What Are Multi-Level Compensation Plans?
Multi-level compensation plans are where affiliates get paid commissions by multilevel marketing firms that generate sales by selling their products to customers who are then turned into sales professionals (affiliates). The beauty of having a variety of MLM compensation plans is it allows entrepreneurs just entering the field a way to earn multiple commissions without substantial upfront costs.
Since the payment methods and commissions vary from one MLM business to another, different compensation models are needed. Aspiring marketers should read the fine print for each MLM business’s pay structure and understand it before enrolling and becoming a sales affiliate. When reading such information, you will come across a variety of compensation models including the four listed below.
The Top 4 Advanced Compensation Models
We’re going to take a look at the top four advanced compensation models that are being run by state-of-the-art software for a number of MLM businesses to help you make a decision on which one will work the best for you. It’s important to understand, regardless of the compensation model, each one has its own unique set of requirements that need to be met by the software platform because you can’t do it manually; therefore, the software has to manage that for you.
The software provider you partner with needs to provide software with advanced capabilities that can handle any type of compensation model, and not all software can do this, but the good ones, like Firestorm, do.
Unilevel Compensation Plan
A unilevel compensation plan is a set payment structure without any options for advancements above the basic distributor. The primary advantage of this compensation plan makes it easy to explain to potential recruits and distributors.
For example, some marketing firms may offer a set commission of 10 percent on products sold and end there while others may include a downline, meaning you can make a percentage of affiliate sales directly underneath you. A weekly, bi-weekly, or monthly commission pay is typical with a unilevel compensation plan for a lot of marketing firms.
Binary Compensation Plan
The binary compensation plan is when a distributor runs one or more businesses, but each is limited to just having two downline legs. What this means, you get paid based on the downlines of the group volume instead of getting paid a percentage on the multiple levels of a distributor’s sales. Although this is a volume-driven model instead of a level-driven model, there must be a balance between the two legs in order to receive commissions.
Much like the unilevel compensation plan, the binary compensation plan is easy to explain to distributors and affiliates. As long as everyone in your group is pulling their weight, you can make higher commissions with this compensation plan. Most binary compensation models also pay commissions on a weekly basis.
Forced Matrix Compensation Plan
In a forced matrix compensation plan, the commission structure is based on a matrix in a top to bottom and left to right pattern that has a limited width and depth. It works much like a genealogy tree with a certain number of recruits under you and on different levels. The affiliate doesn’t get to choose their position, but they can pick their sponsor. The affiliate receives commissions based on the level where they are placed during a certain payout period.
A forced matrix compensation plan works much like a unilevel compensation plan does; however, distributors are only allowed to sponsor a limited number of frontline distributors. Meaning, additional distributors will be placed on their second level as well as with another distributor. The biggest advantage of this plan is its ability to spill over, which results in more profits. Most forced matrix compensation plans pay bi-weekly.
Party Plan Compensation Plan
The party plan compensation plan is based on one of the oldest forms of direct selling methods, which is known as social selling. Most people have either been to a social gathering or hosted a party where products are sold to the guests such as jewelry, Tupperware, and makeup. This is direct sales at its best, and one of the easiest compensation plans to understand.
Generally speaking, the distributor or marketing firm will set a standard commission based on each product or package sold. Some MLM companies even offer incentives, bonuses, and paid vacations for high achievers. One of the biggest advantages of a party plan compensation plan is with today’s modern technology, platforms like Facebook, eBay, and Amazon, make direct selling easier than ever before. Most marketing firms in direct selling pay social sellers bi-weekly or monthly.
Choosing the Best Multi-Level Compensation Plan
Choosing the right MLM compensation plan may seem like a daunting task, but it doesn’t have to be. Here at Trinity Software, we provide expert advice and E-commerce software that has the capabilities to handle any type of compensation plan for a wide variety of different MLM business models.
Regardless of the compensation plan, our software Firestorm has the capabilities to streamline your sales and make selling your products to a wide audience easier than ever before. To get started with Trinity Software, call us today at (817) 394-5404 or click here to watch a free Firestorm demo.
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As we move on, the next thing we’re going to talk about is advanced compensations models. As we’ve discussed previously, there are some very basic models that are used by lots of companies and there’s nothing wrong with them. But in our industry, there’s a lot more that we didn’t discuss previously.
So, real quickly, it’s important whatever software package you end up with needs to be able to handle every single type of compensation model that’s in the industry because there are lots of them. You know: multilevel (which we talked about), uni-level (single level payouts also known as direct sales), binary (which is something we haven’t discussed yet, but we will in a future video), matrix plans (force matrix) and then of course party plan. Each one of these has their own unique set of requirements that have to be met by the software program because you can’t do it manually. The software has to manage that for you. Especially when you get into party plan capabilities – there’s all sorts of capabilities around social selling and party plans that are important that they are incorporated into your software platform to make it easy for the consultants in the field to actually sell your product, which is the ultimate goal of everything we’re talking about.