Network Marketing : Compensation Plan Revealed

Network Marketing : Compensation Plan Revealed

Network Marketing or better known as direct sales has been around since the 50s where we saw Amway, Mary Kay etc., distributors doing the classical door to door selling.  Even those days the concept allowed the distributors to earn money not only on their own direct sales, but also earn override commission on the sales of the sales-people they recruited, in other words their downline.

Difficult those days to understand due to lack of technology were how the downline information and payouts were being managed.  That is why they were forced to work on autoship where they stocked the goods and earned their income by selling purchased wholesale products at retail price. Thanks to the development of technology – computers, has revolutionized the concept of Network Marketing compensation plan which offers customers efficient delivery systems, distributers no longer need to deliver the products personally and distributors are also allowed to purchase directly from the company. The 21st Century offering immense opportunity as far as network marketing is concerned, and the challenge network marketers have is what type of compensation plan and whether the plan is achieving important goals, which is in conform with their goals and dreams: It is recommended that you evaluate each company before considering which one you would prefer and why:

• How easy is it to join the opportunity and how the prices for the starter kit structured are?
• Will you be rewarded primarily for direct sales, rather than for the override commission?
• Are there extra rewards for personally sponsoring others?
• What about the rewards for recruiting on multiple levels?
• Are there rewards on maintaining a monthly volume?
• Are there rewards and incentives for the distributors for example trips or cars

So which type of compensation plans should you keep off from?:

1. Autoships – these encourages inventory loading or large investments in products whereas you may not have customers who are ready to purchase immediately so that you have stocks and stocks of the products
2. A plan that emphasizes gimmicks rather than product sales.

What Type of Compensation Plans?

• Unilevel Plan
• The Stairstep Breakaway Plan
• The Matrix Plan
• Binary Plan

Unilevel Compensation Plan:

With the Unilevel Compensation Plan the recruits do not advance to positions above the basic distributors, regardless of their performance.  It’s very transparent and easy to explain and manage for both the company and the distributors. The disadvantage is obviously it’s lack of flexibility in achieving some goals and are also limited in depth of levels of payments which is a disadvantage for deep sales organisations.

The Stairstep Breakaway Compensation Plan

This is the good old and common type of network marketing compensation plan which once the distributor has met certain performance criteria or rank, they break away from their original sponsorship line. The advantage here is obviously the good track record, easy to modify and is accepted y regulatory agencies. Its disadvantage is that it is complicated, lacks transparency and difficult to explain to new recruits.  In most cases the companies has not much contact with the base – the distributors and are only involved with their own management activities.

The Matrix Compensation Plan:

With the Matrix Plan the distributors are limited for example to certain number of recruits at each level – 3 x 5 matrix, where each level down to five can have only three downline distributors. The disadvantage sometimes of this type of compensation plan is that there will be some downlines who will find themselves coupled up with people that did not sponsor them, and expected to work harmoniously in a team with them. The advantage or what makes this type of compensation plan attractive particularly for the novice is that they sign on with strong leaders who help fill their grinds.

Binary Compensation Plan

This is the modern type of compensation plan, where a distributor is allowed to occupy more than one business, each limited to two downline legs.  Compensation plans are paid based on volume of the downline legs rather than a percentage of sales or multiple levels of distributors.