s is Part 3 in a series of five articles.
Note: It has become increasingly clear to me that it's just as important for network marketing distributors to understand MLM compensation concepts as the MLM companies, themselves. Why? Because distributors invest their all into building a downline. The bottom line is if distributors understand MLM commissions, they can make better choices about the companies in which to invest their lives!
Most of the plans that are called Uni-levels today are actually Hybrid Uni-levels. In other words, the Uni-level Plan is typically the backbone and then other commissions like fast starts and/or pool bonuses are added to increase earnings. So, this plan features a level commission as the primary commission. A level commission pays the distributor a percentage on a certain number of levels of his/her downline. Some of the common additions to the level commission to create a Hybrid Uni-level include:
- When a distributor signs up a new recruit, he/she is paid a fast start commission for certain products, product packs, or a specific amount of product the new distributor initially sells. The purpose of the fast start is to get higher sales commissions to the upline on the first few sales as well as to newcomers to the program. A distributor can earn fast start commissions each time he/she recruits someone for as long as he/she is in the company, but they’re only paid for the first few months or on a certain amount of a recruit’s sales volume.
- “Mini-barrier” plans that have everyone sign up as a preferred consumer and then automatically advance to distributor when he/she qualifies.
- A small differential or single level commission on the front of the plan. Typically, this is done by overlapping infinity commissions at the intermediate ranks. A differential commission maximizes commissions for those who are doing what the compensation plan is designed to reward. It targets a specific activity.
Pool Commission – An amount of money is put into a pool and divided up among those distributors who qualify.
Differential Commission - A type of commission whereby a distributor receives the difference between the amount for which he qualifies and the amount for which his first level distributor qualifies.
Single-level Commission - A commission type where the entire amount goes to a single individual.
- Level commission percentages that change as a distributor’s rank changes.
- Pool commissions for the top ranks.
- Infinity commissions for the top ranks.
- Conversion from a level commission paid on personal volume to a level commission paid on group volume.
- Dynamic compression.
Compression
A mechanism for bypassing unqualified or inactive distributors when determining payout so that the upline is paid on the number of active levels. Only active distributors count as levels in the commission plan. Dynamic compression pays out all levels of a level commission.
In a Uni-level Compensation Plan, everyone is a distributor. You get paid on your distributors down X number of levels, and the company tries to get extra money to you by creating a different kind of differentiation besides sales force classifications. In other words, this plan is built on the standard 5% commission to everyone plus add-on commissions that target groups.
Example: Uni-level with 4 Ranks
Caution: With this plan, make sure to note how the different types of commissions in your mix interact. You might find some conflicts or opposing forces at play. Eliminate them quickly!
Many of the Hybrid Uni-level compensation plans include a fast start commission, which remember, is a different commission schedule paid on new distributors for the first one to three months after being sponsored. The division of this plan is time. So, when I sign you up, I make more on you when you come on board and less later. The challenge is to create a segment of the downline distributors can make a higher percentage on. Without a good fast start program, a Uni-level Plan will stay close to the 5% earnings line. A fast start can bump earnings up to 7-12%.
Example: Fast Start
Hybrid Uni-level and the 5% Plus Commission Theory
5% Plus Theory
The 5% Plus Curve observed in network marketing industry commissions provides a standard for network marketing companies to allocate commission money. The 5% Plus Theory says, in order for a compensation plan to be viable: 1) each upline distributor that receives commissions must receive at least 5%, and 2) a company must pay those upline distributors critical to its growth and stability at a higher percentage. The compensation plans that have survived have done so by implementing this theory.
Standard 5% Earnings and 5% Plus Curve
The rationale behind it is, first, companies can’t pay the standard 5% commission to all distributors. Sometimes when a distributor makes a sale, he/she might have a 50-60-person upline. So, if there were 50 people in that upline and the company paid everyone 5%--5 x $50 = 250% payout! Obviously, the company has to limit and decide which individuals to give the 5% to.
Second, there?s a problem with paying only the standard 5% because if the downline sales for a distributor are $10,000 and you give that individual 5%, his/her earnings are only going to be $500. Is this the appropriate amount for a distributor to earn on $10,000 of sales? If somebody else is making those sales other than that individual, then maybe it?s appropriate. But, if he/she is personally making those sales alone, he/she will soon bail and work at Wal-Mart because the MLM earnings per hour are just too low!
Applying the 5% Plus Theory, you pay additional money to the upline distributor who is responsible for those sales. So, the challenge is to create a segment of the downline that can make a higher percentage. These are the people you really want to ?incentivize.? The vehicle to accomplish this is hybridization of the compensation plan?adding on additional commission types, i.e., a fast start program.
Abiding by the 5% Plus Theory enables your distributors to solidly count on:
- If I build a downline, I will have some control over my destiny.
- If I build my downline properly, I will get paid on the majority of all of my downline sales.
How does a Hybrid Uni-level Compensation Plan create the 5% Plus Commission? With this plan, there are only customers and distributors. You can receive retail commission on customers if they?re first level to you. You receive a uni-level commission on distributors. When you move up in rank, you don?t receive a new type of commission. The commission you get is not based on what rank you are, like in a Breakaway Plan as a sales leader. This plan pays the standard 5% commission to everyone and then uses add-ons to target groups.
Strengths of Hybrid Uni-levels
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Because of the many variations, companies truly can create a unique compensation plan for themselves.
Weaknesses of Hybrid Uni-levels
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Distributors may be expecting one result and have something totally different occur. This often requires a company to spend more time training distributors on the compensation plan.
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Distributors become frustrated when a plan they expect to be simple and easy proves to be complex and difficult.
Summary
If you?re thinking about starting a company using a Hybrid Uni-level Compensation Plan, spend the time and energy to create realistic data models with lots of variations of the plan. Do dozens of commission runs before you decide on a final compensation plan so you know exactly what you have when you?re finished. This will enable you to confidently tell your distributors how the plan is going to pay.
Successful Hybrid Uni-levels
The most successful Uni-levels of our day, i.e., Meleluka, Xango, Tahitian Noni, all have some way of dividing up a group of people, typically based on chronology rather than performance.
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