MLM companies usually use three types of compensation plans to pay their distributors or representatives for their work. These are the unilevel, breakaway and binary structures.
What are they?
This is what we are going to look at in this post.
So without further ado, let’s dive in and see what’s cooking.
By the way, before we do that, let’s see how promoters of MLM company products and services make money.
They do so in two ways.
The first one is commission they get from making direct sales to customers.
MLM distributors purchase products or services from the company at wholesale prices and sell to their customers at retail prices. The difference between their wholesale purchase price as the MLM company’s distributor and the retail price to the end user becomes their commission.
The other way MLM distributors make money is through the commission they earn from the sales made by their downlines, who are the distributors they have recruited into the MLM business.
If you’ve done both affiliate marketing and multi-level marketing before, then you certainly know that the MLM payment structure is far more complex than the http://secureyourfuturewithus.com/how-to-choose-an-affiliate-program-that-pays-you-big-cash. Besides, as this post’s title shows, MLM uses more than one type of compensation plan.
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Let’s look at the first one: the Unilevel compensation plan.
Image source: https://media.doterra.com/us/en/flyers/compensation-plan.pdf
Unilevel Compensation Plan
With the Unilevel Compensation Plan, the MLM company pays an equal percentage on commissions generated from downline sales to all qualifying distributors. (A qualifying distributor being the person who has met certain criteria fixed by the MLM company in a given period of time. For example, when they have achieved a certain revenue level, like a target, or points in a given period of time.)
This is what the MLM company Mannatech refers to as Point Volume or PV which are points allocated to each product.
This could be the product(s) you have bought for your own personal use or a combination of your own purchases plus the sales you and your downline distributors have made.
Careful study of the Unilevel Compensation Plan shows that it is designed to encourage you to recruit distributors rather than depend on level or rank-based commissions.
Let’s come back to Mannatech again. The different percentages you earn depend on your level within the organization.
As you can see on the image above, you start on the lowest rung, which is the Associate.
Then, as you grow what is known as the legs of your business, you rise up in rank. That is, you go from Associate to Director, then to Executive and finally to Presidential.
If you pay attention to the colors of the histogram, you will notice that there are three steps with each level. And there are also differing percentages depending on your level too.
So as you see, recruitment and management of your downlines is key to your success with the Unilevel Compensation Plan.
On the contrary, affiliate marketers do not have to recruit and manage downlines or teams. Their income is based only on their sales.
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A variant of the Unilevel Compensation Plan is the “Hybrid Unilevel Compensation Plan”. In this, distributors receive commissions for plans like:
- fast start
- pool bonuses
- rank based bonsues, and
- infinity commissions
(Although this varies from one company to another, generally if you recruit three people and assist the third one to build a downline of two more recruits, you qualify for infinity commissions.)
Now, let’s go to the second one: the Breakaway Compensation Plan.
Image source: https://mlm.com/whats-a-breakaway-compensation-plan/
Breakaway Compensation Plan
The Breakaway Compensation Plan is also called the Stairstep Plan.
This is the oldest plan around.
In it, as sales people meet their group and personal targets, they climb up a step.
It goes like that until they reach the top step.
At this point, they break away from their sponsor (or introducers) group. They are now no longer a downline distributor but an upline one in their own right.
Note that the higher up the stairs a distributor advances, the higher the commissions gotten become.
Image source: https://infinitemlmsoftware.com/binary-plan-calculation-compensation.php
Binary Compensation Plan
We can consider this plan as a nice one because your recruitment requirement is lower than for the other MLM compensation plans. In effect, distributors are only required to recruit two downline members.
Although the Binary Compensation Plan is the least complex, it does have a limitation.In effect, distributors are required to ensure that the sales of the two downline distributors is sufficient to meet the total sales for everyone to meet a predetermined earning percentage.
Some companies we reviewed and recommended that use these compensation plans
Unilevel Compensation Plan
To get started working in Ambit Energy you will need to invest a one-time $75.00 fee.
Your only job is to gather new customers and recruit like-minded people who want to do the same. Then you can be in business and have the money coming in within days.
Amway pays for both direct sales and for recruiting new distributors they call Independent Business Owners or IBO’s for short.
Sales of Arbonne’s products come first, but while you are recruiting new customers you will also be adding new distributors to your downline.
To become a distributor for Avon you first purchase a starter kit for $25.00.
The next step is to reach the President’s club which happens after you reach sales of $10,000.
This opens many great perks.
Business models for multi-level marketing programs like Captain Tortue are all pretty similar in that they pay commissions for product sales and building a customer base first. Then they pay commissions for recruiting new members and building a downline.
They also pay residual commissions on your downline sales and lastly add incentives like bonuses and perks.
Cutco Cutlery recruits are called representatives whom they ask to start selling to family and then expand to friends and anyone they can find who will attend an in-home demonstration.
Enersource’s plan follows this compensation plan.
An example would be level one made up of members you have personally sponsored. Level two would include members of your sponsored members and so on down the line.
The costs to join Forever Living as a distributor vary from $87.92 to $364.65. More recruiting incentives can reach from between $800 to $2000 a month depending upon how well your recruits perform.
For Herbalife distributors, the emphasis is placed on selling products first and then recruiting fellow distributors and building a downline.
Kannaway requires any member they call ambassador who signs up a new ambassador to assist these new recruits in training to ensure that the downlines are secure and productive.
With Legalshield, you will sign up as an associate and pay the $99.00 fee and then sign the MLM agreement.
You will then start selling memberships and earn commissions off of the sales. In addition, you will sign up new associates and start building your downline.
Concerning Mary Kay, there are two ways to make money with them. You can sell their products and you can recruit new distributors.
To get into the program you must buy a 100 dollar starter kit to qualify as a distributor.
Optavia uses a standard multi-level marketing model for its rectuits they refer to as coaches.
You get commissions on product sales and on your downline product sales from the people you recruit to become coaches too.
Oriflame offers many bonuses and free trips, have seminars and all kinds of incentives for their workers.
You put on parties and sell products at them for a commission while recruiting others to do the same.
Partulite uses this standard multi-level marketing model most used in this business.
You can become a consultant by choosing one of three kits available for purchase.
- The $49.00 kit with one decor piece and all the tools you will need to get started.
- The $99.00 quick start kit. All of the above plus special quick-start tools.
- The Delux starter kit with no upfront charges if you hold a minimum $350.00 party
You can also recruit new members and they will be placed in your downline so you will then receive a percentage of their sales along with the 25 percent of your own sales.
Distributors get between 16 to 36 percent discounts on products and 12 to 20 percent commissions on downline sales.
Sunhope seem to use a standard model with product sales first, then recruitment second. And the company pays out on several different sources. It is a single level MLM plan.
Once you are an active member of Team National you can purchase a personal website from the company. This includes hosting for $99.00 for members and $495.00 for non-members.
You are now what the company calls an IMD (Independent Marketing Director).
Now you are ready to start building your downline by selling memberships to others and receiving commissions from your sales and those of your downline.
Tupperware is not your typical multi-level marketing program that people are used to starting out. But that formula does exist once you reach a distributor level.’ You will then have a down line and the earnings potential increases dramatically.
They can then move up the ladder by building a down line of like-minded distributors. The commissions are the greatest from their downline distributor’s sales and moreover from their own personal sales.
How you make money with Youngevity is just like most other multi-level marketing models. You buy products at a discount and sell them to your customers at retail prices. Then you keep the difference as profit.
You also build a network of distributors under you. This pays out in discounts, bonuses, and profits from their product sales.
They are then required to buy products from the website wholesale and resell them for a 20 percent profit. This rises to 25 percent after presenters reach their first goal of $1000.00 in sales.
These resellers are encouraged to use social media and any other means to build a downline of customers for their products.
You will first pay a $35.00 enrollment fee and become a consultant for the company.
You will then qualify to earn money in 6 different ways:
- Retail sales
- Weekly building bonuses
- All-star bonuses
- Rank bonuses
- Residual overrides
The ones that will succeed in this program are those who know how to build a downline and maintain it. This, while moving up the ladder and hitting all of the bonuses.
Now, let’s see two companies using the second model.
Breakaway Compensation Plan
Nature’s Sunshine offer a lucrative program that is full of high commissions, and rebates of up to 30 percent. There is a new car program. But the best part is a stand-alone downline.
They let you build what they call groups.
The binary part of this plan is worrying. But they do make up for it on the other side of the model by offering plenty of incentives and bonuses. And this helps in case you have a leg drop on your downline.
And now to the last compensation plan we discussed.
Binary Compensation Plan
Gano Excel International are set up on a binary business model you should try to avoid. But this one is actually set up with a twist in the unilevel team building.
You will build your downline just like other MLM programs. But this one will also allow you to earn unlimited commissions from pool bonuses, fast start bonuses, direct sales, team commissions and check match bonuses.
This is set up like most binary plans, with a strong and a weak leg. This is the weakest of the MLM plans used. It tends to keep the people on the top in cash and most of the people below them the workers.
- Early payout
- Repeat sales promotion
- Travel incentives
- First purchase profit
- Step commission
- Year-round rewards
- Rank advancement bonus
- Retail profit
Total Life Changes uses a binary MLM model that we do not much care for. This is because with these models if you do not keep them even and one side takes off it crashes the other leg. Then you lose any money on the table, and it goes to the upper levels.
What we are going to see next are companies which combine the three plans into one.
All Three plans combined
They incorporate all three basic multi-level marketing plans, unilevel, binary, and matrix into their own model they call The Ariix Multiline.
Yep, there you have them: the three types of compensation plans MLM companies use to pay their distributors or representatives for their work. All topped with concrete examples.
Which one do you like and which would not make you sign up with a company?
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