3 Main MLM Compensation Plan Types

If you’ve ever been involved in the MLM industry, chances are you’ve come across the terms “breakaway,” “unilevel,” and “binary” compensation plans. These three plan types have earned their place in direct selling’s core commission Hall of Fame for being dependable, time-tested, and serving as a solid foundation for any MLM comp plan.

Whether you’re new to direct selling or simply want to brush up on your industry knowledge, this article will provide you with all the basics for each type of plan.

1. Breakaway Compensation Plan

The breakaway plan is a classic and widely used MLM compensation structure. It operates on the principle of distributors progressing through ranks as they build and expand their downline organizations. Here’s a detailed breakdown of how the breakaway plan functions:

Overview

Breakaway Rank: In the breakaway plan, distributors start by earning differential bonuses based on their sales and the sales of their downline. As they reach a specific rank known as the breakaway rank, their earning plan transitions to a generation bonus structure.

Group Volume Commissions: Initially, distributors earn commissions based on the group volume generated by their downline organization. This commission can take the form of level commissions or differential commissions. Level commissions pay distributors a percentage of sales from a specific number of levels within their downline, while differential commissions incentivize distributors to meet certain requirements and advance to higher commission “steps.”

Generation Commissions: Once a distributor achieves the breakaway rank, their earning structure changes. They no longer contribute group volume to their upline breakaway sales leader but instead form their own breakaway group. The upline leader now earns generation commissions from the breakaway group volume and continues to receive group volume commissions from non-breakaway distributors in their downline.

Benefits

  • Incentivizes distributors to reach higher ranks and build strong downline organizations.
  • Rewards leaders who have helped their downline distributors reach the breakaway rank.
  • Provides potential for significant earnings through generation commissions.

Pitfalls

  • Heavy reliance on recruitment and constant downline expansion.
  • Potential for a competitive environment among distributors vying for the breakaway rank.
  • A decrease in the differential bonus once distributors transition to generation commissions.

2. Unilevel Compensation Plan

The unilevel compensation plan is known for its simplicity and flexibility. It offers distributors the freedom to build their downline organization according to their preferences. Let’s delve into the key components of the unilevel plan:

Overview

Unilevel Commissions: In this plan, distributors earn commissions based on the sales volume generated by their downline recruits. Each level of recruits (horizontal groups connected to the main distributor) is assigned a commission percentage. As distributors advance in rank and their downline grows, they become eligible to receive commissions from additional levels in their organization.

Flexible Structure: Unlike the breakaway plan, the unilevel compensation plan grants distributors the autonomy to decide how they build their organization. They can strategically place new recruits, create their own strategies for growth, and customize their approach to maximize earnings.

Stacking Concerns: One challenge associated with unilevel plans is the potential for stacking. Stacking occurs when distributors create artificial downline levels by enrolling fake distributor accounts or individuals with no intention of selling. Implementing measures to prevent stacking is crucial to maintain the integrity of the MLM company and ensure fair compensation for genuine distributors.

Benefits 

  • Simple and easy to understand for distributors and recruits.
  • Offers flexibility in building the downline organization.
  • Allows for potential income growth as distributors advance in rank and expand their downline.

Pitfalls

  • Vulnerability to unethical practices such as stacking.
  • Potential challenges in managing a large downline organization effectively.
  • Lack of depth in compensation structure compared to other plans.

3. Binary Compensation Plan

The binary compensation plan operates on the principle of limiting distributors to two frontline positions. This structure encourages teamwork and balanced growth within the downline organization. Here’s a comprehensive overview of the binary plan:

Overview

Binary Structure: Distributors are restricted to having a maximum of two frontline positions in their downline. This structure creates a binary tree-like organization, where each distributor focuses on building two frontline positions, referred to as legs.

Pay Leg Commissions: In the binary plan, distributors earn commissions from the pay leg, which is the lesser-earning leg of their downline. This structure motivates distributors to concentrate their efforts on growing the weaker leg, as balanced growth is crucial for maximizing earnings.

Capped Earnings: To avoid disproportionate commission payouts, binary plans often implement caps on the total commissions paid out by the company. This ensures that high-level distributors are paid proportionally based on the commission percentages they’ve earned, preventing budgetary issues and promoting financial sustainability within the compensation plan.

Benefits

  • Encourages teamwork and balanced growth within the organization.
  • Provides a clear focus on developing the weaker leg for optimal earnings.
  • Simplifies compensation calculations and payouts.

Pitfalls

  • Potential neglect of the weaker leg, leading to imbalanced growth.
  • Initial challenges in building the downline due to the two-leg limitation.
  • Misleading perception of “no work, all gain” associated with binary opportunities.

Final Words

Understanding the intricacies of the three main MLM compensation plan types—breakaway, unilevel, and binary—provides valuable insights into the workings and potential drawbacks of network marketing.

While each plan has its benefits and challenges, it is crucial for individuals considering MLM opportunities to thoroughly evaluate the compensation structure, research the company’s reputation, and assess their own capabilities and goals before making a decision.

Ultimately, success in the MLM industry requires a combination of hard work, ethical practices, and strategic planning within a compensation plan that aligns with the distributor’s aspirations and values.

Read more: What Is an MLM?

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