It can be very easy to get confused when looking into MLM compensation and how it works. The important thing is not to get too bogged down in the details and terminology, but instead to understand exactly what you would need to do to make money with each MLM compensation type (what you would need to invest to get the most out of the compensation plan and how you would make money from the people you recruit). One thing to keep in mind when studying MLM compensation is that product purchase can never be required to participate in an opportunity, that is illegal, however a lot of companies structure their compensation plan to make it so your own product purchase can help you get closer to payouts.
While MLM compensation can be very complicated each company’s compensation plan typically fits into one of the following categories:
The basis of most MLMs is some kind of Matrix. This basically means that you recruit people (who would be considered one level below you), and then they recruit people (who would be two levels below you), etc. You get commissions on all the sales made within your matrix down to a certain number of levels deep. These commissions are sometimes different at different levels, but the basics are that you have a percent commission on what your recruits buy, and what their recruits buy, etc a few levels down.
Matrix plans rely on people continuing to buy products every month so there is usually some target sales volume to get paid out on, and you can drive up your volume by purchasing yourself. Often the company sets up its customers on an “autoship” so they automatically order a certain volume every month.
There are two types of matrix plans: unilevel and forced. In a unilevel plan you can place everyone you recruit directly under you on the first level, in a forced matrix there is a limit to how many you have on your first level, which forces you to place some of your new recruits further down in your organization. If the matrix is forced, the commissions will typically go a few more levels down.
Binary plans are really a version of forced matrix. In this plan you have only two legs, or two level one spots in your organization. If you recruit more than two people, you have to place new recruits under other people in your organization. These plans typically pay you only on the sales volume of one leg (the weaker side) which encourages you to keep balance in your organization. One of the most appealing things about these plans is that you benefit from the work of people above you. If you are under someone who is really making things happen, they will likely help grow one of your legs so you can focus on building just one side of your organization. As the actual commissions per person can be small, there is often a bonus payment for everyone you personally enroll. Again, as this MLM compensation type relies on sales volume these companies usually have an autoship or incentive to continue to buy every month.
Otherwise known as the Australian 2 up, this plan is very different from your typical types of MLM compensation. Instead of being multi-level, it is really one customer belongs to one person, giving one commission per sale. When you join a company with this pay plan you typically have to pass up a certain number of sales to your enroller before you qualify to earn commissions on your own. If it takes 5 sales to qualify you can usually knock out 3 of them by making a purchase yourself, thus only have to pass up 2 sales. The products are usually information products and come with very high price points, and very high commissions. This pay plan is not as residual, as you do have to assist your recruits in making their first sales (which go to you), but the commissions can make it a very lucrative compensation plan.
The important thing to understand about the different types of MLM compensation, is that you are likely to not fully understand every part of the compensation plan until you are making money in it. It can be useful to break it down for yourself by asking a few question.
1. How do I make money? (i.e. what do I have to have done to receive a paycheck of any kind)
2. How long will it take me to make money? (be realistic, how many people will you need to recruit and how long is that likely to take you)
3. How residual will my income be? (at what point will you be able to sit back, relax and let the hardwork you put in at the start pay off)
4. Are there other ways to make money? (you don’t need to understand them all at the start, but are there bonus pools and business levels that will allow you to make even more money as your organization grows)