The 4 Kinds Payment Structures & How Prepaid Compensation Can Help
Multi-level marketing companies offer people a tremendous opportunity to start their own business. The sales force is compensated for both the sales they generate individually, and the sales of the other team members they recruit.
There are four major kinds of compensation methods used throughout the MLM industry. It is important to understand the various methods before going ahead and joining a company. Check out the various pros and cons down below, and find out how switching from traditional banking methods to prepaid cards can benefit each kind of structure.
A unilevel compensation plan is the simplest, most straight-forward kind of payment plan used by multi-level marketing companies, which makes it attractive to new recruits. Unlike other payment structures, the plan is only one level deep (thus the name), and you must place all of your recruits on your frontline. Everyone you enroll falls directly under you, and you earn a portion of everything they purchase or sell. In a unilevel pay plan, you are paid a certain number of levels deep into your organization–typically 5 to 8 levels.
This type of plan is perfect for part-time workers, people who excel at sales, or new recruits interested in earning money quickly in the short term. It is also an excellent option for start-up companies looking to attract new members.
That being said, with only one vertical level available the income potential is limited, which may deter would-be members looking for a full-time employment opportunity. As a result, many MLM companies create lucrative bonus programs to help incentivize recruiters, as well as a tiered advancement structure to increase the amount of money one can earn.
Rather than mailing out a multitude of small bonus cheques, which is expensive and time-consuming, a MLM company employing a unilevel compensation plan can opt to use prepaid cards instead. This allows the company to instantly transfer funds to their consultants, saving both time and money. This is especially true for large, nation-wide or multi-national companies.
Unlike unilevel plans, which have unlimited width but no depth, in a binary multilevel marketing plan you sponsor two new recruits to be in the level below you, and these two people, in turn, each enroll another two people. This results in two “legs,” and typically a distributor is paid for the sales made from the “weaker,” or less profitable, leg. This model encourages the recruiter to train and motivate each leg to ensure they are both operating at a high level. The plan is relatively new in the network marketing industry, rising in popularity in the late ’80s and early ’90s.
The biggest advantage of a binary compensation plan is that it pays based on volume, which makes it easy to pitch to new prospects–the more orders you bring in, the more money you make! Unlike the univel plan, there is no cutoff point with a binary plan. Another advantage is that everybody only needs to sponsor two distributors (at least in theory).
The biggest disadvantage of a binary compensation plan is that, since it only pays commission on the weak leg, it tends to favour the biggest commission earners and salespeople. Since there are only two legs in this model, anyone who is sponsored after that must be placed under other people–this is called “spillover.” A seasoned, super recruiter will go out of their way to ensure that they create power legs to maximize spillover. Since other would-be recruiters know that to see the best results (and maximize spillover) you want to be in someone else’s power leg, therefore people are more likely to join up with a heavy hitter, as opposed to an average person.
A binary compensation plan can have a nearly unlimited amount of vertical depth, which means a LOT of payments need to be made. As more and more reps claim commission on an order, the commission rate drops, leading to many people receiving a series of small cheques. This is both a waste of time and a waste of money to the company. This is where prepaid comes in handy, as it is much cheaper to send these commissions electronically than via cheque.
A forced matrix compensation plan sets a specific, predetermined width and depth. For example, one MLM company may have a 4-by-5 matrix, which allows a distributor to directly sponsor five people on the frontline, and earn income from the sales of these people up to six levels deep.
This type of plan does a wonderful job at promoting teaming, as a distributor is fully invested in training and motivating their team. Once a distributor’s frontline is full, they will switch from “seller” to “teacher” and focus on helping out people at lower levels.
As a result of a limited amount of people/levels, growth can be limited in this plan. However, many companies have included bonus programs and “rollup” plans to reward long-time distributors with additional income. These types of bonuses are perfect for the prepaid system, and they can quickly be loaded onto cards anywhere.
A breakaway plan, also called a stairstep breakaway plan, earns its name from the idea that a salesperson, after advancing their way through the company, can reach a certain point and then “break away” from their upline in order to avoid giving away some of their commission to their original recruiter. While you can still earn commission on these recruiters, it is much less than it would be if they were part of your organization.
Similar to a unilevel compensation plan, in a breakway model you can sponsor as many distributors as you like on the frontline/first level. As a result, it’s possible to a make good money by having many distributors and breakaway organizations.
The benefit of this program is that it motivates individuals to work hard in order to eventually break away and create their own organization. The breakaway structure is aimed at full-time sellers and business builders. Unfortunately, the problem with this kind of plan is that it discourages teamwork, as each breakaway results in a loss of income for the distributor on the higher tier. The lack of support/teamwork/camaraderie can have definite negative impact on the long-term growth of some companies, especially smaller companies. It can also be confusing to new recruits, especially when compared to the easier-to-understand compensation plans up above.
Once again, switching from outdated cheques to prepaid cards is a huge plus for people in breakway plans. It’s easy to put payments, bonuses, and incentives quickly and securely on the card, leading to an increase in happiness among distributors. This is especially important in this compensation plan, which does not lend itself to building teamwork or workplace harmony.