Yoli Founder Daren Falter reveals “18 Critical Considerations when Selecting a Pay Plan.”
How to Scrutinize an MLM Pay Plan
PART XI: Sound Advice on Selecting an MLM Comp Plan
By Daren C. Falter
The Final Word on Compensation Plans
If you’re investigating a breakaway, binary, unilevel, or a binary/unilevel hybrid pay plan, you may be on the right track, but proceed with caution. Every plan is different. Try to avoid plans that are unproven. Try to find a plan nearly identical to plans that have been used successfully in other companies for years. If the plan is a matrix or a hybrid, your chances are diminished considerably, so use extreme caution. If you’re looking at a 1-up, 2-up, 3-up, or any kind of up, or if it’s a single-line downline, grab your wallet and run.
While in the process of selecting a network marketing company, do not select a company based on the compensation plan. However, you definitely want to consider disqualifying companies for their pay plans. There are so many other essential criteria for selecting a company. Placing too much weight on the compensation plan can be a deadly mistake. According to Mark Rawlins of MLM.com and author of Understanding Multilevel Commissions, selecting a pay plan that has been proven in the real world is critical. “In my consulting career, I’ve always made a practice of trying to give advice that’s grounded in experience. This advice is based on theories that have been tested at enough companies to prove them out. I don’t think that you have done well by a company if you bet their financial future on an idea that hasn’t been proven out by the marketplace.”14
Once I know a comp plan is proven in the marketplace, I put about 15 percent of the weight of my ultimate decision on compensation plan. Any more emphasis is unreasonable; any less is irresponsible.
Comp Plan Advice
1. The most popular compensation plans in network marketing are the breakaway, the unilevel, the binary, the matrix, the hybrid, and the 2-up. Some of these plans are legitimate, and some of them are gimmicks. Study this chapter over and over so you can review pay plans like a pro. In reviewing the most popular companies in MLM this year, here’s how their compensation plans break down. These numbers are significantly different from my review three years ago.
• 36 percent use a unilevel
• 29 percent use a breakaway plan (dropping rapidly)
• 22 percent use the new binary hybrid
• 6 percent use the traditional binary
• 3 percent use the unilevel hybrid
• 2 percent use a matrix
• 1 percent use the 2-up
• 1 percent are attempting to survive with various gimmick plans
2. When someone is introducing their pay plan to you, they will say anything to make their plan look better. Many distributors feel their compensation plan is the best, regardless of whether or not they have compared it to other plans. Picking the right compensation plan can make the difference between success and failure in network marketing. Be sure to review all of the plans on the market and then choose a proven compensation plan. If someone says, “I hate binaries” or “I don’t like unilevels”, in nearly every case, they don’t understand these plans and their bias is based on industry hype from aggressive marketers.
3. The matrix plan can be a good plan for certain types of products and services. In network marketing, the matrix has not been accepted as a mainstream plan and it should be avoided. Melaleuca is the only company I know of that has ever survived the matrix plan, and this is largely due to the plan behaving, based on rules, more like a unilevel plan.
4. The breakaway was the most widely used plan in network marketing over fifteen years ago. Recently, the unilevel and binary plans have been rapidly gaining in popularity. The breakaway is still widely used by older, more traditional network marketing companies, but over the last fifteen years it has not been chosen by newer network marketing companies.
5. The unilevel is a fantastic alternative to traditional breakaway plans. The unilevel does not have the front-end load, fast income potential of the breakaway, but it also does not have the attrition rate. Try to avoid any unilevel gimmicks, like two-level plans and plans that pay different percentages on every level. Compressed plans are ideal for affiliate programs but are not yet proven as mainstream compensation plans. Be sure the unilevel plans you’re considering have 15-20 divisions of qualification or more. Otherwise, you’ll have difficulty in achieving and maintaining qualifications. The unilevel is solid, it’s one network marketing payout structure that is here to stay.
6. Although the modern binary is constantly evolving, I found it to be a revolutionary plan and a top contender among today’s innovative plans. The binary is fair, lucrative, and has an element of synergy and teamwork not found in other plans. Avoid binary plans that market the compensation plan over the product line. This can lead to trouble and even shutdown. Avoid companies that cap their distributor’s volumes too early and force you to reenter your downline for additional streams of income. Avoid binaries that don’t have safety caps to keep from paying too much to elite distributors. Don’t join companies or organizations that overemphasize joining the powerleg. Remember, many distributors will never have the advantage of being in a powerleg and this can lead to major resentment and massive distributor attrition. The modern binary is here to stay, and it’s an exciting alternative to more traditional plans.
7. The “new binary” or the binary hybrid is the most popular choice in recent years. Combining the strengths of both the binary and the unilevel, and minimizing the drawbacks, the new binary is a top contender. Be sure the company you’re reviewing offers incentives and support for the little guy and not just monster checks for a few elite distributors. Make sure the company does not emphasize the compensation plan too much. Otherwise, this is currently my top choice.
8. The 2-up, like the matrix, looks fantastic on paper, but when you put it into practice, it’s a disaster. The Australian 2-Up is considered a gimmick compensation plan because no company has ever survived this plan. Just say no to the 2-up.
9. Have a network marketing consulting firm do test modeling on your compensation plan. Using actual sales volume models as opposed to hypothetical ones can give a very realistic summary of how the plan will pay out in the real world.
10. It’s illegal to earn MLM commissions strictly on recruiting other distributors. In fact, this is one definition of an illegal pyramid. Also, avoid companies that pay you for getting your distributors to a training meeting.
11. Moderate start-up costs for a network marketing distributorship range from $200 to $400. If start-up is less than $100 and more than $500, proceed with caution.
12. Distributor commission plans should pay out an actual 35–55 percent on revenue taken in by the company. Less is unfair, and more is dangerous.
13. Compensation plans may have minor enhancements over time, but the inherent structure should never, ever change.
14. The payout of a commission plan is controlled as much by the rules as it is by the commission percentages.
15. If the corporate leaders are inexperienced, or if they don’t understand compensation structures, the initial structure of a company’s compensation plan will tell this tale like a crystal ball.
16. If you’re already involved in network marketing, don’t think your company and compensation plan is the only game in town. You’ll never know if your compensation plan is the best until you’ve looked at all the rest.
17. If you’re investigating a breakaway, binary, or unilevel plan, you may be on the right track, but proceed with caution. Every plan is different. Try to avoid plans that are new to the market and therefore unproven. Try to find a plan nearly identical to plans that have been used successfully in other companies for years. If the plan is a matrix or a hybrid, your chances are diminished considerably, so use extreme caution. If you’re looking at a 2-up plan (or a 1-up, or 3-up, or any other kind of up) or if it’s a single-line downline, grab your wallet and run.
18. While in the process of selecting a network marketing company, do not select a company based on the compensation plan. However, you definitely want to consider disqualifying companies for their pay plans. There are so many other essential criteria for selecting a company. Placing too much weight on the compensation plan can be a deadly mistake. Once I know a compensation plan is proven in the marketplace, I put about 15 percent of the weight of my ultimate decision on the compensation plan.
About the Author
Daren C. Falter is the author of the network marketing industry-wide best seller How to Select a Network Marketing Company. Daren has been a consultant to the network marketing industry for over 12 years and a student and participant for over 20 years. Daren has built downline organizations into the tens of thousands of distributors with several different companies. Daren is a popular convention speaker and trainer. You can visit Daren online at his blog at www.networkmarketingreview.com. You can also order Daren’s best-selling MLM book at www.networkmarketingbook.com.
Daren recently launched a new network marketing company, Yoli, Inc., near Salt Lake City, Utah. Daren and his four partners are excited to introduced the worlds most nutritious beverage using patented BlastCap™ Technology. For more information about Blast Cap Technology, Blast Caps, or Yoli, visit Yoli at www.prelaunchinsider.com.
Copyright ©2009 DC Falter Marketing, Inc. ALL RIGHTS RESERVED
ATTENTION: Breaking News!
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