Do You Want To Know The Real Truth About Compensation Plans by:Brandon McNair
There are things you should know about your company's compensation plan. Knowing your company's pay plan is important as you may be involved in something the government may consider illegal and if so you could be punished just for promoting that program. I will show you some examples of compensation plans and I will also show you the ideal pay plan. A compensation plan that will out compete almost all other compensation plans.
I know from all my years in this industry that when I talk to people offline they seem to think of MLM as a pyramid scheme which is true in some cases as there are plenty of dishonest people out there who try to make their living that way. This industry has gotten a bad rap mostly do to misinformation but also the fact that some programs just do not work in the long run. I will go over some examples of their pay plans to give you the real truth as to why they do not work and I will even give you a model of one that does work and will most likely out compete other pay plans.
When it comes to compensation plans the majority of the compensation plan should be paid out to the sellers as they are the ones doing most of the work as advertising takes time and money. Ideally the seller should be paid fifty percent of the commission but can be down to forty percent. This means that when you make a sale you should receive forty to fifty percent off that sale. So forty to fifty percent is what the compensation should be to all sellers of the company as they do most of the work.
Also in any type of compensation plan the rewards need to go to the person that makes the sale not the person above them in a compensation plan as the person above them did not do the work. Pure and simply you should be rewarded for your efforts. The first position means nothing more than the opportunity to bring in people first.
Be aware of fast start bonuses as well where the majority of the money comes from the customer to you which is nice but in reality what you will get payed in the future is kept from you. For example let us say you are involved in a company that sells a product for $100. The company keeps $50 and pays out $50. The first month the company says they will pay you a $60 fast start bonus which is a one time payment bonus. What happens is that the next month you may only get $5. A good compensation plan would pay you $20 to $30 off of that $50. Not a plan where the customer pays $100 and the company pays out $5. That is deception.
The first compensation plan I am going to talk about is the Unilevel pay plan. Unilevel pay plans means that everything you do such as all of the people you sponsor go on your level and everything they do goes on their level and so on. You may even earn a certain percentage off of certain levels below you. let us say for example you sponsor someone and that someone goes into your level. the next person you sponsor will also go on your level. Nothing you do will help the people you bring in under you. That is fine but in the long run can slow the company down as there will be no momentum as I have heard that twenty percent of the people do eighty percent of the work. So in my opinion that compensation plan is limiting itself.
The second compensation plan is the matrix which could be a 3x10, a 4x10, even a 4x3, and so on. the first number represents how wide the matrix is such as if it is a 4x4 then it is four people on your front line and underneath them is four more each making it sixteen people. It gets geometrically larger by four every time. This means you make less and less each time which in turn means eventually you can no longer afford to promote. If the company has the right product it may be worth promoting it but if not then you are simply wasting your money. You should avoid compensation plans that reward percentage that is being made based on the people beneath you. Such an example would be a binary pay plan. What I mean by that is that the people that are making the money are at the top are most likely doing nothing.
There are a few compensation plans that you can consider out right scams as they are illegal and they are considered Ponzi schemes. A Ponzi scheme is where the people that pay in the money to this program are paid by the people who come in after them. Sounds like MLM or any other business for that matter but the difference is there is no real product which can mean they are selling products for more than they are worth. In essence you are joining for the money and not the product and any model set like that will crash and ninety five percent of the people will lose their money. That is why it is illegal.
Did you know that not only are the program owners that run these schemes treated as criminals but so are the people that promote these programs. It may not be your program but you are still enabling the program so the Federal Government will consider you just as guilty. So it is important if you are involved in a company that you understand the pay plan as the consequences can hurt you in the long run.
There are two types of Ponzi schemes and the first one is obviously the pyramid scheme. The pyramid scheme would mean no real product of value and the pay plan would be geometrically harder to fill as it would be like a three by infinity or a four by infinity. For example. Let us say you have a three by infinity and the product is $100. In order to get paid $100 you need three people and those people each need three people and so on. This could go for hours then weeks to months to years before you get paid again and if you knew that would happen you would not join and that is why it is illegal. Also it is mathematically impossible as you would run out of people.
The second type of Ponzi scheme is the powerline. The powerline seems very fair and wonderful but let us say for example that the company pays you $100 for every time you cycle which you need to three people to cycle. Well the company gets $300 and you get $100 as you paid them $100 making it a total of $400 but since you brought in three people then you basically get your money back. Again this gets geometrically larger making it more and more improbable that you will get paid as your people also need three people to cycle. It is the company having you do all the work. The powerline sounds real good but it is deceptive as it will mathematically fail making it illegal. If you are number 1000 in this pay plan then you have to wait to cycle until the people above you cycle which will be about seventy five percent. It is a three to one ration as the people above you need three people to cycle. It is not worth it to get involved with a compensation plan like that.
Probably the worst compensation plan is the stacked mini matrices compensation plan. For example. Let us say it is a 2x2 stacked mini matrix plan and that means you need six people to cycle. What happens when you cycle is that the company pays you into a higher paying matrix. Let us say the product is $30 a month and for the first cycle you get $100 and after that you are paid into a higher paying matrix for a larger amount. So in order to be paid into the second matrix after you cycle the first one the company takes the $100 you made and pays you into the next. In order to fill that second matrix you will need forty two people to cycle into the third matrix which supposedly pays out even more. You need forty two people for the second matrix as your six people also need six people which added all together comes out to forty two. Good luck with that as at the same time you cannot have any holes in your matrix meaning if someone quits or does not get their six people they do not cycle and you cannot cycle. Matrices feeding higher matrices is no way to go as it again becomes mathematically impossible and the people you bring in can only go in through the front door meaning the bottom of the matrix. Usually the program owners wait until people stop promoting as a justification to shut the program down as no one is promoting so how can they make any money and keep the money that was made for them. If you are involved in one I highly suggest you get out as soon as possible.
Now I discussed some compensation plans. Most of them being bad but I want to touch on what I think is the best compensation plan I have ever come across in my eight years online. This pay plan is simply the straight 2x2. Let me tell you what a 2x2 pay plan should go by first. A company with a 2x2 pay plan should not have a product that is too expensive or too inexpensive. The reason is if it is too expensive then you limit who can join. If it is too inexpensive then there will be a lot of people that will not join as they will think they cannot make any money off of it. Seventy Five percent should be paid out by the company. The cost should be month because that means it is residual. I know there are one time costs out there but think of it like this. you should never rely on other people's efforts meaning if you chose a one time pay plan then you will have something like a job.
Here is the ideal pay plan and this company has it. The product is $30 a month which is very reasonable and actually a steal if you consider the 300% return on investment from it. You need six people to cycle as it is a 2x2. Once cycled you receive $100 and that is monthly as long as you are subscribing of course. Once cycled the company pays for another position in a brand new matrix. How can this company do this. Well you plus your six people would equal $210. the company take out $130 and the rest will be paid back into the matrices as there is spill over. never rely on spill over but with this company it is possible to cycle without sponsoring people but with the product and the fact that people are earning is a good motivator to get people to promote this. The owner of this program gets paid just like everyone else. In fact the company takes it's profit and invests it back into the members promoting the company. you may ask how a company can afford to do this well there is something called breakage and that means that there will be people who do nothing as they just want the product and believe me there will be plenty of that in this program. With this breakage the company can afford this very generous compensation plan which is very wise because that helps keep a company going in the long run as it rewards the sellers who are the reason why the company succeeds in the first place as you need advertising and in this industry this is how you advertise by affiliates.
I hope this has saved you some time in the trial and error process as I think it is crucial to make sure you understand your company's pay plan or you could end up paying for it in the future. Also it seems the government will start cracking down so it is best to prepare yourself as in do not get involved with programs that use fraudulent pay plans as again you could pay the price. i said I would show you the company that has this ideal pay plan of which I speak. Well keep reading you will find it.
About the author
Brandon McNair has been an online marketer and network marketer for 8 years now and is looking to help spread value to the world. To see what value is being offered you can check out http://happiness-health-wealth.blogspot.com/. A FREE resource with audios to help you with your MLM can be found here at http://advertopia.ning.com/.