure out if you can work the program you joined.

To say we should abandon all breakaway plans, or that they are unworkable, evil things, is tantamount to abolishing all airplanes-because most of us don’t know how to make them fly. Besides, there are some pretty soft breakaway plans out there now. I’ve seen a plan where the volume of the breakaway group doesn’t stop counting toward your volume quotas until almost six months later, giving you a very comfortable cushion to rebuild. Of course, there are some very hard breakaway plans too. Some have quotas and qualifications that make them unworkable for all but a few hearty go-getters. But again, that’s just a matter of changing the numbers within the plan. It’s not a flaw in the breakaway structure itself.

Breakaway plans, in general, tend to pay more — for those that work them correctly. And the operative word there was "work." We believe breakaway compensation structures have their place in this industry. It’s the packaging of these opportunities that need an overhaul.

Some Things to Consider:

Following are some other thing to consider when looking at getting involved with a StairStep/Breakaway.

1. Amount of volume you must generate versus the time period to accomplish this volume in order to breakaway: The entire premise of looking at this key element is can you do it and can it be duplicated by distributors in your organization?

For example, one plan may require you to do $10,000 in one month while another $5,000 in two consecutive months, while a third may allow to accomplish the $10,000 over any period of time. While the $10,000 is the same for each plan there is a very big difference between them. Of course you have to look at some of the other elements playing a part in being able to accomplish any of the scenarios. i.e., unencumbered volume portion, volume based on bonus, wholesale or retail volume?, product line strength, marketing strategies, retailing capacity, etc.

2. Amount of personal volume you must do to qualify for overrides on your personal group.

This can range between $50.00 and $300.00. Does you budget allow for this along with your retailing ability? Again, can it be duplicated?

3. Amount of personal group volume you a must accomplish to qualify for generational overrides.

This can range between $-0- to upwards of $5,000. Again, the question is can you do it coupled with the other elements such as products and marketing strategies?.

3. The number of generations of breakaway groups you will be paid on based on the number of your Frontline Breakaways.

The number can be great between plans. Most breakaways have at least 5 breakaway positions or Status Levels. For this example, let's call them blue, green, red, purple, yellow and gold. With blue being the first or lowest breakaway level and gold being the highest position in the company. Plan one may run like this: BLUE one frontline breakaway to get paid 2 generations; GREEN 4 to get paid 3; RED 6 to get paid 4; PURPLE 7 to get paid 5; YELLOW 8 to get paid 6 and GOLD 11 to get paid all 7 generations. Plan two may require 1 additional frontline breakaway group to achieve the same generational override levels. Again you must look at personal group volume requirements, strength of product line, marketing strategies, retailing capacity. You must also consider the actual generational % override % commission itself.

Of course these are very simplistic ways of looking at a given StairStep/Breakaway plan. You must also consider everything as one package. Compare one plan to another with all the variables, with the strength of the product line and support being two of the most important elements outside of the comp plan mathematics. For example, you may have one plan that allows you to breakaway with only a couple of thousand dollars, having a very low personal and personal group volume requirement, small # of frontline breakaways to qualify for maximum generational overrides coupled with very high generational overrides % commission. This plan might look awesome but possibly one that will keep you in the poor house. While the second plan, has incredibly high requirements across the board and this plan could allow you to achieve millionaire status in one month. To make an analogy, plan one only has one garbage product while plan two has a very addictive product.

THE BINARY

To have this section make any sense, we must first attempt to explain in a few minutes what usually takes most distributors a few hours to understand. That is: exactly how does a binary plan work?

In most Binaries you have what are called Income or Business Centers numbering 001, 002 and 003. With most Binaries a distributor can initially purchase up to the 3 business centers for a fixed amount of money always backed up by product. The 001 is the top center with the building centers 002 extending down on the left side and 003 extending down on the right side. From each 001, 002 and 003 center you have two legs. 001 left and 001 right. 002 left and 002 right. 003 left and 003 right.

If you only start with your 001 center you will have two legs coming off it. 001 right and 001 left which represent your two recruits. If you start with all three centers, the 002 and 003 will actually represent two additional personal legs off your 001 center and from the 002 and 003 you will have two legs each coming off of each of them which will be filled by 4 possible new recruits. So in effect, you have two "sides" and two "legs" per side to start building your organization from your 002 and 003.

Each side accumulates sales volume (usually wholesale) and at the end of each week (not month) the accumulated level of volume in each leg per side combined is compared. If the "weak" side legs (the ones with the least volume) have reached a certain commissionable sales volume level, then you get a bonus check based on achieving that necessary sales volume. So the legs on the weaker side is the key factor to your commission. Think of it as two cylinders which fill with fluid (which would be the sales volume). (graph below) displays four legs on two sides of a binary which paid $200 to $800 on accumulated volume of $1,000 on each side up to $4,000 on each side.)

Left Side Right Side

$1,000 VOLUME $2,500 VOLUME

002L 002R 003L 003R

So in this example, you’ve accumulated, within one week, $1,000 in volume on one side (002 R&L combined), and $2,500 in the other (003 L&R combined). You would then be paid 10% or $200 to your 001 center based on the highest point reached by the weakest leg.

An Important Point: Generally, regardless of how many centers you might initially purchase, you will only be paid on your 001 until you max out the commission for that center. Once you are able to max out your 001 commissions in a given pay period with a total of $8,000 ($4,000 per side) this would automatically activate the 002 and 003 centers thus qualifying you to be paid commissions on them. This would allow you to focus building symetrically ($4,000 per leg) the two legs in those respective 002 & 003 centers. If you do $4,000 in both 001 L&R, $4,000 in both 002 L&R and $4,000 in both 003 L&R, you will have reached the enviable position of maximizing the commissions in the plan for one week assuming no reentries.

One of the primary considerations, and differences, is what the company does with the extra $1,500 on the strong side. Most will carry it over to the next week. Some "flush" the excess volume and it is lost. Some will only flush once the volume reaches a certain level, say $4,000 for example. If a plan is a very liberal flusher, then there is an opportunity for a great deal of volume to flow through your organization that you never get paid on.

One advantage, although a potentially confusing one, is that most binary programs allow reentries into one’s own downline. You see, each income generating position isn’t always a position you hold and maintain by ordering a minimum personal volume each month, like other MLM plans. In some binary plans, every time you order a certain amount of product you might create another income position below the original. So when figuring volume and bonuses, notice there isn’t much consideration to levels. They’re there, but whether a sale occurs on your first level or your thousandth, it still counts equally toward your volume for that leg. The real strategy is building all your legs as symmetrically as possible, especially in programs that are heavy flushers.

One of the most hyped "advantages" of a binary plan is the claim of getting paid on infinite depth. Let’s dispel this myth first. Let’s say you have a leg that extends 1,000 levels deep (which is quite possible considering one person could create many income centers). Let’s say a $100 order is placed with the company by someone on your thousandth level. Okay, that hundred bucks counts toward your volume in that leg, this is true. But doesn’t it also count toward the volume of one of your two first-level positions? And isn’t that sale also falling under one of the two first-level positions under that position? In fact, are there not a potential one-thousand income positions that are also entitled to a piece of the commission on that order?

Actually, it’s very unlikely that all thousand positions would be eligible for a bonus. Many may not qualify, and many more may be "dead" positions in some binaries (income positions can become dormant once they earn so much commission). So let's assume only 200 qualify for a share of the commission portion on that $100 order, which we’ll optimistically estimate is about 50%, or $50. So even if that fifty bucks is spread equally among those 200 positions (which it never is, as you’ll soon discover), you are going to earn a whopping 25cents on that $100.00 order on your thousandth level. But here’s the real kicker. Notice in our example that when you have $1,000 in each leg, you get a check for $200.00. Isn’t that $2,000 in total volume also falling in one of the two legs of your upline sponsor? So isn’t half of his/her first $200.00 bonus coming from your volume as well? If you can follow this (don’t feel bad if you can’t — we’re having trouble ourselves and we’re the ones writing it), then you’re see that one-fourth of your sponsor’s sponsor’s $200 bonus is also coming from your volume.

In English, this simply means that at a certain point the commission portion of any sale is halved each level up the line. So let’s take another look at our $100 order, on which the company is paying out $50 commission, that occurred on your 1,000th level. Again we’re assuming only 200 positions between you and the sale qualify for a cut. Even if we assume the first position upline to the sale earned a generous $25 (that’s half what the company plans to pay out in total), and we halved that number all the way up to you (200 times), you’d now be earning a staggering — well, actually we can’t tell you. We got to .00000001cents after just 42 splits and my calculator ran out of room for more zeros.

So does a binary plan actually "pay" infinitely? Can any number in the universe, no matter how minuscule, be divided by two? The answer to the second question is yes, therefore the answer to the first question is, technically, also yes. However, for all intents and purposes, assuming you don’t care about fractions of a penny, a Binary actually pays down around 10-15 levels, just like any other generationally paying plan, and even some Unilevel’s and Matrices.

Another big selling point of the binary is that your upline can become your downline. This is certainly possible — just as it would be in any plan that allowed reentry’s into one’s own downline.

Let’s say you have a big time heavy hitter seven levels above you. As he/she continues to buy product and create more income positions, they are placed downline. Will one fall under you? Let’s take a look. Going 2x2 down seven levels, that would mean that you would be just one of 128 possible recipients of that new income position — a less than 1% chance. And if you happen to be in your upline’s strong leg? Forget it. They would probably place their new positions in their weak leg to help build it.

Couldn’t this reentry process also work against you? What if you’re first level to a strong recruiter and catching a lot of spill over. Then one day he/she earns a new position and places it in the other leg from you. As they build under that new position, won’t there now be less attention given to the position you’re under?

Another misconception is that binary plans simply pay more. One company even ran display ads claiming their binary plan paid "six times" more than a typical Breakaway plan. Think about that. Most Breakaways, or any type of plan for that matter, actually pay out somewhere around 30-45cents of every wholesale dollar in commission. Let’s assume a high average of 40cents. So is this binary plan paying out $2.40 (6x.40) for every $1.00 received? I hope not. That’s called a Ponzi scheme.

How about this claim: "Binary plans have no group volume qualifications." In our example, how much would you get paid with less than $2,000 in group volume? You’d get paid nothing, at least until the first week you exceeded that amount of group volume. Sounds like a group volume qualification to us.

To this point we really don’t mean to knock the plan itself so much as the misleading way it is sometimes presented. We do feel however, that whatever advantages this plan does offer can be more than outweighed by the complex way many companies are designing them. Binaries can be structured much simpler than they are. And it’s a type of plan that requires the most understanding in how they work. There’s a lot of strategy involved in building a binary organization to its optimum advantage.

Binaries are designed to create the perception of having certain advantages that they don’t, at least in the real world, actually have (paying infinitely, paying six times more than other plans, providing massive spill over, etc.). Actually, the same 40-45% pay out provided by most Binaries could just as easily be accomplished with any other form of plan.

A binary is simply another type of plan. It’s certainly not a scam designed to dupe starry-eyed distributors out of their money, like most Australian (2-up) plans for example, but it’s also not the revolutionary, God’s gift to MLM comp plans like it’s being promoted to be. However, we think it has potential. Binaries provide a great deal of breakage. In other words, a lot of unpaid commissions can be retained by the company. As more and more companies begin to seal the cracks that unpaid volume can flow through, Binaries will continue to increase in popularity and appeal (and we do see this occurring). About the only thing that might stop the oncoming Binary juggernaut would be the regulatory scrutiny it is receiving due to all the screwy, disreputable, or token product companies that have chosen this type of plan. It will undoubtedly suffer from a guilt by association.

Binaries do offer a good foundation for one of the most simple, duplicable systems for building a downline: Recruit only two (one for your 002 and one for your 003 then devote 100% of your efforts on helping them do the same. If one side is weaker, then sponsor more people in the weaker leg. That’s it.

Despite its image, Binaries are a very product volume-based comp plan. And product volume is what makes people money — not levels, percentages, or fancy titles.

Some Things To Consider:

Following are some other things to consider when looking to get involved with the Binary compensation plan.

1. What is the cost of each Income/Business Center?

This can be a form of a front load in disguise. At say $200 per center, if you activate all centers, you are talking about a $600 investment. Perhaps it might be better to start with one center and your other centers will automatically activate when you max out the commissions with the first center and you will have the money to pay for those other two.

2. What is the percentage payout and balanced volume requirement to get paid?

Many of the Binaries we have seen pay between 5-10% on up to a maximum of $10,000 balanced volume. Balanced volume break points to get paid generally go $1000, $2000, $3000, $4000, and $5000 per side. However, some newer entries into the Binary are lowering the volume you can get paid on in the weaker leg/side.

3. Are there any additional ways to get paid?

Most current binaries do not have other ways to get paid. However some newer Binary entries are starting to add matching bonuses for personally enrolled as well as creating bonus pools for top producers to share in. This will continue with more competition.

THE MATRIX

If the Matrix compensation plan could talk, it would probably exclaim, "I get no respect!" Although many opportunities are embracing matrix style comp plans (or variations thereof), it still comprises less than 9% of the compensation plans out there. Despite, at least in theory, a myriad of advantages over Unilevel and Breakaway plans, the matrix is still considered the black sheep of the MLM compensation plan family.

The unique characteristic of a matrix plan is its limited width. Unlike other plan types, a matrix limits the number of distributors you can sponsor on your first level, usually to less than five. The most common form of matrix is called the 2x12, meaning two wide and twelve levels deep. Another way of looking at this is that or you can have on your first level, a maximum of two distributors, second level - 4; third - 8; fourth -16; fifth - 32; sixth - 64; seventh - 128. You get the picture. Of course this type of geometric growth usually only occurs on paper and not in the real world. Aside from the 2 x 12, other common matrices are 4 x 7, 5 x 7, and 3 x 9.

The most obvious, and most hyped, benefit to the Matrix plan is the potential for "spill-over." Meaning, once you sign up the maximum number of distributors you are allowed on your first level, everyone else must spill over into your second level, and possibly even into deeper levels, depending on the number you personally sponsor. As those below you recruit, and spill over distributors below them, the

idea, again in theory, is that everyone will stay motivated, downlines will "go deep" faster, and downlines can benefit from their upline’s activity, resulting in motivation and support coming from both directions (in many other plans, not only does your upline’s activity not benefit you, but you could even consider them competition), taking it easy and not working.

Another advantage of spill-over is that a new distributor could very well end up with two sponsors. The one who sponsored them, and the one they fall under in the matrix. However, there seems to be an unwritten rule in Matrix plans that you should really only focus on those in your front line. That way, nobody ever has to defray their attention, support and training between more than however many wide the matrix is. A two-wide Matrix means nobody ever has to support and train more than two people. We've seen people in Unilevel plans with over 50 people in their front line, and over 100 in some Breakaways! It’s got to be tough, supporting and motivating that many people — and still have a life.

In a study we performed not too long ago, we found that once a distributor had three people in their downline, they became locked in, almost like magic. Zero to two distributors seem to have very little effect on the individual’s decision to abandon their MLM opportunity. But once they obtained number three, by either their own efforts or from spill-over, they would not (or could not) quit. Even those who never signed up another person personally stayed involved, at least on a minimum level, for several months. Why? Usually because of fear of loss. Not only did they want to see how much more spill-over they might get, but they just had to stay in until they found out what those other three people were going to do. They may have heard the Mark Yarnell story about how there were originally six people directly above him, all of whom could have earned a five-digit monthly income off of his organization alone — if they hadn’t quit. There are many such stories to be told, and these folks, with a downline of three, didn’t want to risk being the subject of another one. In many Unilevels, and most Breakaways, there is little incentive to place people deep, and lock them in. In a matrix plan, it’s a natural part of the process.

Matrix plans generally tend to pay down more levels than other types of plans, at least on paper. Since the width is limited, and organizations tend to go deeper in matrix plans, so do the levels bonuses are paid on. It is also much easier to predict how much you will earn on each level, since you will know exactly how many people will fill each one. Generally, matrix plans are simple and easy to explain and understand.

So if Matrix plans are so great, why isn’t everybody using them? Well, unfortunately, what looks good "on paper" and "in theory" doesn’t always work in the real world.

Distributors for opportunities utilizing Matrix plans are notorious for promising massive spill-over. Some even claim they can provide so much spill-over they will build your entire downline for you. Unfortunately, they never do. And those that build any kind of organization this way flood it with people who just sit around waiting for their upline to do all the work. And when all these hucksters who promoted their opportunity as being an "easy, no work" program start getting taken to task by their downline for not coming through with their promises, they will moan and gripe about how their organization is taking it easy and not working.

According to a recent study, the average MLM distributor will sign up only 2.6 (our study came up with 2.1) distributors. So if your matrix is wider than two, the odds are you will never see a drop of spill-over. Also, keep in mind this figure is not a median, but only an average. In other words, most new distributors never sign up anybody, and a very few sign up dozens, or hundreds. So never count on spill-over to build your downline. You should always go into any MLM opportunity with the attitude that you are going to build your organization, and any spill-over you receive should only be considered gravy.

Even though some Matrix plans pay down ten or 12 levels, which may make them appear to have a higher income potential than, say a six level Breakaway or a seven level Unilevel plan, they actually do not, in most cases. In the latter two types of plans, allowing for unlimited width, you literally have an unlimited number of distributors you can be paid on. However, in most Matrix plans, once you fill up the matrix, everybody spills off the bottom level, out of your pay range. For example, a 2x10 matrix will only hold 2,046 people. To build any bigger, the program must allow you to reenter the matrix again, or expand your front line. Most of the legitimate, professionally run Matrix MLMs do provide for expansion of your organization at some point. Nevertheless, you still run the risk early on of being forced to place a big hitter on a lower level in your matrix, that could have benefited you far more on your front line.

Another consideration that seems to be of greater concern to matrix-type opportunities is the scrutiny they tend to attract from postal and government agencies. Any kind of plan that pays down more than three levels leaves itself vulnerable to attack by overzealous Attorneys General and postal inspectors due primarily to the apparent luck factor involved. Historically, these agencies have indicated that a distributor really only has a direct influence on three levels of distributors below them (you train Bill to train Mary how to train Bob). Beyond that, especially when there is a spill-over angle involved, it could be perceived as more of a lottery or pyramid (and has, on several recent occasions).

This perception is only magnified by the fact that the vast majority of unscrupulous money games and bonafide pyramid schemes all use a form of Matrix plan. However, by no means are we stating that all opportunities using Matrix plans are illegal. There are strong, well-established MLM opportunities that effectively utilize a Matrix style comp plan. If done ethically, and with the right attitude, an opportunity employing a matrix comp plan can provide many benefits and advantages. However, as long as they remain a haven for hype artists and lazy dreamers, Matrix opportunities will continue to struggle for the respect they deserve.

Some Things To Consider:

Following are some other thing to consider when looking at getting involved with a Matrix.

1. Check width versus depth relative to payout.

Geometric progression on paper always looks better than in actuality. It is very rare that most distributors will ever come close to filling out a closed Matirx. For argument's sake, assume a 2x 10 or 12 matrix with a 90% payout with the higher payouts near the lower levels where most distributors will fall. Pretty impressive, huh? Not really. You will probably make more money with a 5 x 6 matrix with a 40% payout.

2. Check to see if you get paid on every level.

Some closed matrix plans actually are known to skip some levels of commissions until you have achieved a defined number of distributors on a given level or through a number of levels.

3. What kind of products do Matrix plans lend themselves to?

All. However, they have been very popular with, and suited towards, service related products like Buying & Service companies & Subscription Sales with a defined monthly cost basis

 

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