Almost all network marketing companies use a compensation plan. This plan defines all the different ways in which the company is going to pay someone who invests in it or sells its products and services. They have to pay a certain amount to encourage and reward behavior. They need to determine the number of profits they are willing to pay in exchange for their efforts. These plans vary in width and depth, but all of them reward distributors for recruiting new members. In general, the compensation plan describes the sales strategy and will aim at attracting and promoting new distribution partners and thus increasing the sales of direct selling business.
Most network marketing companies have different compensation plans, so it is important to consider the existing situation before making a decision. A poorly-designed compensation plan can lead to a person jumping from one network marketing company to another.
In network marketing, there are at least 3 types of major compensation plans—Binary, Unilevel, and Matrix . The rest are hybrid versions of these plans. Each has its own unique characteristics and network marketing organizations should choose to decide which plan to employ based on their business interests. Each plan is designed to work for a specific type of business and financial situation. Choosing the right one, and understanding the rules and regulations of each plan is important. The best plan for the situation is the one that rewards the effort and results that are put into it.
Breakaway compensation plans are best suited for recruits who recruit high volume. It requires a distributor to break away from their original sponsor and work their way up. Breakaway compensation plans tend to be difficult to understand, especially for new recruits.
These compensation plans reward those who recruit as many people as possible without extensive network marketing training. They are easy to modify and are accepted by regulatory agencies. The stairstep breakaway plan rewards those who get promoted. The difference is that breakaways earn a higher percentage than the original sponsor, which makes them more profitable.
Unilevel compensation plans are the easiest to understand. Its goal is that the distributors create wide front lines in order to maximize their profitability. This compensation plan is easy to change and accepted by regulatory bodies. However, this plan may not be the best option for new recruits as it does not allow for rank advancement.
The matrix compensation plan is identified as a sturdy structure with limited width and depth. This allows only a limited number of distributors at each level. This plan also allows distributors to join a new position in the tree once they fulfill the set criteria. This increases their scope of earning more commissions. Limited width is however good for novice distributors who sign in with influential leaders who help them fill their grid easily.
Binary plans are the most controversial type. These plans reward distributors based on the volume of sales made by their group. Binary compensation plans are the most common type of network marketing compensation plan. In these types, a certain percentage will be paid from the downline income sales. However, this plan is not ideal because it is not always legal. In fact, it can also lead to legal issues and failure to support the downline members.
The compensation plan in network marketing is more than just a payment plan. It can also serve as a learning tool for new network marketers. It should be influenced by organizational structure and goals. Compensation should always pay out for sales generated not for recruiting.