The universal principle of MLM and compensation
Resolved: The concept of network marketing is representative of our socioeconomic state, and in reality we’re all living in an network marketing world.
There are very few large organizations that do not represent some form of a multi-level structure. Corporations are multilevel where executive management represents a select group of highly paid leaders who work with and train others to manage. This level of managers works with yet another group of leaders responsible for individuals who manage still another level of workers. Social Security is another gigantic multilevel structure. Churches, schools, and charities — all are established upon similar broad-based multilevel principles.
There are no guarantees in the traditional corporate world. Traditional business can provide you with a consistent income, month after month, for as long as you can work. Network marketing can provide you with residual income: income that will continue to grow based on the growth of your organization. A balance between the two can provide additional financial security.
In the strictest sense of multi-level marketing, independent distributors obtain earnings from one of a variety of compensation plans (and ironically, compensation plans arc one of the most widely misunderstood elements of network marketing).
Income derived from a network marketing company can usually be broken into two categories: retail profits and residual income. Not unlike traditional sales, retail profits reflect the distributor’s ability to sell a product or service. Retail profits from a network marketing company are typically far less than from a traditional direct-selling company because some of this margin has been shifted from the point of sale to the residual portion of the product’s price. On the other hand, residual income is a benefit that comes as a direct result of bonus overrides paid on the wholesale volume generated by an entire sales organization.
Dollars normally allocated to advertising by traditional companies are built into the network marketing compensation plan and paid to the distributor sales force. This provides a strong incentive for distributors to promote company products utilizing word-of-mouth advertising. It also provides the basis for a lot of distributors each to do a little and benefit collectively. And from a corporate management perspective, this means that, rather than employing risk capital for the purpose of advertising, advertising costs are paid out and recovered simultaneously upon sale of a product. This helps companies to maintain lower product pricing.
To maximize earnings in any one particular plan, it is important to understand how it works and what qualifications are required to earn all available commissions. Generally speaking, plans with higher qualifications require distributors to focus more energy on retail sales and/or frontline sponsoring than those plans with lower qualifications. While having the opportunity to sponsor numerous frontline distributors will help individuals achieve their goals, it should not be a requirement. Understanding these differences can significantly impact the long-term stability of an entire organization and the consistency of a distributor’s income. Compensation for distributors is based upon results.
For any one plan to benefit the majority of people, it must be easy to duplicate. That is, it must be easily understood and provide all distributors with an equal opportunity to earn a significant income. If it isn’t, eventually the distributor base will erode, making it impossible for anyone distributor to maintain his or her organization or sales volume.
Following are four of the most popular types of compensation plans available today:
Stairstep/breakaway: Typically has a front side and a back side. On the front side, the distributor climbs the stairs obtaining a higher position by satisfying a set of qualifications. The distributor earns overrides on the sales volume in his or her personal group. Once a distributor reaches a specific volume qualification requirement he or she will “break away” from the sponsor’s personal group. This allows the network marketer to begin earning on the back side of the plan.
The back side pays bonus overrides, typically from three to six generations of breakaway qualifiers. The bonus percentage is often level, but can also be variable, increasing, or decreasing. There is usually a monthly personal volume and personal group volume requirement that must be met in order to earn their network marketing commissions. Sometimes there are group volume requirements that must be met in order to maintain segments of the network marketing downline.
There is unlimited network marketing frontline sponsoring with the breakaway compensation plan.
Matrix comp: Represents a fixed structure in which the potential organization size is predetermined by the width and depth set forth by the network marketing company. For example, a 4 x 6 matrix means that each person can sponsor a maximum of four people on his or her network marketing frontline. This process can continue until die matrix is six levels deep. When more than four people are sponsored by any one network marketer, the computer usually automatically locates the first available spot and places the new network marketing distributor at that position within the organization.
Matrix plans come in all sizes and shapes. The 3 x 5, 5 x 7, 2 x 9, and 2 x 12 are examples of combinations that have been utilized. Some matrix plans are “expandable” based on certain network marketing qualifications, while others are “forced” or “closed.”
Binary comp: Probably one of the most innovative versions of the matrix comp plan. Individuals start by building two legs—a left and a right. Positions are often referred to as profit centers or income cells. Commissions are paid based on matching volume, which gives the sponsor an incentive to keep both legs active.
Upon meeting certain network marketing qualifications, additional income cells may be earned, allowing individuals to build an organization that has unlimited depth. Each additional income cell is placed downline of the original two, which helps to create stability for the entire organization. Consequently, a binary plan could be considered a two-wide, open-ended matrix.
Unilevel comp: The distributor is allowed to sponsor an unlimited number of network marketing distributors on the frontline. The plan pays a fixed number of downline levels. Some programs are described as unilevel because the bonus percentage payout is the same or “level” on each of the levels of payment. There are others that describe it as a single level of qualification to be paid bonuses, often relatively simple. Some unilevel programs have decreasing, increasing, or even variable bonus percentage payout per level.