Which Compensation Plan is the Best?



Read More: Dealing with Objections

Is it the breakaway, matrix, unilevel, binary, hybrid binary, 2-up . . .? Over the last 31 years in network marketing, I've researched and written about them all and although I have an opinion as to which is the best, I must say that the answer to question is really up to the individual. In this articles, I'm going to cover the positives and negatives about each plan and discuss what type of person would do best in each plan. I failed with a number of companies, because they didn't have the right compensation plan for me, whereas there were many people making tons of money in that plan. That's when I began to realize that plans are not good or bad, they are just good or bad for each individual and you have to make that choice. Hopefully this article will help you make a better choice.

Breakaway Plan

This is the oldest of the compensation plans. Companies like Amway, Shaklee, Herbalife, Nikken, and Nu Skin, use this plan. In a breakaway plan, you can sponsor as wide as you want. This means that you can place as many people as you want on your level number one, which is also called your “frontline.” This makes the breakaway plan, a horizontal growth plan, meaning that the primary growth is horizontally. As the people you personally sponsor begin to sponsor people, you will experience downline growth.

The breakaway plan is often referred to as a “stair step breakaway,” as visually the commission structure looks like a staircase. As you achieve certain levels (typically by achieving increasing volume levels), you move up the stairs to higher leadership levels. This generally means an increase in the commission percentage you earn or an increase in the number of downline generations or breakaway groups (which will be explained later in this section) on which you can get paid.

The people in your downline are also working to move up the staircase to higher levels of achievement. In most breakaway plans, when someone in your downline achieves a certain level of volume (purchases made by their downline distributors and customers), they breakaway from you and form their own independent group. Typically, your commission percentage drops, as you are no longer managing that group. In many breakaway plans, the volume that is created by that breakaway group no longer counts for your qualification to higher levels of achievement. Also, most companies limit the number of levels of breakaway groups you can get paid upon to typically five or six levels.

Advantages of a Breakaway

The biggest advantage is that you can sponsor unlimited number of people across your frontline and earn downline commissions on unlimited number of legs. This feature, results in the highest potential earnings of any plan. It is the breakaway plan that has resulted in the mammoth earnings that have become legendary in the network marketing industry. Also, the breakaway plan typically pays down unlimited levels to the next breakaway group. This means that you don’t miss out on a downline volume in levels six and below like you would in some plans. Stability of this plan is also advantageous, as it has been around for over fifty years. It’s a plan that has been heavily scrutinized by the state and national regulators, so unless there is distributor fraud (i.e., frontloading, extraordinary income claims, etc.), this is a safe plan.

Disadvantages of a Breakaway

An immediate disadvantage is that breakaway plans typically pay on a monthly basis. This means that at the end of your first month, your commissions will be calculated and it’s often past the 20th of the following month before you would receive a check. Many people need to make money quicker. Also, the really big money is in building depth, after you have built width. This takes time, so it may take five to ten years or more to get into the six-figure range. The breakaway plan is a great plan for the full-time heavy hitter, because they will get into deeper levels (or backend money) quicker. The average part-time distributor will likely never make it to the really big incomes. The breakaway plan also typically has monthly group volume requirements. If you don’t meet those requirements you don’t earn a check. In some plans, if you miss the monthly requirement two or three months in a row, you can lose your leadership title and possibly even your downline commissions, until you re-qualify. Another disadvantage of the breakaway is that in some plans, if you have a downline person who is a real superstar and they achieve a higher leadership position before you do, they pass you up. This means that you get paid on their personal purchases, but not on their downline group volume. If you only have a small number of downline leaders and need to maintain a high monthly group volume requirement, this can be very damaging. The last disadvantage of the breakaway plan is that it is very complex. This makes it difficult for the new distributor to explain in a presentation and even more difficult for a business candidate to understand how to make money. Not understanding how to make money reduces the possibility of candidates to join your business.

Who Will do the Best in the Breakaway?

Historically, the person who has achieved the greatest success in a breakaway plan is the person who can sponsor a lot of people. Secondary to that is the person who can also build successful teams.

Unilevel Plan

The unilevel plan resembles a breakaway, but does not have the breakaway groups. It too is a horizontal growth plan, as the primary focus is on sponsoring across the frontline. Like the breakaway, you can sponsor an unlimited number of people on your frontline. Also, similar to the breakaway, there is a limitation to the levels of downline on which you can be paid. Since there are no breakaway groups, you will typically get paid down five to seven levels of downline distributors in a unilevel plan. Unique to the unilevel plan is the infinity bonus. This is an increase in the levels of commission that you can be paid on, achieved by building a certain number of frontline leaders (people who have achieved a certain amount of downline volume). In most unilevels, the standard commission percentage will be between 1% and 5%. The infinity bonus will be between 1% and 3% and will extend down ever increasing numbers of levels, as you achieve higher ranks.

There is also a hybrid plan that is called a compressed unilevel. This is a plan that pays high commission percentages on the first three levels. For example, you might get paid 15% on your first level, 45% on your second level, and 10% on the third level. Then, until you achieve a high leadership position, you will not earn on your fourth level and below. This is a great plan for the part-timer, who is only going to sponsor a small number of part-timers. The plan really maximizes the small amount of production. However, it penalizes the person who sponsors more and works to build a large network, as it will take awhile for them to achieve a high enough rank to start earning on the fourth level and below. Also, history tells us that in a mature network marketing organization, the greatest number of distributors will be down around the ninth or tenth levels. The compressed plan does not allow for maximum payout on those lower levels.

The unilevel plan is a decent plan for both the part- and full-time distributors. The potential income levels are high enough for the heavy hitter and many unilevels combine weekly payout with fast-start bonuses (extra commissions paid during the first few months of a distributorship) to make it quickly lucrative for the part-timer.

Advantages of a Unilevel

The first advantage is simplicity. The unilevel plan is typically very easy to understand and explain. This makes the job of the new distributor quite easy and increases the odds of a business candidate joining. Like the breakaway plan, the unilevel has the benefit of unlimited frontline sponsoring (or width). Typically the unilevel doesn’t have the large group volume requirements, so it’s a much easier plan than the breakaway and much better suited for the part-timer. Also, most unilevel plans offer infinity bonuses, which enable you to earn on unlimited levels of downline distributors.

Disadvantages of a Unilevel

Typically a distributor in a unilevel will have to develop between ten and fifteen frontline leaders (people who have achieved a certain level of volume) in order to tap into the infinity bonus, which enables them to earn below the typical level limitations (most often either five or six levels). Most distributors will never accomplish this and thus will never earn below the level limitation. This means that if an average distributor builds say five strong legs, can only earn down six levels, and has a superstar on the seventh level or below, he or she cannot earn a penny on them. Although the unilevel can be lucrative, historically the heavy hitters (people who are going to personally sponsor hundreds of people into their network) will choose the stair step plan over the unilevel, because they can immediately earn on a greater number of levels in the breakaway plan.

Who Will do the Best in the Unilevel?

Similar to the Breakaway, the person who can sponsor a lot of people will achieve the most in the Unilevel. Width is the key to success, so you will need to have a lot of people across your front line. Building successful teams is also important here.

Matrix Plan

The matrix is the first of the “vertical” growth plans. In this plan, there is a limitation to the number of people you can sponsor on your frontline. There is also a limitation to the number of levels in depth for which you can get paid. For example, a 5 x 7 matrix means that you can personally sponsor five people across your frontline and can earn down seven levels deep. The matrix does not restrict the number of people you sponsor, as you can continue sponsoring people and placing them into your downline. This is called filling up the matrix. In a 5 x 7 matrix, there would be five people on your frontline, then twenty-five on your second level, then one-hundred twenty-five on the third level and so on in multiplications of five down to the seventh level. If you were to personally sponsor thirty people, you would fill up not only your first level, but also the second level. This would benefit all of your frontline (first level) distributors, as their frontline would now be filled and they didn’t have to do anything. This is called “spillover” and is one of the biggest perceived benefits of the matrix.

Advantages of a Matrix

The first and most prominent is spillover, which was mentioned earlier. This is where your sponsor or an upline leader places someone in your downline. Since the focus of the breakaway and unilevel is on building horizontally, there is very little spillover. However, with the matrix and its first level limitation, there can be a great deal of spillover, if you are fortunate enough to have an upline who is sponsoring more than his or her five. The matrix is also a very simple plan, so it is easy to explain, thus increasing the odds of a business candidate joining. Plus, it is an easy plan to determine income. Typically there is a set commission percentage on each level and you know how many people are in that level and what the typical monthly order will be. It’s simple to determine how much you will make and to show a candidate how much he or she could make.

Disadvantages of a Matrix

Although spillover is an advantage, it is also a disadvantage. In the case of a matrix, it can cause “dead wood syndrome.” This is where you have people in your downline who are doing nothing and are waiting for you to fill their matrix. They may even get upset at you if you are not working fast enough. If you were to have dead wood in all spots in a leg (of a 5x7 matrix), you would have a dead leg and could not earn anything on that leg. The worst part is that you could have a real superstar on the 8th level and aren’t getting paid on him or her. The only things you can do is try to get those dead wood people doing something or wait until they quit and your superstar rolls up into the payout levels. The biggest disadvantage is the limitation on income. Since you are limited by both width and depth, your income is limited. However, most people will never fill a complete matrix, so it really isn’t a strong issue—except to the heavy hitter, who will always stay away from a matrix.

Who Will do the Best in the Matrix?

Since width is limited on a Matrix plan, it's all about vertical growth. They key here is to bring in solid people, so it's not about sponsoring a lot of people, but about the quality of those people. Since people who don't do anything become dead wood in the system and take up valuable spots, it's important to have people who are actually building a business, so the person who has quality business builders in their circle of influence is going to do wll here.

Binary Plan

The binary is the youngest of the compensation plans, having been around since about 1989. This is a very unique plan, in that it doesn’t revolve around levels. Instead you build business centers. Off of a business center are left and right legs. A leg is just a line of distributors one after the other. The way you are paid is based on volume in those two legs. Some binary plans require you to balance the volumes—this is called a balanced binary. In this type of plan, you would get paid at the volume level where the legs are balanced. For example if you had $1000 of volume in your left leg and $1000 volume in your right, you might earn a $200 check, which would be 10% of the total balanced volume of $2000. However, if you had $1000 on your left leg and $3,000 on your right, you would still only get paid at the $1000 level. In a good binary, the excess volume (carryover) will stay in your account for the next pay period (typically weekly), so you start the next week with $2,000 in your right leg. Typically, this volume will continue to accumulate up to a certain level, which is most commonly $5,000 in each leg.

There are several other types of binary plans. One that has come under a great deal of regulator scrutiny is the three-phase binary. This is where you build up volume in phases, with a new investment in business centers at the beginning of each phase. This plan apparently looks like a pyramid to many regulators, as several companies using this plan were driven out of business by the regulators. Another type is the 1/3–2/3 binary. This is similar to the balanced binary, except that if you have little or no volume in one of your legs, you can still receive some commission. The commission percentages are typically lower in this plan, to offset the additional commissions paid.

Disadvantages of a Binary

The disadvantage you will hear about most is the “runaway leg.” This is where someone in a leg really takes off and builds a huge business. You are then faced with a dilemma, as you have no one on the other side and must quickly build the opposite leg to balance out the runaway leg. This actually occurs in all plans and in many, because of level limitations, the volume is just lost. In a good binary, the volume will accrue until it is used, so you have some time to play catch-up. Another disadvantage of the binary is the volume limitation in each leg (typically $5,000). This means that if you have $10,000 volume in this leg, you can only get paid on $5,000. This is offset by re-entry centers, which will be discussed in the benefit section.

Advantages of a Binary

The biggest is the limited number of legs that must be built in order to make money. Since on average, a network marketer will sponsor between two and four people, the binary offers them a very legitimate plan for making money in network marketing. Plus, most binary plans pay weekly and the initial payout level is usually fairly low, so a new distributor can earn his or her first check quickly, which usually results in a higher level of loyalty. Another advantage is the teamwork that results in a binary. Since you are only building two legs off of each center (some plans offer options of multiple centers, thus giving you more legs to build), you are forced to place additional recruits into the downlines of others. This is the same spillover that was introduced in the matrix, however in the binary there is no possibility of dead wood syndrome, since each person must build both legs in order to earn commissions. In most plans, there are level limitations, however in the binary plan there are none. You could get paid down 100 levels, as long as the total volume doesn’t exceed the maximum that can be accrued in a leg. The most unique benefit of the binary is the “re-entry center.” This offers two possibilities. As you maximize a business center by accruing the maximum volume in each leg (say $5,000 in each leg), you would earn a re-entry center. This is a new center, which can be placed at the bottom of any of your legs. By doing this, you instantly become part of your own downline and part of the downline of people who are in that leg. Also, your sponsor or an upline leader could re-enter into your downline. The binary is the only plan in existence with this feature.

Who Will do the Best in the Binary?

Since the binary limits the front line to two people, this plan is great for people who aren't that great at sponsoring a lot of people. Team building is the real key - helping the two you sponsor find their two and begin that duplication downline. Here the person who is great at building relationships and helping others succeed will do the best.

Hybrid Binary

This is the newest time-proven plan. There are several successful companies using this combination of the binary and unilevel plans. In a hybrid binary, distributors build a binary tree and get paid as if they were in a binary. However, when they reach a certain level of leadership, they also get paid in a unilevel structure (usually 8 to 10 levels). So, the advantages and disadvantages are those of both the binary and the unilevel. Personally, I like this plan the best, as it offers the ability for the average person, who isn't going to sponsor more than 4 people to make money (due to the binary). I also like that those who really want to excell and sponsor more people can make big time money in the unilevel portion of the plan. So, this plan provides the widest opportunity for success. One of the disadvantages in a binary plan has been the volume limitations and in the hybrid binary plans, they have dramatically increased the volume amounts, making the plan much more lucrative and yet still including the ability to have multiple centers (placed above the original centers, so that one leg is already built).

Who Will do the Best in the Hybrid Binary?

Since this is a combination of the binary and unilevel plans, those who will only sponsor a few people, but are good at building relationships and teams will be successful, as will those who can sponsor a lot of people. It's really the best of both worlds.

These are the five most common compensation plans. There are others that have surfaced time and time again, such as the Australian Two-Up. A unique feature distinguishes this plan. The first two people you sponsor go to your sponsor, not in your downline. Then as you sponsor additional people, they will put their first two into your downline. This sounds great, as long as you sponsor more than two people. Since most people will only sponsor 2-4 people, this is not a very good plan for the average person. To my knowlege there has not been a company use this plan to create long-term success. There are also companies who have combined common plans, such as a unilevel and binary. Although unique, this becomes very complex and makes the plan very difficult to understand and explain, thus reducing the probability that a candidate will join your team.

Hopefully this article will help you recognize whether you are in a company with the right compensation plan or if you are searching right now (which, if you are, let me know) it will help you choose a company with the right plan for you. The right plan can make all the difference. It did for me, as I floundered in the industry for a number of years and they discovered a plan that worked great for me. Keep in mind there are always other factors as well - management, products, trends, timing, training, support, etc., so make sure if you are researching companies, you are looking at all the factors, not just the compensation plan. If you would like my assistance, please contact me at [email protected].

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About the Author: Rod Nichols

 
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Member Since: 08/06/2007

I'm a Distributor For:: Yoli Blast Cap Technology

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Industry: MLM

Primary Web Site: http://www.AlkalinityBiz.com

Comments



Very insightful...

Rod,

Perhaps you have also made this observation over the last 31 years:

In the long term, there is really only one pay "plan".

And that plan is to pay you 5%-10% of all the money that's attached to you.

Not "points", or any other conversion, but actual U.S. dollars.

That means you, your customers and distributors, your distibutors' customers and distributors, etc., so on down the line, as far as it goes.

Your check in the long run is about 5%-10% of those actual dollars attached to you.

And it can be even less, but it's hard for it to be more unless the company (a) raises the selling price of the product, or (b) lowers the cost to produce it, and put that money into the pay plan.

Most of the time, it's option "A".

Is this your experience, too?

Brother Kaleem — Fri, 09/24/2010 - 4:00pm

Good information . . .

Hi Rod,

Nice overview filled with good information.

When considering a company . . . in addition to understanding the type of comp plan and how easy it is to build, it's helpful to ask for a demo of the payout process described within the plan. If there is "fuzzy math" or "smoke and mirrors" in the plan, it will usually be revealed during a demo.

Thanks for posting this article,
Susan

Susan Redmon — Sat, 09/25/2010 - 1:05pm

Excellent job Rod

This is one of those articles that needs to have a sticky note attached to it and plunked on the front page of BN so it can be readily visible to all, all the time.

Excellent explanation.
Thanks,
Joyce

Joyce Penner — Mon, 10/04/2010 - 6:56pm

EXCELLENT! => All in One Place

Hey Rod:

This is one of the "best" Comp Plan comparisons I've seen.

Nicely laid out - easy to understand - informative - helpful.

Our THANKS for pulling these all together, with pros & cons, etc.

AUSSI 1-UPs / 2-UPs - Here's another one - not a favorite of mine
though (and subject to some regulatory situations in the past).

Sincerely / Peter A.

Peter Arnold, CLU, CFC / Founder
Business Achievers Academy / Canada

Peter Arnold — Sun, 09/26/2010 - 12:58pm

Wow, it´s a science...

sometimes I am not able to understand this compensation plans.

Then I ask one question and have to realize: they don´t understand their own comp plan. :-)

Be well

Volker

Volker Schaefer — Mon, 09/27/2010 - 1:25pm

Great for a starter...

Loved it, I understand them and have always told people to look for what you are passionate about and go for it, the money always follows if it is a legit' business! I agree that so many people have a hard time sponsoring and must take that into consideration for the over all picture of what one can do.

Sue Sturos — Tue, 09/28/2010 - 1:33pm

Nice to see the Comparisons

This is helpful info for sure, and maybe if you don't completely love and believe in what your selling, take a good hard look at the plan and make sure you understand it. But if you do love the products, the money and customers will fall into place with work and determination.

Thanks, Tami A Bushey, RN

Tami Bushey — Sat, 10/02/2010 - 11:32am

What would you call a comp Plan that Pays Depth and Width

Calls it a Generation bonus? Have you seen anything that does all 4 things and you build the way you want to. 50% back on customers for the Newbie as well. As well as unlimited Coded bonus forever. http://www.vitamark.com/resources/FreedomPlan.pdf
Would like your thoughts.

Juanita Waterman — Mon, 10/04/2010 - 4:46pm

Didn't get past page 2

You are on the lowest level, you sign someone up, they take off and are your biggest enroller but they registered when you were at the bottom of the pack and that's where your coded bonus stays (forever).

Is it fair for the newest business builder? I'd have to think on that one. But it's a good question.

Joyce Penner — Mon, 10/04/2010 - 7:08pm

Well who else is even giving a coded Bonus

Besides Fortune High Tech? And a few other Tech companies. No one will give you that. Not to mention 50% on autoship Retail for the Newbie. So Business Model drives the Behavior. Do not stay Gold. Do not be Dead wood.

Juanita Waterman — Tue, 10/05/2010 - 7:02pm

Is the new distributor going to make money fast?

That's the first thing I look at in a comp plan. The new person. The second is how many people started at zero and can fairly quickly make $5000 a month and third how many millionaires has the company produced.

The coded bonus is another way to say "bonus times number of levels deep". There are more than one AND the ones I checked out didn't reward the higher pin levels with extra bonuses. The company I chose gives the "gurus" the same as the little or new guy. Extremely fair for all.

You mentioned a really interesting point that would be detrimental to a new distributor as well. Retail commissions at 50% on AUTOSHIP. It is not easy for a new distributor to come in, fresh out of the gate, and sell a new product to someone and have them on autoship.

Consequently the way I read that particular comp plan is you don't get paid commission on retail sales unless the customer is on autoship.

Correct me if I'm wrong but a new eager distributor could come in, create or buy his 100 qualifying points each week, sell $1000 a week to customers and not get paid a dime.

That would be a turn off to a lot of new distributors and the attrition rate would be astronomical.

Pays to question everything from all different angles. Sometimes it's surprising what the answers are.
Joyce

Joyce Penner — Tue, 10/05/2010 - 9:32pm

Amway's comp plan is not a "Breakaway Plan"

Great article and it's full of good information, but I must take exception to the idea that the Amway comp plan is a "Breakway" plan.

First, let me say, I do not know the technical definition of a "Breakaway" plan. I don't think there is one place of authority on that, but I submit that most people would attribute the idea that a "Breakway Plan" includes the meaning that there would be people in one's downline for which they would not be paid for.

With this idea in mind, it is my opinion that there are only two comp plans which allow you to get paid on ALL downline, i.e. Amway and Shaklee.

I am not an expert on Shaklee's plan, but I can tell you for a fact that you will get paid on everyone in your downline with the Amway comp plan.

For this reason, I would not call Amway's comp plan a "Breakaway Plan".

Kurt Gross

Kurt Gross — Tue, 11/16/2010 - 7:00pm

Hi Kurt

Not familiar with Amway but I worked Shaklee. Shaklee is definitely a break away comp plan.

When I was there, when a member of your downline created 250 points in their organization your commission dropped on their points drastically. I went from 8 people in February with a cheque of $146. to 22 people in my whole organization in March and my commission dropped to $14 because I had helped a couple of my front line people recruit and build above 250 points.

That hurts and drives people to focus on recruiting rather than helping.
Can't speak for Amway, although I'm sure it is, as the Stair Step Breakaway is the oldest comp plan, but Shaklee is definitely a stair step break away.

Joyce

Joyce Penner — Tue, 11/16/2010 - 10:23pm

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Email: Rod [at] TheTVW [dot] com