Multi-level Marketing (MLM) is a type of direct selling which also known as Network Marketing, Chain Marketing, Pyramid Selling and Referral Marketing.
The Direct Selling companies allow their Distributors to earn retail profit by selling products and give commission on products sold in the downline.
From an individual distributor’s perspective, downline members in every MLM company are arranged in a specific structure which is called MLM Plan.
These MLM plans decide the future commission of every distributor from downline, So they better known as MLM Compensation Plan.
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Types of MLM Compensation Plan
The following are the 6 most popular MLM compensation plans with definition, example and explanatory image.
1. Binary Plan
The iconic Binary MLM Plan was developed in the ’80s. The existence of the plan seemed difficult as most pyramid schemes use this compensation model, still it got a huge success in the network marketing industry.
The Binary Plans are structure-specific. In Binary Plan every distributor stays limited to a maximum of two distributors in their direct downline.
Binary Plan allows distributors to earn commission from one side or leg of the downline i.e. lesser earning leg or pay leg. The leg generating more money is known as the reference leg.
The plan might sound strange at first but is great to support teamwork. To get the most out of the downline, the Direct Sellers need to work hard on their weaker legs.
For instance, the first upline member can include at most 2 downline members. The 2 downline members can include 2 more downline members each and so on. This creates a binary structure to follow the Binary Plan.
Commission can be paid according to the criteria of the company, i.e. matching bonus on 1:1 or 1:2 (2:1) and downline levels can be fixed or infinite.
2. Generation Plan
Generation MLM Plan is purely based on product selling business. It is also known as Repurchase Plan or Gap Commission Plan.
Generation Plan tends to be a powerful plan due to its ability to pay up to many deep levels.
This plan seems to be a motivational product selling plan where every seller promotes a downline for selling products and receives incentives on specific target achievement.
Here the whole volume right from upline to downline is considered to be a generation.
3. Matrix Plan
Matrix MLM Plan is also known as Forced Matrix MLM Plan. It is designed as a pyramid structure. Here the Direct Sellers are arranged into fixed rows and columns. The width of the plan is generally fixed but the sellers can add more members to their downline.
Each seller receives a commission when any new member is added to his downline.
Below is an example of a 3*3 matrix.
The first level includes default members whereas new members can be added to the next levels as the plan permit. Some commonly used Matrix Plans are 3*9, 4*7, and 5*7.
For instance, the 3*9 plan allows to recruit 3 sellers at the first level and the rest sellers will split over to later levels with a depth of 9 levels.
4. Unilevel Plan
Unilevel MLM Plan is a compensation plan with only one business level, and remaining members are added to the seller’s direct downline. There is no splitting in the downline, hence distributors receive all the benefits of their direct recruitment.
A Unilevel Plan is a simple plan where each level of recruits (horizontal group) is connected to the main distributor.
Distributors achieve different ranks in plan and grow their downlines to receive more commissions. Higher rank results in higher commissions from the downline.
The Unilevel Plan allows the organization to create its own strategy and earning structure for its Direct Sellers.
5. Hybrid Plan
Hybrid MLM Plan is a combination of multiple MLM plans.
One of the most preferred combinations is Unilevel Plan and Binary Plan. The benefits of both plans are combined and disadvantages are eliminated.
All the sellers work as a team and boost revenue generation. The combination improves the depth of the plan and the incentives get divided among the entire network.
For instance, the limitation of a Unilevel Plan can be single-level compensation which can be removed by combining the Binary Plan allowing multiple levels in the downline.
Here, the structure of the Hybrid Plan starts with the left and right leg similar to a binary structure.
With spillover, a new downline is placed under a weak leg or available position. All direct recruits of binary structure will be considered as first-level downlines of uni-level structure.
6. Gift Plan
The Gift MLM Plan is also known as the Helping Plan. It is a gifting strategy applied for crowdfunding or donation programs.
This plan works great for business start-ups and growth. It is a new concept in MLM often used by service-based MLMs such as cryptocurrency-based MLM.
The Gift Plan is also known as the Gift Planner or Cash Order Plan. The basic concept applied here is to send a gift to one member and receiving multiple gifts from others. Here each member gets the benefit of multiple gifts.
It offers flexibility in planning arrangement and commission of members.
These were a few well-known and followed MLM Compensation plans.
Apart from the explained ones, there are many less known plans such as Party Plan, Board Plan, Stair Step Plan, Australian Plan and Monoline Plan.