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How to Evaluate a Compensation Plan

How to Evaluate a Compensation Plan

Network marketing compensation plans vary wildly from company to company. But, there are some basic elements to look for in a solid package. Check out our tips here.

When evaluating a network marketing compensation plan, it’s important to focus on whether or not it incentivizes, rewards, and recognizes your hard work. But, how do you evaluate whether the plan you’re offered will do that?

There are four different kinds of basic compensation plans when it comes to network marketing - binary, stair-step breakaway, matrix, and unilevel. And, there are pros and cons to each set-up.

But, before we dive into all those details, let’s talk about the questions you should be asking yourself while you’re evaluating various plans.

Goal-Oriented Questions to Ask Yourself

Before you shell out the money for a kit and start messaging everyone you know telling them about your new opportunity, take a breath. You want to make sure you’ve evaluated the company you choose from every angle.

There are plenty of fantastic MLM companies out there that offer generous compensation and bonuses. But, there are just as many nefarious companies looking to make money off of people without backing up their promises. Being able to recognize the difference starts with asking yourself the following questions:

  • Is it an easy opportunity to enter? You should only buy a modestly priced sales kit at most.
  • Will you be rewarded for direct sales or make commissions off of others in your downline?
  • Will you get a reward for sponsoring others?
  • Will you get another reward when you recruit people to multiple levels?
  • What is the focus of your company? Do they sell products to consumers or focus too much on selling to your downline?
  • Will you be rewarded if you sell a lot personally?
  • Will you be rewarded as a group if your team sells a lot?
  • Are there any rewards for monthly volume?
  • What kind of volume are you expected to contribute each month to maintain your standing?
  • Does the company offer any non-monetary incentives like trips or cars?
  • Will you be able to meet your plan’s monthly maintenance requirement or is it too high?

The Unilevel Plan

In this style of plan, every recruit remains on the same level as a distributor regardless of how well they perform. You don’t move up a chain at all. But, you can get compensation from recruiting new members.

There is no limit to the number of people you recruit, they become your frontline. Then, the people you recruit are able to sponsor as many people as they want to. The advantage of this style plan is you can grow your commission to large numbers if you’re able to recruit a productive downline.

The Stair-Step Breakaway Plan

This plan is the most common style of network marketing compensation plan. After you accomplish certain established criteria and recruit a certain amount of people, you breakaway from your original upline and become your own entity.

The downside of this style of plan is you can lose the income of some of your top sellers if they’re able to move up quickly and recruit people.

The Matrix Plan

In a matrix plan, each group becomes its own distribution line limited to a certain number of people. Typically three by five wide meaning the fourth person you recruit becomes a distributor under the first three distributors you personally sponsored.

This is a good plan to be in when you’re new to network marketing since you can learn from strong leaders and then maintain your own team.

This plan is best for people who are looking to consume the products of a company and make some money on the side. You need to focus on being on a productive team and consider carefully who brings you into the fold. You need it to be someone you admire and want to learn from.

The Binary Plan

The binary plan is the most controversial of all. Each distributor occupies a spot on a team of two downline legs, then they’re paid compensation based on the sales volume of the group.

This plan is no longer very common but was used in the 1990s to sell fraudulent gold coins, travel memberships, and prepaid phone cards.

More Considerations for a Network Marketing Compensation Plan

You also need to consider the overall payout of your compensation plan. What percentage of the product’s suggested retail price will you pocket?

Orphan Commissions

When a distributor doesn’t qualify for bonuses or commission in a given month that money is considered an orphan commission. You should try to avoid a compensation plan where orphan commissions are returned to your company.

Instead, look for a plan that has the option of rolling up your commissions to the next qualifying distributor in your upline that month. Another term for this approach is “compression”. Your company should handle orphaned commissions from terminated distributors the same way.

Lock-In Features

You should also find a plan with a lock-in feature, meaning once you reach a certain level, you won’t be demoted if you have a temporary drop in sales for a month.


Companies also offer various perks to their distributors like:

  • Cars
  • Health Insurance
  • Free Training
  • Cooperative Advertising Programs

Some companies even offer stock options. When it comes to perks, it’s all about what has value to you. The sales training offered at many MLMs has a value of its own if you take advantage of the opportunity to learn.

How to Evaluate a Compensation Plan — Final Thoughts

No matter what advantages a company is offering you, always ask yourself one final question:

Is this company emphasizing its products or services for consumers, or will I be making my money from finding new recruits?

If your company is in the second category, you should turn down the opportunity and find something else. After all, it’s the quality of the products you sell, not your compensation plan that will drive your success.

For More Help

Check out our other blog posts for more helpful advice to get started with your network marketing business.

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