Last Updated on January 31, 2023 by Matt Zavadil
There are a variety of MLM compensation plan types available from hundreds of MLM companies.
You must understand the different types of direct selling money-making opportunities to make the most out of your MLM business goals.
In this article, I’ll discuss the three most common MLM compensation plans:
- Binary compensation plan,
- Uni-level compensation plan
- Matrix compensation plan
I’ll also explain how each type of comp plan works, touch on the best MLM compensation plans, and give you tips on how to make money inside the direct selling industry.
What is an MLM?
An MLM, or multi-level marketing company, is a type of business that allows independent contractors to sell its products and services.
The key to success in direct selling is to find a good company with a sound product line and management team.
Once you’ve found a good company, it’s important to understand the different types of compensation plans available to you.
How do MLMs work?
Most MLMs work by allowing independent contractors, or “members,” to sell products and services to customers.
In return for selling the company’s products and services, members earn a commission.
The amount of the commission depends on the compensation plan set forth by the company.
There are three main types of compensation plans used by MLMs: binary, uni-level, and matrix.
A brief history of MLM compensation plans
Binary compensation plans were the first type of MLM comp plan and is still used by many companies today.
Under a binary comp plan, members are placed in two teams, or “legs.”
Commissions are paid out based on sales generated by each team.
The unilevel compensation plan was created in the 1980s and is the most popular type of comp plan used by the MLM industry today.
Under a unilevel compensation plan, members are placed in one team and earn commissions based on sales generated by themselves and their downline.
The matrix compensation plan was created in the 1990s and is similar to the uni-level plan, but pays commissions based on sales generated by a member’s downline up to a certain level.
3 Main Types of MLM Compensation Plans
More than three types of MLM compensation plans exist. However, let’s focus on explaining the top three from above in greater detail.
1. Binary Plans
In a binary plan, there are only two members in each “downline.” This is the simplest form of the direct selling comp plan. The structure looks like an upside-down tree with the payee at the top and two legs branching out from the bottom.
The comp plan pays out a commission on the sales of products and services to two people, known as your “left” and “right” legs. The leg that generates the most volume (based on sales) is called the “active” leg.
Your direct selling company determines how much you can earn in residual income each month by multiplying your active rank by its corresponding payout percentage.
For example, if you are at the lowest rank and your direct selling company has a payout percentage of 20%, then you would earn $40 per month in residuals from that one leg.
So, what’s great about this MLM compensation plan? First, it’s simple to understand and easy to teach others. Second, it’s very motivating because you can earn a residual direct sales income from just one leg.
The downside is that it may be more difficult to build a large downline with this plan.
2. Unilevel Plans
A unilevel plan allows an infinite width for each level.
In other words, you can sponsor as many people as you want on your first level. And those people can sponsor as many people as they want on their first level, and so on.
There’s no limit to how wide your organization can grow.
Here are the full details about how a uni-level MLM company plan operates:
You earn commissions on the product sales of everyone in your organization, including people you’ve personally sponsored (called your first level) and their sponsors (your second level), and so on.
There are no breakaways or downlines. You simply keep earning commissions on the product sales of everyone in your organization.
The amount of commission you earn is based on a percentage of the sale price of the products, which is set by the company.
There’s usually a minimum payout amount, which is the total commission earned by someone in your organization before it can be paid out to them. This prevents people from signing up just to get their commission checks without actually selling any products.
The main downside of a uni-level plan is that it can take a long time to earn a significant income unless you have a large team or organization.
It can also be challenging to keep track of everyone in your organization, especially as it grows. This is why many companies use software to help with tracking commissions and downlines in a uni-level MLM comp plan.
4. Matrix Plans
A matrix plan is similar to a uni-level plan, with a few key differences.
First, it has a narrower width than a uni-level plan. This means that you can only sponsor a certain number of people on each level before you reach the maximum width for that level.
Second, there are breakaways and downlines in a matrix comp plan. When someone in your organization reaches the maximum width for their level, they “break away” from your organization and form their own organization beneath them.
And finally, commissions are paid out based on the total number of sales across all levels in your organization (not just product sales generated by people in your first or second levels).
The biggest advantage of a matrix comp plan is that it can pay out large commissions more quickly than a uni-level plan.
The biggest disadvantage is that it’s more complex to understand and track, which can make it difficult for new members to follow.
7 Other Types of Compensation Plans
- Spill Over
- Breakaway plans
- Generation plan
- Stairstep Breakaway MLM Plan
- Monoline MLM Plan
1. Hybrid: A hybrid MLM comp plan is a combination of two or more different types of plans.
2. Spill Over: A spill-over direct selling comp plan pays commissions on the product sales of people in your downline, even if those people are not personally sponsored by you.
3. Breakaway plans: Breakaway plans are popular in MLM because they offer the potential for large commissions. In a breakaway plan, someone in your downline “breaks away” from your organization to form their own organization beneath them. As they do this, they leave their downline (and all of their product sales) with you.
4. Generation Plan: A generation MLM compensation plan pays commissions on the product sales of people in your downline, up to a certain level. After that point, commissions are paid out based on the total number of sales across all levels in your organization.
5. Board Plan: A board MLM comp plan pays commissions on the product sales of people in your downline, as well as their sponsors (your second level), and so on.
6. Stairstep Breakaway MLM Plan: A stairstep breakaway MLM compensation plan is similar to a breakaway plan, with the bonus that you can “step up” to earn higher commissions as you sponsor more people.
7. Monoline MLM Plan: A monoline MLM compensation plan pays commissions only on the product sales of people in your downline, and not on the product sales of their sponsors.
Considerations For Maximizing Your Company’s Comp Plan
Here are a few ideas for how to make sure you “work” your company’s comp plan for the most possible income.
- Focus on retail sales
- Ranks and recognition
- Generate MLM leads and sales through online marketing
Focus on customer sales: To maximize your income in an MLM business, you need to focus on customer sales, not just product sales from your downline.
Ranks and recognition: Work hard to achieve higher ranks and recognition within your company. This will help you earn more money and build your downline more quickly.
Generate leads and sales through MLM marketing: Use MLM marketing techniques to generate leads and sales for your company. You can’t build a network marketing business without getting new lead flow monthly.
Is MLM a Pyramid Scheme?
No, if you think network marketing is a pyramid scheme, then you don’t understand how it works. For example, some people ask if Arbonne is a pyramid.
Multi-level marketing is a legal and viable way to run a business, as long as the company focuses on selling products or services and not recruitment.
The key to success in MLM is finding the right company with a solid compensation plan, good training, and mentorship.
Don’t get caught up in all the MLM hype, do your research and due diligence to find a good opportunity.
When done right, MLM can be a great way to earn extra income or even replace your full-time job.
It’s important to remember that success in MLM comes down to selling products and services, as well as recruiting people into the business.
MLM Compensation Plan FAQs
Which company has the best MLM compensation plan?
Really, there aren’t any best MLM compensation plans. The “best” plan is the one that’s right for you and your goals. To find the best direct selling company, you need to do your research and due diligence to make sure it’s a good fit for you.
What MLM business pays the most?
This question reflects a lack of understanding of the network marketing model. In direct selling, the amount of money you make is based on your personal sales volume and the group sales volume generated by your downline sales representatives. So, it’s impossible to say which business pays the most out from company profits to its new recruits.
What are some good tips for maximizing my income in MLM?
Here are a few ideas for how to maximize your income in an MLM company:
- Focus on customer retail sales, not just product sales from your downline
- Work hard to achieve higher ranks and recognition within your company
- Use MLM marketing techniques to generate leads and sales for your company
Which direct sales company has the best compensation plan?
Again, this reveals a lack of understanding about multilevel marketing. Leading with “We have the best comp plan” is silly. Success comes from becoming a great leader, salesperson, and marketer. Those skills will allow you to dominate, no matter which of all the MLM companies you join…or which comp plan it offers. How much profit you make depends on how many sales you and your team make.
What is MLM commission?
In MLM, the commission is earned on your personal sales volume and the product sales of people in your downline.
Final Thoughts On MLM Companies & Compensation Plans
In the end, your ability to earn money in direct selling comes down to finding the right company (for you) with a good MLM compensation plan.
Then it’s all about:
- Focusing on selling products
- Generating leads
- Recruiting people into the business & overriding their personal sales volume
When done right, MLM can be a great way to make extra income or even replace your full-time job.