Different Types of MLM Compensation Plans
Making money out of different types of MLM compensation plans is not a new thing.
Some people even claim that the popular compensation plans implemented in different MLM companies today date way back even before the MLM business model itself.
Did you know…
That the original blueprint of the pyramid style compensation plans being used by most of the MLM companies today were actually derived from the illegal pyramid schemes such as the Ponzi scheme?
The very first MLM company that successfully conceptualized what others called the “legalized” pyramid payout business model was Amway in the 1960s.
The three most popular MLM compensation plans of all time are,
- Generation and;
These compensation plans remain the backbone of the different types if MLM compensation plans in the MLM industry today.
Because many people find these compensation plans a little complicated for the average Joe and Jane...
This has been the motive of many to create new “simpler” and “straightforward” MLM compensation plans. Others created compensation plans which are a combination of 2 or more existing ones.
On this article…
I am going to share with you the different types of MLM compensation plans that you might encounter should you decide to venture in the MLM industry.
But before that, allow me to discuss something first that plays a vital role in most MLM compensation plans today - the Point System.
What is the Point System in MLM
The Point System is a kind of currency (with points) incorporated by many MLM companies on their compensation plans.
As to how it usually works, the company rewards its members with Points for hitting a number of sales, reaching a total product reorder volume or, by recruiting new people.
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You as a distributor will be given a chance to earn points by either product movements (reorders and selling) or thru recruitment.
Once you have accumulated enough points, you will then be rewarded by the company with cash, products, royalties, travel incentives and whatever type of compensation they have specified.
Some MLM companies will let you keep the points you earn forever. Some as long as you remain active while other MLM companies have points expiration policies.
I suggest that you take another look at your company’s compensation plan (if you are currently in an MLM business) to make sure that you won’t miss out.
What are the Different Types of MLM Compensation Plans Today
Now that I have taken you to a tour around the subject, it’s time that we get into it.
The different types of MLM compensation plans I have included on this list are the result of my personal experiences in MLM and network marketing, while the others I learned through research and during my reviews.
I am going to present the different types of MLM compensation plans alphabetically so you can quickly pinpoint and browse through if there is one in particular that you want to check out first.
Australian X-Up MLM Compensation Plan
First on this list is the Australian X-Up compensation plan. The Australian X-Up is derived from the Unilevel compensation plan (which I will discuss in a moment).
However, there is a distinct difference in how this compensation plan works from the latter.
The Australian X-Up is popularly called the “pass up” sales.
In other words, you actually pass up your sales to your upline or direct sponsor. The “X” part of the compensation plan refers to the conditions under which recruits pass from one person to another.
Here’s how it works.
In the Australian X-Up, you would pass up your first X sales (recruits) to your upline. After you passed up your first X sales, then you will wait to collect your commissions on the following sales made by your recruits.
When your recruits make sales, they will pass up their first X sales to you, and this would go on to infinity. An Australian X-Up is always associated with a one-time, and the income usually flows entirely from completing individual sales.
There are many issues about this compensation plan, and the Australian X-Up received a lot of negative reviews from plenty of people because of the sales that are passed upwards.
This means that the people at the top of the Australian X-Up gets to earn more while the people at the bottom have a long way to go to achieve the same perks.
- Pays large commissions per sale
- You get paid up to "infinity" levels
- A broken and flawed compensation plan
Binary MLM Compensation Plan
In layman's term, a binary compensation plan is when an MLM company only allows distributors to have two front-line distributors in his first level.
For example, when your first two downline positions are filled, say A and B, you will have no choice but to place your new subsequent recruits below either A or B (also known as spillover).
You will build both legs, but you will only be paid every time you add recruits or close new sales on the leg with the least volume.
This is commonly called the “weak leg” or “pay leg” in the MLM industry. Some of the most popular MLM companies that are using the binary compensation plan include:
The binary compensation plan is perhaps one of the best that there is. This model will allow you to establish synergy among your team, earn direct referral bonuses and matching (or pairing) rewards.
- Simple and straightforward
- You only have to build 2 legs
- Earn commissions up to infinity levels
- Rapid growth potential of your organization is high
- You can help your downlines acquire people under their own respective organizations in a sense that all your recruits after the first 2 will be placed below them
- Can create a welfare mentality among your recruits
- You have to keep your legs balanced to generate an income
- Maximum payout caps
Different types of Binary MLM Compensation Plan
There have been many adaptations to the binary compensation plan. The two below are the most popular among them.
While the original Binary plan comes with two-legs (left and right), the Australian plan comes with a third leg. In this compensation plan, members can create an additional parallel leg apart from left and right.
In an Australian Binary Plan, you will have at least three legs directly under you. If you are the direct sponsor, one thing that you can benefit from this model is that you have the potential to be compensated from your third leg with no matching pairs required.
- You have the potential to earn commissions even without a matching pair
- Complicated and unstable
The repeat binary plan heavily relies on the MLM points system. Both the products and the person under your organization are assigned with corresponding points.
Let's say 1 recruit is worth 1000 points while each product has points between 5 - 20 points. For example…
Even if your weak leg is not recruiting new people into the organization as long as they are continually reordering products, those product points will accumulate up to 1000 points which is equivalent to 1 recruit.
It also works both ways.
Even if you only have 2 directs, A and B, if both of them continuously reorders your products, time will come that each of them will accumulate 1000 points and you will be paid with a matching bonus!
In this compensation plan, you will have the chance to earn a matching bonus even without recruiting new people in your weak leg.
One MLM company I know that uses this is AIM Global.
- Earn potential commissions without recruitment
- Requires a ton of product reorders to accumulate the required points for the pairing commissions
Board MLM Compensation Plan
The board compensation plan is also widely known as the Revolving Matrix Plan or Matrix Cycle Plan. The design of the Board Plan is usually a 2X2 Matrix.
Once you joins a company using a Matrix comp plan, a blank board will be allotted for you and you will be required to fill the columns together with your associates.
The dimension of the columns may differ with regards to your company’s policies.
The commission in a board MLM compensation plan will be rewarded to you upon the completion of columns.
Direct sponsorships in Board plan are limited to only two members on your first level. The same goes for your two directs up to two levels deep.
Zurvita is an MLM company that uses the board MLM plan.
- Easy to manage and execute
- Payouts are not only manageable but also yields high profits
- Your income has minimal dependencies on your downline or upline
- Board plan can be detrimental for the growth and rapid expansion of your MLM company
Generation MLM Compensation Plan
The Generation MLM Compensation Plan is relying purely on products selling. This compensation plan is best suited for MLM companies who manufactures consumable products and want to sell their products directly to the end users.
The Generation MLM Compensation plan is also known as Gap Commission Plan or Repurchase Plan. In this model...
The company splits the generation into levels according to organizational policies and members get bonuses based on the levels.
For example, a generation consisting of 500 members may be split into three levels, and members get to earn a certain percentage revenue on each level. The percentage you can make as a distributor is totally dependent on the company's rules and regulations.
- High earning potential
- Simple and straightforward
- Beneficial for the entire organization as profits get distributed along various earning options such as Royalties, Bonuses, Rewards, etc.
- Your income highly depends on products sales
Gift MLM Compensation Plan
This is a popular MLM compensation plan which is widely used for crowdfunding, helping and donation programs.
The Gift MLM Plan helps everyone in within the organization to start up and succeed in their businesses with its gifting strategy.
The basic idea of the gift plan is you can donate or help one person, and in return, you will be able to receive multiple gifts from the other people as well. The system permits donations to a certain level as long as it abides by the company’s rules and policies.
The Gift MLM Plan is also known as the Donation Plan or MLM Helping Plan.
- Get multiple gifts for giving away one
- You can help others
- Illegal in some countries
Matrix MLM Compensation Plan
Once you join a company that uses the Matrix compensation plan, you will be positioned to the first level of an organization.
When you recruit new members, they spill over to the next level and even to other levels after that, depending on the format of the matrix plan that your company is using.
The most commonly used matrix MLM plans are 1x3,3x9, 4x7 and 2x12.
For example, when you choose a 3x9 matrix plan, you can recruit 3 members to the first level, and the rest will spill over to later levels with a depth of 9 levels.
Global Domains International is an example of an MLM company which uses the matrix compensation plan.
- High potential for downline spillovers so the potential for a rapid network growth is very high
- Easy manage and execute
- The structure is limiting and can be detrimental for the growth and rapid expansion of the company
Monoline MLM Compensation Plan
(aka Straightline Plan)
As the name suggests, “mono” means single or one. The Monoline MLM compensation plan contains only one leg for every recruit.
When you join a monoline company, you will immediately fall under a sponsor in a single line, and your recruits will be positioned under you and so on.
Mostly referred to the Straight line, Linear or the Single Leg MLM Plan, the monoline is a basic forced matrix plan that is only 1 x 1.
For instance, if A recruits B and C, A will have no choice but to place B below C. Moreover, if A continues to directly sponsor new people say D, then D will be placed under C.
Furthermore, timing is crucial in this compensation plan as it is wholly based on the “First Come First Serve method” principle.
The Monoline compensation plan allows you to make money from every new recruits added in the line without doing any hard work.
One good example of an MLM company that uses the Monoline compensation plan is It Works.
- Simple and straightforward
- Unlimited income potential
- Passive income potential
- First come first to get rich
Have you encountered these different types of MLM compensation plans before?
Well, here’s more!!
Table MLM Compensation Plan
(also known as Exit method)
This compensation plan is based on a table of orders. Each table is consist of a specific number of cells. To further illustrate this particular type of compensation plan...
You can look at this as a buying an expensive product using the concept of combined purchase with a group of people, hence, the table.
Once you register to this kind of an MLM company, you will be opening your own table which then you will fill up with people investing the same amount as you. Once all the cells of your table have been filled, you will be paid with the agreed commissions.
This type of compensation plan is usually used by MLM companies that are involved in gold trade such as the infamous Swissgolden and the now-closed Emgoldex (aka Global Intergold).
Below is a video explaining this particular compensation plan used by Emgoldex (Start at 5:26 if you want to skip the introduction).
- Huge commissions
- You must complete the table (whatever it takes) to get paid
Emgoldex Compensation Plan Video Presentation
Stair Step MLM Compensation Plan
The stairstep compensation plan is a variation of the unilevel plan which allows distributors to “break away” and bypass their direct sponsors once their organization and sales volume has reached a specific benchmark.
In this MLM compensation plan, you will be responsible for both personal as well as group sales volume. You will also not be limited to how many direct sponsors you have.
If you hit the set target sales volume, you will be promoted for the next higher level. The Stair Step compensation plan gives enormous incentives to distributors who achieve specific quotas and milestones.
Some of the most popular MLM companies, that still operates using a stairstep compensation plan to this day include:
- A chance to get promoted and pass up your direct sponsor
- Unlimited numbers of direct sponsors
- Your downline can bypass you
- Products stockpiling is common
Unilevel MLM Compensation Plan
This Unilevel MLM compensation plan offers an unlimited width structure. With the Unilevel MLM plan, you can sponsor to the nth level and place them on a single line.
You can get a dividend from the business volume of every member on your down-line; usually two to ten levels deep depending on your company policies.
Rhere are usually no spill-overs in this type of compensation plan as everyone sponsored by you is on your frontline.
The Unilevel MLM plan is straightforward to understand and operate since its calculations are less complicated.
With an unlimited width plan, the Unilevel MLM plan allows a sponsor to have several distributors under him while allowing the distributors to have several other sub-distributors further.
Le-vel offers a unilevel compensation plan to its members.
- Unilevel MLM plan is the most comfortable MLM structure to implement
- Faster earnings and substantial residual income
- Unilevel doesn’t pay up to unlimited levels
- No Spillover
- Not Much possibility of rapid downline development
Do you know of more different types of MLM compensation plans that I haven’t included on this list?
Kindly share it to our readers in the Comment Sections below.
Which MLM Compensation Plan is the Best?
Unfortunately, no specific MLM Compensation plan will guarantee you to earn a ton of money.
Depending on the company you are in, each of these different types of MLM compensation plans can pay well, and a perfect compensation plan does not exist.
Besides, your success in the MLM industry does not rely on a company’s compensation plan alone. More than anything else, you also need to:
- Find a good and legitimate MLM company
- Have an outstanding product line
- Learn how to become an effective MLM distributor
- Master the skills of Selling and Recruiting
- Learn how to become a leader
These are just what’s on the top of my head. Although success in MLM might be a longshot, there are effective steps and strategies that you can implement to increase your odds dramatically.
After all, your success in MLM and in any business model is in your hands.
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My Two Cents
There are plenty of ways for financial independence than MLM. However, if the MLM industry has a special place in your heart and you honestly believe that this is your ticket to success…
Then I highly advise that you learn more about the MLM business model as a whole in addition to the different types of MLM compensation plans.
There are much more to know regarding the Ultimate Truth about MLM that you might have missed out.
Before you leave: Check Out My #1 Online Business Recommendation for Beginners
Thank you very much for taking the time to read this article about the different types of MLM compensation plans. I hope I have provided you with the information that you were looking for.
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On the other hand...
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Until next time and I wish you all the success in the future.