Products and compensation plans are the two vital things to consider before joining any direct selling company. We can judge products by using them and comparing the pricing. But when it comes to the compensation plans, things get tricky.
MLM compensation plans are predefined protocols to calculate the earnings and locate members in the tree-network. There are various different types of MLM compensation plans present in the market. Some plans offer unlimited width, while some give earning on unlimited depth. MLM compensation plans vary company-wise.
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Most Popular MLM Compensation Plans in the USA
Now let’s come back to our topic. Here are the details about the most popular MLM compensation plans in the USA.
1. Binary Plan
The binary Compensation Plan is one of the oldest and most used MLM Compensation plans. It was developed in the early ‘80s. At first, the existence of a binary plan seemed difficult as it was used in most of the pyramid schemes but at a later stage, it received huge success in the industry.
The binary compensation plan is structure-specific i.e. every distributor can have at most two distributors in the downline. Each side of the downline is considered as a leg.
The distributors earn commission from only one side or leg of the downline which is a lesser earning leg or is also stated as a pay leg. The side with higher commission generation is known as a reference leg and is not considered to calculate commission instead leg with low pay is taken into consideration.
This plan sounds inadequate at first but it is specially designed to have better teamwork. To earn more and generate better commission, the distributor needs to focus on weak legs and work harder over the same. Many times there are misconceptions regarding only recruiting people and doing nothing more to earn well but this is not true in the case of the binary plan. Here hard work is required to increase the weak leg earning.
For example, The leading upline member can have at most 2 downline members whereas the same downline members can include further 2 more downline members each and so on. This deigns a binary structure following the binary plan. Depending on the company criteria the commission is paid such as a matching bonus on 1:2 (2:1) or 1:1 along with downline levels being fixed or infinite.
2. Generation Plan
The generation plan is also known as the repurchase plan or gap commission plan which is based on product selling business.
This plan is considered a powerful plan having the capability to go up to many deep levels.
In this plan, the seller can promote a downline to sell products and receive an incentive when predefined targets or goals are achieved. It is a motivational plan where the entire volume right from the upline to the last downline member is considered as a generation. There can be a single generation as well as multiple generations as per the company’s criteria.
3. Differential Plan
The differential plan is a compensation plan following the calculation of commission as a difference of commission between the members and sponsor or can be said as downline members and upline members.
As per the definition of the plan, the distributor earns the difference between the amounts for which he qualifies and the amount which is qualified by the first level distributor. This difference is paid out to the distributor. At this, the commission is always calculated over PV – Personal Volume or BV – Business Volume. In general terms, PV stands for the points that need to be earned by you by selling company products to achieve a bonus whereas BV is the price that the company pays from their side.
Along with this, the calculation of commission also depends on the difference of PV percentage between existing members i.e. upline members and newly added members i.e. downline members. As the commission is calculated depending on the calculated difference, this plan is known as a differential plan. The percentage of commission can increase with an increase in the generation level and the total turnover of re-purchase.
Companies just need to fix a certain commission and that commission is distributed by counting percentage different in levels of distributors.
4. Matrix Plan
Another name for matrix plan is forced matrix MLM plan. This plan can be seen as a pyramid structure from top to bottom. As per this plan, the direct sellers are divided into fixed rows and columns where the capacity of both is fixed. The width of the matrix plan is normally kept fixed whereas the depth or downline is flexible where more members can be added.
Whenever any member is added to the downline, the commission is received by every member of upline till the leading upline member.
The above figure shows the example of a 3*3 matrix where the upline has a single member. The first level includes default members whereas the new members are added in the downline as per the criteria of the plan. A few of the most common matrix plans are 3*9, 4*7 and 5*7 which are generally followed by the businesses.
When stated deeply, the 3*9 plan allows 3 sellers at the topmost level and the rest of the distributors will split to the depth of 9 levels.
5. Hybrid Compensation Plan
As the name suggests, a hybrid compensation plan is a combination of multiple MLM plans. One of the most preferred combinations is of Binary plan and Unilevel plan. At this point, the advantages of both plans are combined whereas the disadvantages of both are eliminated.
In this compensation structure, all the distributors need to work as a team to boost revenue generation. The positive combination of multiple plans provides in-depth insights into the plan as well as the incentive as divided among the entire connected network of distributors.
For example, if we consider the limitation of the Unilevel Plan that consists of single level compensation can be removed by combining the binary plan that allows multiple levels in the downline.
The structure is started similar to that of binary structure with the left and right leg. And later in the downline, the distributors are placed under a weak leg or at an available position. All the directly recruited distributors of the binary structure are considered as the first level downline of unilevel structure.