How To Analyze Compensation Plans - The Binary And The Matrix
Read More: MLM compensation plans can be baffling. Let's simplify things with the main thing we ask of any company -
"How many active people do I need in my downline to generate a walk away residual income of $10,000 per month?"
The key word for this discussion is "residual". How much money will I be making after all the recruiting and fast start bonuses and early bird specials settle down and people are buying product week after week and month after month?
That's the key to a stable long term MLM business - long term sale of product. You want to find hundreds or thousands of loyal customers and get paid well. You do NOT want to have to continually recruit new reps or customers to keep your check.
Think residual. If your check stops when recruiting stops, you are in the wrong business. You will never be able to retire.
Let's analyze the Bongo Juice Company that promises "Eight ways you can get paid!"
The company has a great product called Bongo Juice extracted from the Bongo Berry by Bongonian Buddhists on the side of the Billybongo Mountains on the remote Pacific island of Bongobongo with a centuries old extraction method, but hold on. The berry doesn't pay us. The Bongo comp plan pays us ...
Let's simplify things by figuring out what parts of the pay plan we can ignore and which parts we should consider ...
1. Direct Sales (n/a): You sell the stuff. Most people don't join an MLM to become retailers and you can't do it all yourself. When you are making $10000 per month, your own contribution to your check will be small, perhaps a few hundred dollars.
You can buy a bottle of Bongo Juice for $30 and sell it for $40, making a profit of $10, or 25% of the retail price, a fair commission. If you wanted to earn $10000 per month selling like this, you would need to sell 10000/10 = 1000 bottles or 250 cases of 4 each month. Whew!
And you need to read the fine print. If you find a loyal customer, say your Aunt Jean, who buys from your website, the company gives them a 15% discount. That makes Aunt Jean’s price $34, and your profit $4 rather than $10. Seems like a strange way for the company to reward you for finding a loyal customer. If you want to earn $10000 per month with loyal customers on autoship, you'd need to sell 10000/4 = 2500 bottles or 625 cases per month. Double whew! That’s a lot of Aunt Jeans!
And that's why we leave direct sales out of the 10k calculation.
2. Bulk Order Bonus (n/a): A one time bonus paid when someone you personally sponsor orders 3, 6, or 12 cases. That's an order of $360, $720, or $1440 for which you get paid $25 to $75 if you are on 200 pts autoship, or $10 to $30 if you are on 100 points autoship. This is 7% down to 3%, and note that the more your team spends, the lower your commission!
We have never seen anyone buy 3 cases, and neither have the Bongo reps we have spoken with, and that's why we leave this out of the 10k calculation.
3. First Order Bonus (n/a): The name says it all. It's not residual, so it's not included in the 10k calculation.
4. Big Bongonian Builder Bonus (n/a): A one time bonus when one of your team promotes. Not residual. Not included.
5. We'll come back to Team Commissions after we dispense with three more bonuses.
6. Executive Check Match (n/a): Comp Plan experts have told us that the check match usually increases your check by only about 1% or 2%. The most we've ever seen is an increase of 10%. It's a bonus that favors the sponsor monsters, not the average networker. To be more than fair, we reduce the 10k answer by 10%.
7. Global Leadership Pool (n/a): This bonus promises a chunk of a 1% contribution by the company of all revenues worldwide. About 1/10 of 1% of distributors see any of this money. Most of us will never dip a toe in the shallow end of this pool.
8. Multiple Business Centers (n/a): Once you reach a certain level, Bongo offers you the opportunity of building new centers above your present position. We maintain that one position should be good enough to generate an income. Why maintain and qualify several? Even if you do open other centers, you still have to add people, and it does not affect the 10k answer.
Now let’s return to …
5. Team Commissions:
Bongo has a binary plan in which you must sponsor and place a person on the left and a person on the right to qualify for any commissions. Let’s call them Alice and Betty.
If you sponsor Alice and she starts to build, you earn no commissions on her team until you sponsor Betty. That could be quite a while, and you can miss out on commissions you deserve until you jump through that hoop.
Once you have sponsored Betty, the reality of the binary sets in. Most people sponsor just two or three people in their lifetime, and you have been forced to split up your two best people into separate legs. As you only ever get paid on one leg, you will be paid on Alice OR Betty, never Alice AND Betty, even though you have brought both of them to Bongo.
It gets worse. You only ever get paid on your WEAKER leg! That means that if Alice is a stronger builder, you will get paid for Betty’s results and vice versa. No matter what they do, you will always get paid on the weaker of the two people you have sponsored. Your will always be rewarded for less, and sometimes for much less than half of your efforts and results. You can watch your commissions from your best builder disappear into the distance as you struggle to keep up with your weaker builder.
(Some companies require TWO personally sponsored and active people on each side. That means you get paid on Alice and Carl OR Betty and Dave, never on all of your team, resulting in huge breakage and much less paid out by the company to you, the reps.)
Once your weak leg reaches a volume of 500 points (about $800), matched by 500 points in your strong leg, Bongo will pay you 10% of that 500 points, or $50. 500 points will be removed from both legs, and a new ‘cycle’ begins. 10% is small enough, but look more closely. You have sponsored both Alice and Betty, so you are actually being paid $50 on 1000 points, or 5% commissions, 3% commissions on the dollar value.
If our basic unit for a rep or customer is 100 points, that’s $5 per person, making the 10k answer 10000/5 = 2000 people. Let’s take off 10% for check matching to make it 1800 people. Is that a small number or a big number?
(Our answers for the 10k question range from as low as 400 to as high as 27000!)
Let’s assume for a moment that Bongo has a matrix or unilevel instead of a binary, and the levels pay commissions as follows:
1 – 11%
2 – 10%
3 – 8%
4 – 6%
5 – 4%
6 – 2%
7 – 1%
That’s an average of 42/7 = 6% commission over all seven levels. 6% of 100 points is $6 per person, making the 10k answer 10000/6 = 1666 or about 1700 people.
You might also think about this. If the lowest answer to the 10k question is 400, you are working four to five times harder than you have to in the Bongo Juice Company. You may not mind working that hard, but you will be inviting others to join you and work four times too hard. That’s how we spell attrition, and you will have to go through many more people than you have to in order for your team to find the 1700 or 1800 people required.
And if you want to have some fun, call your upline or rep support and ask the 10k question. You’ll be amazed at the answers you get!
To hear an audio version of this article, click to listen. To learn more questions to ask, check out this free report.
Bob and Anna Bassett
519-371-1028
Views: 1,502
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Comments: 18 
About the Author: Bob and Anna Bassett
Member Since: 03/31/2009
I'm a Distributor For:: Vitamark International
Other Company: Together To The Top
Industry: MLM
Primary Web Site: http://www.TogetherToTheTop.com
When we get all the Info
We can make a educated decision and not at the mercy of others.
This is so important to understand.
Thank you Bob and Anna!
Juanita Waterman
The Mystery of Comp Plans
Thanks for the excellent explanation. Knowing what real residual income is has helped me a lot when evaluating companies. I appreciate all your great training.
Cheers,
Dianne
Here's a question for you Bob
You mentioned working 4 x harder: " You may not mind working that hard, but you will be inviting others to join you and work four times too hard."
How would you explain to your newest team members that they need to work 4 times harder in a weekly comp plan? Week 1 - 100 points = $0. Week 2 - 100 points = $0, Week 3 - $0, Week 4 - $0.
Something to think about isn't it?
Joyce
Great Question, Joyce!
Hi Joyce
This article dealt with the long term, but you have asked an excellent question for the short term, and that is "How well will I be paid in the early days of my business?"
That's a critical question we call The Retention Question or The Half K Question, and we've posted an article about it on Better Networker at
http://www.betternetworker.com/articles/view/mlm-news/companies/the-half...
If there's any company you'd like us to help you analyze, we'll be glad to do so!
Thanks again for another insightful addition! Much appreciated.
Bob and Anna
Hey Bob
Still doesn't answer the question. Great article though.
Joyce
Thank you for this awesome overview Bob and Anna!
I can't wait to see your article on the Stairstep Break a leg!
Just a part of the "homework"...
...we should do to compare/analyze new "opportunities." Even for those of us who have to fight to stay awake when "the numbers" start flying, this is as easy to understand as it gets! Thanks, Bob and Anna for sharing this critical information.
Accurate Information Is Critical In Building A Solid Future!
I wasted 9 yrs, doing everything my upline told me without knowing how to understand how hard I would need to work to make my dreams a reality. Finally I got my hands on accurate information~ This is vital for success, excellent article, you have brought highly valuable content to this community and I always look forward to your writings.
Working 4 times harder
Let's say you need 400 points before you make any money and let's say I need 100. Doesn't that mean you have to work 4 times harder than I do??
That's just simple adding but if you want to have all the cards on the table for your newest distributor that should be explained as well, shouldn't it? And if so, how would you do it?
Looking forward to your answer,
Joyce
Four Times Harder? Move on ...
Hi Joyce,
If you are in a company that requires 400 points per month before you get a check, you should probably move on to find one that pays better. We've analyzed 300 companies and have found way too many that pay little or nothing in the beginning stages of your career. Attrition is huge. You may be feeling that and wondering why.
Please see our article re the Half K Question mentioned above.
It's tough to comment on your situation with just the bit of information you provide. If you'd like us to help you analyze your pay plan and suggest ways to explain it to your new distributors, please send us your comp plan and policies and procedures, and we'll be glad to work through it with you.
Hope this helps!
Bob and Anna
Thanks Bob
I know where I'm at, I just wondered how you explained a weekly comp plan where you have to have 100 points EACH week where lots of companies only requires that in a MONTH. According to my calculator you would have to work 4 times harder than I do to make a buck if that scenario was ever evaluated.
Challenging isn't it?
Puzzled
Hi Joyce
Not sure what you're asking. We wouldn't know how to explain that scenario as we've never had to do it. If you have to explain it, just send us your comp plan and we can help you. We agree that it would be tough, and we can see how you are having trouble with it.
You've mentioned it three times, so it must be quite a stumbling block for you and your team. Challenging would be an understatement, and it's good you're asking for help.
Looking forward to helping you any way we can,
Bob and Anna
ACCURATE INFORMATION IS A MUST KNOW AND READ!
Hi Anna and Bob, I loved this article because when I first started out in MLM. I did not understand my comp plan nor my P&P's in any of my other companies, before I had joined XXX, my primary business. So again, thank you for the value you shared and you guys are the Best of the Best!, when it comes to know your comp plan and P&P's. Everyone should know this information! SO IMPORTANT!!! Thank you
FABULOUS info!!!
The Bassetts are at it again with information that every networker must know! Thank you Bob & Anna for sharing your well researched information & your wisdom! You are my heroes!
Bob, have you never evaluated a weekly comp plan?
One comp plan I am very familiar with, the evaluation would look similar to this.
In a weekly comp plan you have to qualify every week. You may need up to 100 points each week, one week of course could be your autoship week. Anything over the weekly requirement, you will be paid on but it still means you have to have sometimes up to 400 points evenly spaced over the four weeks before you get paid a dollar.
That particular comp plan may have changed slightly but the gist of it meant the sales reps had to work 4 times harder than a company that offered a 100 point requirement in a MONTH.
Thanks for your offer to help but understanding my current comp plan was mandatory as I'd been swayed by erroneous information before and I'm glad to say learned from it.
Let me know if you ever evaluate a weekly comp plan. People really do need to understand the ramifications before they sign up.
Joyce
The Straw Man
Hi Joyce
Our article dealt with the binary and the matrix and the parts of the comp plan people could ignore in order to get a rough idea of how hard they will have to work to earn 10k per month - a long term question for a long term goal.
You asked about a weekly pay plan, and although it was never mentioned in our article, we offered to help you analyze any compensation plan you cared to send us. That offer still stands, as we enjoy helping people understand and succeed.
We can't give you an answer with the small amount of information you have provided re your pay plan, so until you send us the complete plan along with the policies and procedures, we'll be unable to help you.
If the idea of a weekly pay plan is still bothering you, you might want to write an article yourself, or post a question in a forum. Perhaps you'll get an answer there from someone who has had experience with the problems you are facing.
You will also be interested in a great site we found ... http://www.nizkor.org/features/fallacies/
It won't help with your fixation re the weekly plan, but it will help you stay on track in an article or forum thread. The one we liked best is called 'The Straw Man.' (excerpt below)
An ability to keep focus and stick to the point is invaluable in business. It must be extremely frustrating to find yourself constantly sidetracked and moving farther from your goals.
It's also highly instructive to learn how others will try, knowingly or unknowingly, to divert your attention from the topic at hand.
Hope you enjoy the reading, and we look forward to receiving a copy of that comp plan you are struggling with.
Bob and Anna
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Description of Straw Man
The Straw Man fallacy is committed when a person simply ignores a person's actual position and substitutes a distorted, exaggerated or misrepresented version of that position. This sort of "reasoning" has the following pattern:
1. Person A has position X.
2. Person B presents position Y (which is a distorted version of X).
3. Person B attacks position Y.
4. Therefore X is false/incorrect/flawed.
This sort of "reasoning" is fallacious because attacking a distorted version of a position simply does not constitute an attack on the position itself. One might as well expect an attack on a poor drawing of a person to hurt the person.
Examples of Straw Man
1. Prof. Jones: "The university just cut our yearly budget by $10,000."
Prof. Smith: "What are we going to do?"
Prof. Brown: "I think we should eliminate one of the teaching assistant positions. That would take care of it."
Prof. Jones: "We could reduce our scheduled raises instead."
Prof. Brown: " I can't understand why you want to bleed us dry like that, Jones."
2. "Senator Jones says that we should not fund the attack submarine program. I disagree entirely. I can't understand why he wants to leave us defenseless like that."
3. Bill and Jill are arguing about cleaning out their closets:
Jill: "We should clean out the closets. They are getting a bit messy."
Bill: "Why, we just went through those closets last year. Do we have to clean them out everyday?"
Jill: "I never said anything about cleaning them out every day. You just want too keep all your junk forever, which is just ridiculous."
This has been FUN!!!!!
I am really enjoying this little tête à tête. Bob and Anna you really know your stuff and I thank you for sharing your knowledge with us. As for poor Joyce, I hope you can help her. Seems she has something against the great and awesome community of people that want to share their insights, however I have not seen an article from her yet. I look forward to your next article on what ever it may be.
I'm impressed with your patience friends!
You have more patience then I do Bob and Anna. Some people just don't seem to get it...