What Is MLM? A Breakdown of the 4 Common Compensation Plans

What Is MLM? A Breakdown of the 4 Common Compensation Plans

What is MLM? If you are a work from home career professional, then it's highly likely you will hear about MLM at some point in time, if you aren't working in it already. MLM, short for multi-level marketing, is a marketing strategy in which a company promotes its products through a hierarchical sales staff. It differs somewhat from traditional marketing in that the sales staff is also compensated for the sales of recruits they bring to the company. The company and its products are promoted through word of mouth, referrals, and other organic marketing techniques.

In MLM marketing, the goal is to recruit enough people that you create a hierarchy with differing levels of compensation, also known as a downline. This downline provides residual income for the entrepreneur, enabling him to make a steady income without having to seek out a new audience for his products on a regular basis. There are 4 main types of MLM pay plans, as defined below:

1.Unilevel Plans

Often considered the simplest of compensation plans, a unilevel plan allows one person to sponsor a single line of distributors. This is referred to as a frontline. Each person the original salesperson sponsors is on the frontline and there is no limit to the width, meaning there is no limit to the number of people that can be sponsored in the frontline. The typical sponsor earns commissions on sales between 5 and 7 levels deep.

2.Matrix Plans

Matrix plans are similar to unilevel plans, with one exception: there are a limited number of sponsors which can be placed on the first level. Matrixes also commonly have restrictions on width and depth of the structure. When all the positions in a salesperson's frontline are filled, a new matrix is started.

3.Stairstep Breakaway Plans

Stairstep breakaway plans allow a person to be responsible for both personal and group sales volumes. The group leader may have more than one downline. Once the representative has reached his defined sales level, either personally or as a group, he can then move up a commission level. This process continues until the representative reaches the top commission level and "breaks away" from the upline.

4.Binary Plans

Binary plans limit distributors to only two front-line distributors. If the distributor chooses to sponsor more than two individuals, the overage is then placed in levels below the frontline. This plan is attractive to new distributors since they need only sponsor two recruits in order to take advantage of a compensation plan. However, it's crucial that the original distributor balance both distribution lines, making sure that the total number of sales from one downline does not equal more than a certain percentage of the distributor's overall sales.

Although many of the best MLM companies follow one payment plan, others incorporate elements of more than one type of arrangement into their compensation system. These plans are known as hybrid plans. Before signing on with an MLM marketing company, make sure you understand the compensation plan. Try to find a company that offers one with which you feel comfortable. This will depend on your background in sales and how successfully you believe that you can recruit others.

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