Several people have recently asked me what is the most important consideration in evaluating a network marketing business opportunity? With so many variables to take into account, one factor alone stands head and shoulders above the rest, the compensation plan . . . Bar None! So what is the best type of MLM pay plan, e.g., matrix, binary, unilevel, 2-up, stair-step breakaway, or a combination of any of them?
That depends on your long term and short term goals, and more importantly, your financial priorities. If you need immediate profits, or are the driven sales type that likes to be compensated for your personal production more than the hope of long term passive income, you might be more suited towards a compensation model that pays high up-front commissions, e.g., 50-75% fast start or retail profits, but smaller downline override commissions.
Binary pay plans seem to be the “hot ticket” at the moment, but as a distributor, I wouldn’t join a company that incorporates a binary plan, not if I’m looking for consistent, monthly passive income with no cap or ceiling. For company owners on the other hand, binaries are certainly the pay plan of choice, and for good reason, but that’s for another post.
If you don’t need a big up-front commission and your goal is to build a massively deep organization, consider a pay plan that pays lower up-front commissions, but higher downline override commissions. If you’re fortunate enough to hit critical mass, the exponential component of MLM combined with a stout commission override schedule is the perfect storm for reaching the much talked about, but ever elusive monthly six-figure passive income. I say elusive, only because very few people in the history of Network Marketing (owners and distributors) have ever achieved a NET six-figure or multiple six-figure monthly income strictly from the compensation plan itself. Most of the “Rock Stars” that are paraded as monthly six-figure income earners don’t disclose their monthly expenses to achieve that income, or in some cases achieve it from selling their own sales aids and ancillary products but claim it as company override commissions—that’s false advertising and reflects badly on the MLM profession. Tax returns, and they alone, are what separate the wheat from the chaff.
Another crucial consideration is commission roll up, distributor roll up, and whether or not a compensation pan incorporates “dynamic compression,” the shorter explanation being that the company rolls up both commissions and existing active distributors immediately upon the distributor above them dropping out or otherwise not qualifying to receive downline override commissions. On the surface, dynamic compression of distributors and commissions is a great feature of a pay plan, or is it? Keep in mind that for any network marketing company to be successful long term, it must strike a balance between a fair and lucrative pay plan for its distributors, and a fair and lucrative profit margin for the company. That’s easier said than done, especially with the explosion of so many MLM companies to choose from. If a company offers dynamic compression for example, in all likelihood the percentage of total commission payout will be less than normal, only because the company would not retain “breakage.” Breakage is that percentage of commission that doesn’t get paid out due to a distributor not qualifying for all or a portion of commissions in a given month, and it remains in the corporate coffers. Chances are, if a company offers dynamic compression, comparatively speaking, it will have a lower overall commission schedule.
Space doesn’t permit my dissecting all of the pros and cons of each individual type of compensation plan model. However, I can’t stress enough the importance of exercising due diligence when considering a network marketing opportunity’s pay plan. Most would claim that the product or service, the management team, market penetration, scalability, being the category leader, upline support and a plethora of other factors are more important than the compensation plan. That’s why most distributors don’t financially succeed long term. They’re wrong! The compensation plan is far and away your most important consideration, after all, if it weren’t for the money, you wouldn’t be considering MLM to begin with.
Can you net multiple six figures a month and even multiple seven figures a year as I and a handful of others have done in network marketing? Yes! But it takes due diligence, proper analysis, and objective self-introspection to determine if you can. MLM is a different kind of animal. The profession is primarily driven on emotion; emotion in and of itself is not a bad thing and certainly part of the equation. Where things go awry for most MLM millionaire wannabe’s is that they get too caught up in the emotion and celebrity of it all and take the advice of people who talk a good story, but their rhetoric doesn’t match their reality.
What’s the best MLM pay plan? Based on my years of experience as both a distributor and owner, and taking into consideration short term profits, long-term residual income, and the realistic chance to earn—at a bare bones minimum— a $100,000 a year, a unilevel pay plan is your best bet. One caveat however: the proper disbursement of commission percentages is of paramount importance. That and the total percentage of payout. There is no reason a properly managed MLM company can’t pay out at least 60% of every dollar it brings in back to its distributor force. It’s how its disbursed however, i.e., what percentage of that 60% or better is paid on what level and in what form that will determine how feasible it is for you to – CRUSH IT!
Kevin A. Lehmann
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