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.
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
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.
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 cant 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. Whats really
ironic is that programs like this have no trouble attracting distributors.
Thats the easy part. And its 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.
wouldnt 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.
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.
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
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.
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 companys
plan pays out a certain percentage, like 75% for example. Two things to
keep in mind here. One is that you dont 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
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:
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 hasnt
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.
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
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.
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.
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.
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.
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
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.
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
what exactly is a UNILEVEL plan? For one thing, it is the all-time silliest
named compensation plan we know of. Lets break it down. Theres
"Uni," meaning one, and theres "level," meaning,
well...level. So its a one-level plan, right? Not quite.
its called a Unilevel because there are no stairsteps, or stages,
to transcend. Right? Everybody stays at one stage. Wrong again. Because
theres only one level of volume you need to achieve? Nope. One level
of bonus percentage. Keep trying. Okay, its called that because your
downline is built...one level below the other!!! Bingo! We have a winner.
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. Theres 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
everyones volume always counts toward their uplines 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
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.
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.
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 wont 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 lets
keep things in perspective here.
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.
thing that has always concerned us is that the more levels you spread the
bonuses down, the smaller the bonuses on each level. Theres only so
much out of each wholesale dollar that can be paid out in commission. If
its 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. Ones
a "front-end." heavy plan, the others superior on the "back-end".
MLM purists will insist these terms only apply to Breakaway plans. Im
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.
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
thats moved. Lower volume, lower bonuses paid out to distributors
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.
an incentive to build deep, many Unilevel plans will "dog pile"
bonus percentages on the third level (theres a buzzword that we guarantee
wont 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 uplines
third, and theyre dog piling below you.
not being a Breakaway plan, and rarely requiring excessive personal or group
volume requirements, you wont find nearly as much motivation or incentive
in this type of plan. But then, you wont find as many people motivated
to stockpile or front-end load to meet the criteria for these lofty incentives
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.
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
are some other things to consider when looking at getting involved with
Do you get paid on every commission level or are there volume or active
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.
What are the volume and/or active distributor requirements to get paid those
deeper and/or higher levels of commissions?
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.
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.
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.
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.
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
cannot iterate enough that the breakaway plan is a work program, theres
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.
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.
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.
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 cant 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 wasnt making enough. Its when the owners arent
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.
theres 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 isnt a flaw with the
plan, its a flaw with the recruiting tactics of the distributor base,
and perhaps the supervision of the company.
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 its 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, dont
hang around long, and do not permeate this entire industry, such as some
breakaway opponents would lead you to believe.
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 dont 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
say you bought an airplane from a slick airplane salesman, who convinced
you that you could fly this plane, even though youve never flown a
plane before in your life. "Its easy," he tells you. "Anybody
can do it." It will really get you to where you want to go much faster.
And its a piece-of-cake to operate. Heres 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 (its 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!).
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 dont have to fill your garage full of product first, then
figure out if you can work the program you joined.
say we should abandon all breakaway plans, or that they are unworkable,
evil things, is tantamount to abolishing all airplanes-because most of us
dont know how to make them fly. Besides, there are some pretty soft
breakaway plans out there now. Ive seen a plan where the volume of
the breakaway group doesnt 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, thats just a matter of changing the numbers
within the plan. Its not a flaw in the breakaway structure itself.
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. Its the
packaging of these opportunities that need an overhaul.
Things to Consider:
are some other thing to consider when looking at getting involved with a
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
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.
Amount of personal volume you must do to qualify for overrides on your personal
can range between $50.00 and $300.00. Does you budget allow for this along
with your retailing ability? Again, can it be duplicated?
Amount of personal group volume you a must accomplish to qualify for generational
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
The number of generations of breakaway groups you will be paid on based
on the number of your Frontline Breakaways.
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.
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.
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?
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.
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.
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 Right Side
VOLUME $2,500 VOLUME
002R 003L 003R
in this example, youve 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.
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.
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.
advantage, although a potentially confusing one, is that most binary programs
allow reentries into ones own downline. You see, each income generating
position isnt 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 isnt much consideration to levels. Theyre
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.
of the most hyped "advantages" of a binary plan is the claim of
getting paid on infinite depth. Lets dispel this myth first. Lets
say you have a leg that extends 1,000 levels deep (which is quite possible
considering one person could create many income centers). Lets 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 doesnt it also count toward the volume of one of your two
first-level positions? And isnt 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?
its 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 well 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 youll soon discover), you are
going to earn a whopping 25cents on that $100.00 order on your thousandth
level. But heres the real kicker. Notice in our example that when
you have $1,000 in each leg, you get a check for $200.00. Isnt that
$2,000 in total volume also falling in one of the two legs of your upline
sponsor? So isnt half of his/her first $200.00 bonus coming from your
volume as well? If you can follow this (dont feel bad if you cant
were having trouble ourselves and were the ones writing
it), then youre see that one-fourth of your sponsors sponsors
$200 bonus is also coming from your volume.
English, this simply means that at a certain point the commission portion
of any sale is halved each level up the line. So lets take another
look at our $100 order, on which the company is paying out $50 commission,
that occurred on your 1,000th level. Again were 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 (thats
half what the company plans to pay out in total), and we halved that number
all the way up to you (200 times), youd now be earning a staggering
well, actually we cant tell you. We got to .00000001cents after
just 42 splits and my calculator ran out of room for more zeros.
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
dont 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 Unilevels and Matrices.
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
reentrys into ones own downline.
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? Lets 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 uplines strong leg? Forget it. They would probably place
their new positions in their weak leg to help build it.
this reentry process also work against you? What if youre 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, wont there now be less attention given to
the position youre under?
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. Lets 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. Thats called a Ponzi scheme.
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? Youd get paid nothing, at least until the first week you exceeded
that amount of group volume. Sounds like a group volume qualification to
this point we really dont 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 its a type of plan that requires the most understanding
in how they work. Theres a lot of strategy involved in building a
binary organization to its optimum advantage.
are designed to create the perception of having certain advantages that
they dont, 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.
binary is simply another type of plan. Its certainly not a scam designed
to dupe starry-eyed distributors out of their money, like most Australian
(2-up) plans for example, but its also not the revolutionary, Gods
gift to MLM comp plans like its 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.
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. Thats
its image, Binaries are a very product volume-based comp plan. And product
volume is what makes people money not levels, percentages, or fancy
Things To Consider:
are some other things to consider when looking to get involved with the
Binary compensation plan.
What is the cost of each Income/Business Center?
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.
What is the percentage payout and balanced volume requirement to get paid?
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.
Are there any additional ways to get paid?
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.
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
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,
in theory, is that everyone will stay motivated, downlines will "go
deep" faster, and downlines can benefit from their uplines activity,
resulting in motivation and support coming from both directions (in many
other plans, not only does your uplines activity not benefit you,
but you could even consider them competition), taking it easy and not working.
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!
Its 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 individuals
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 hadnt quit. There are many such stories to be
told, and these folks, with a downline of three, didnt 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, its a natural part of the process.
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 isnt everybody using them? Well, unfortunately,
what looks good "on paper" and "in theory" doesnt
always work in the real world.
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.
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.
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.
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
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.
Things To Consider:
are some other thing to consider when looking at getting involved with a
1. Check width
versus depth relative to payout.
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.
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?
they have been very popular with, and suited towards, service related products
like Buying & Service companies & Subscription Sales with a defined
monthly cost basis