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What Are the Different Types of MLM Compensation?

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  • Written By: John Lister
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  • Last Modified Date: 04 November 2014
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MLM compensation is the way in which a person is paid for their involvement in a multi-level marketing operation. Multi-level marketing is also referred to as network marketing or pyramid marketing. The latter term carries a more negative connotation. The general principle of MLM compensation is that each person receives a percentage of any sales made by people they recruit into the scheme. The person then gets a smaller percentage of 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 some level of royalty from every sale by somebody whose recruitment can be traced back to themselves. In effect, this covers the entire pyramid of sellers below the original person. Generally in such plans, the royalty rates start out comparatively low and diminish with each step between the original person and the seller. Thus, the royalties collected from people at the bottom of the pyramid can be tiny.

A binary MLM compensation plan works in a similar way 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 allowed to bring in two recruits themselves, and so on. The idea is that the network grows more quickly as each person has less recruitment to do.

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The Australian or "Aussie 2up" plan involves recruits paying a training fee or paying for training materials. Each person gets a proportion of the fees paid by each person they recruit. There is no royalty taken from anyone those recruits go on to recruit themselves. 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 themselves. They are then allowed to earn a lower level of royalties from one person recruited by each of these three recruits, an even lower level from the person one step further in each chain, and so on until there are six levels. The person's network will thus be full when it reaches three chains of six people, meaning that in a chart 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 pyramid shaped. The difference is that the royalties rate are set up to be much higher from the top levels and much lower from the bottom levels than a standard unilevel plan. This can be an advantage because, in most cases, those nearer the top of the chain are more likely to actually make sales from which royalties can be taken.

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anon270915
Post 4

The people who can earn a living in the mlm industry are around 3 percent of the overall participants.

Sunny27
Post 3

@Latte31 - I know that the MLM business is difficult but it becomes easier when you find a product or service that you love because if you sincerely believe in the product then that is half the battle in sales.

I think that in order to make money in this business you really have to have strong networking relationships because you will constantly have to talk to fresh faces to introduce your product and get people to join your team.

latte31
Post 2

@Icecream17 -I think you are right. The problem is that when they go to the MLM training meetings you are inspired by people that have earned cars and special trips due to their outstanding sales results and most people are seduced by these possibilities.

While it is totally possible to earn these prizes with some of these companies most of the people that have reached that type of status will work their MLM opportunity like a business and not like a job.

They will create a business plan that includes how they will advertise and promote their business. I think that planning is really critical in order to be able to be successful with these MLM companies.

I do know people that are successful in this industry and they work extremely hard. Just to give you some perspective, the average start up business does not usually earn a profit until after the one year mark, so that should give you an idea of how hard this business can be and how much effort it requires.

icecream17
Post 1

I wanted to say that I have a lot of respect for people that can earn a living in the MLM business because I find the structure of the business somewhat challenging.

The hardest part is getting enough MLM leads in order to make the MLM opportunity worthwhile. The commissions on your personal sales are so low that you have to recruit people and help them sell in order to earn a decent living.

I think most people give up because any MLM system is going to require a lot more work than most people expect to put in.

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