Types of MLM Compensation?

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MLM compensation is how a person is paid for their involvement in a multilevel marketing operation. Multilevel marketing is also referred to as network marketing or pyramid marketing. The latter term has a more negative connotation. The general principle of MLM compensation is that each person receives a percentage of the sales made by the people they recruit into the system. The person then gets a smaller percentage of the sales made by people recruited by their recruits, and so on down the chain.

A unilevel plan is the simplest and most common type of MLM compensation. It means that the person gets a certain level of royalty from every sale by someone whose recruitment can be traced back to himself. In fact, this covers the entire sales pyramid below the original person. Generally in such plans, the royalty rates start out relatively low and decrease with each switch between the original person and the seller. Thus, the royalties collected from the people at the bottom of the pyramid can be tiny.

A binary MLM compensation plan works similar to the unilevel plan. The big difference is that each person in the chain is limited to two recruits. Each of these two recruits is authorized to bring two recruits, and so on. The idea is that the network will grow faster as each person has fewer assumptions to make.

The Australian plan or “Aussie 2up” requires recruits to pay a training fee or pay for training materials. Each person receives a portion of the taxes paid by each person they recruit. There is no sovereignty taken from any of those recruits they recruit. This means that the organizational chart for each person is essentially flat.

A matrix plan works on the same basis as a unilevel plan, but has a defined limit. For example, a three-by-six matrix would mean that the original recruit can earn royalties from three people they recruit. He is then allowed to earn one lower level of royalties from a person recruited from each of these three recruits, an even lower level from the person one step up in each chain, and so on until there are six levels. The person’s network will then be full when it reaches three chains of six people, meaning that in a graph it will be rectangular rather than the more traditional pyramid.

The compressed compensation plan has the same structure as the unilevel plan. Each person’s network will be in the shape of a pyramid. The difference is that the royalty rate is set to be much higher from the higher tiers and much lower from the lower tiers than a standard unilevel plan. This can be an advantage because, in most cases, the people closest to the top of the chain are more likely to make sales from which royalties can be levied.

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