As I indicated last time, in my view there are network marketing compensation plans that will give you much better value for your efforts than the standard “stairstep breakaway” plan.  (The only possible exception would be if you’re a gung-ho, full-time operator, experienced in MLM, and with numerous contacts and money to spend.  Which most of us are not.)

The only other thing I want to say on breakaway plans is this:  people seduced into this plan are always willing to quote you theoretical scenarios and rubbery figures till they’re blue in the face.  They may even brag that their company and upline are making a fortune, while ignoring their own sad pittance.  But putting theory aside as irrelevant, for me this plan just has too poor a history in practice to mess with any more.  I could even surmise that its poor track record in the last 20 or 30 years in bringing profit to any but the very top distributors is the real cause of so many burned out MLMers with a grudge against the whole industry.

And the great thing is, there’s no need to mess with these old-style plans, and with companies whose glory days are behind them.  This is mainly due to a couple of exciting new developments in the network marketing industry.

The first such development

…is how amazingly well-positioned the new breed of companies are to take full advantage of what’s been called “the next trillion-dollar industry.”  This, as you may be aware, is the booming health and wellness movement.

People en masse are starting to become more and more proactive in taking care of their health and fitness in advance, rather than going to doctors after the damage has been done.

What’s more, doctors can only do so much.  There are many intractable medical conditions which don’t respond well to either pharmaceutical drugs, or expensive, high-tech (and often highly invasive) treatments.

As well as making the obvious recommendations for more exercise and better diets, scientific and medical researchers are turning to nature and discovering a virtual treasure-trove of plant substances (known as “phyto-nutrients”) which native peoples have used for centuries to cure — or prevent — common ailments. And a growing number of new-style network marketing companies are applying some of the most cutting-edge research in this field, and coming up with products with tremendous potency and wide application in promoting health and wellness.  Products which — in a lot of cases — are even able to undo the damage that’s already occurred.

This is such a big and exciting subject that I’m going to devote more time to it a little farther down the track.  For now, let’s keep our focus on modern-day compensation plans.

The second new development

…I was referring to is the arrival of some highly-evolved new marketing plans.  These have only been made possible through today’s extremely sophisticated computers, with their vast data storage capacities and lightning-fast processing capabilities.  They can now be programmed with algorithms that ensure a fair spread of compensation, taking into account everyone’s contribution and making adjustments on the fly even faster than the speed of thought.

Add to this streamlined fulfillment systems that get product out with unprecedented efficiency, and you have a recipe for independent entrepreneurs to create their own big, nationwide or even global distribution businesses — without even leaving home.

The new breed of companies that are doing this are, in the main, using marketing plans called “binary” and “unilevel” plans.

Early forms of both these plans have been around for many years, and they’ve been shown to have several advantages in practice over the stairstep breakaway plan we were talking about before. 

For instance:  whereas the breakaway suffers from the effects of continually chopping almost-viable teams into smaller, non-viable units which are constantly in a state of having to struggle to get on their feet, only to be divided again — binaries and unilevels have no breakaway element.  So that huge built-in problem is avoided.  Along with the de-motivating effects of seeing your check cut down even as your overall group is growing!

Certainly, cutoff mechanisms are needed in every plan.  After all, the commission dollar can only be stretched so far.  And no plan deems it wise to allow a person to benefit greatly from a minimal work level.  For example, you can’t expect to earn a fortune by sponsoring just one hard-working distributor who brings in large numbers of people and huge sales volumes, while you sit back and do nothing more.

Therefore, you always have to sponsor a minimum of two good people; sometimes several.  And usually the more such people you sponsor, AND WORK WITH to help them succeed, the more you will earn.  This is where systems and upline support are so valuable, and in fact vital to your success.  (Just to finish this thought, I would never join with a sponsor who was not going places him- or herself.  How come?  Because I want to benefit from their drive and their motivation to help me; I don’t want my sponsor to be either not serious, not making progress, or so well established that they’re content where they are.)

On the subject of commission cutoff points, in binaries and unilevels these points occur only when each group has reached a solid, maintainable size and volume level.  This means that as your team grows, so does your commissionable volume, and so do your earnings.  And these plans usually contain a feature known as “dynamic compression,” by which your “reach” continues downline without limit to pay you your full current entitlement.  Volume is all that matters: if it’s there, it will count.

Now of course, not all unilevels and binaries got the formula right — especially in the early days.  Some companies failed; others prospered.  Always what mattered, and still matters, is how well the particular formula works in practice.

Recently I read a critique of a large and deservedly well-known company in this industry, which uses a 1990s binary-style compensation plan.  Somehow the writer, for all his analytical skills, had managed to take theory to new levels of unreality.  In business you’ve got to know the details, but you must never lose sight of practical reality.  And as a business person, you also have to have a vision of what’s possible, as well as a degree of excitement about what you see, if you’re going to be successful.

Niels Bohr, the pioneer of quantum physics, once said:  “Anyone who has looked at quantum physics and not been shocked by it, has not understood it.”  I’d like to say that anyone who has looked at 21st century network marketing, and not lost sleep with excitement, has equally not understood it.

Next time, I’ll look at binary plans, and especially “new generation” binaries, in more depth.

Continuing on from my previous post…

Last time I was talking about marketing plans, and especially those with a two-tier, front-end/back-end structure.  If, as I said, nobody earns very much from the “front end” of this plan, at what point does the big money come in?

Well (if it comes at all) it comes from the back end of the plan.  Once a distributor reaches the top of the “stair-step,” front-end scale, for commission purposes that whole group "breaks away" from their sponsor's "personal group."  Meaning that the sponsor doesn’t earn even the small margin that we conjectured last time on that group volume.

However, that's not the end of the story.  With this plan the upline may become entitled to a commission – typically starting at 4 or 5 percent — on the breakaway group's turnover.  (Indeed, to earn a sizeable income with this plan, your whole objective is to build more and more breakaway groups, which themselves need to grow and spawn other groups under them.)

You’ll notice I said may become entitled.  That’s because this override cuts in ONLY if certain conditions are met each month.

Here are some typical conditions:

• The upline sponsor must continue to personally buy a set minimum of the company's products each month.
• He or she may have to service a minimum number of retail customers.
• The sponsor has to satisfy a personal group volume requirement, without counting the breakaway group's volume.  In other words, this volume can only come from other sources — but come it must.  It can be quite a shock to the system, when volume you've become used to counting is suddenly taken out of the equation.
• The breakaway group itself may have to produce a minimum volume requirement.
• The sponsor's commission rate will usually depend on how many "qualifying legs" he or she has in that period.  A “leg” is defined as a downline group emanating from a person in your front line.  A qualifying leg is a leg containing at least one qualifying breakaway group, or that produces a certain amount of turnover.

(With all the rules and conditions this plan has, you can see why it’s not possible to say that $X of group volume will earn you $Y of commissions and bonuses!)

By the way, by “minimum” I don’t necessarily mean “small.”  I just mean that the company sets whatever minimum figure of turnover it considers appropriate for a group to qualify at different levels in their payment plan.  It might be 2,000 wholesale dollars (or points) per month; or it might be 10,000 dollars, or even 25,000 dollars.  Obviously, this is something you need to know in advance of making your decision.

Having worked a number of these plans myself (as I said earlier, lots of the bigger, older companies use them), and gone all the way to the top in one case, my main concern with them is that they seem inherently difficult for the part-time person and the non gung-ho person to succeed at.

When I say succeed, I mean to earn at least one or two thousand dollars a month on a lasting basis — say for more than a year or two. 

Part of the problem is that, yes, we all know that in the real world you have to accept postponed gratification — to gather the wood before you can light the fire.  But what happens in practice with this type of plan is that only the most committed, energetic, never-give-up people ever reach that “critical mass” and momentum that propels them on to a big, profitable, self-sustaining business.

Now I'm not suggesting any of this is unfair:  just that you need to be aware of it.  It would be foolish to go in with no idea of what was really required to earn various income levels in the plan. 

Remember: what I’ve said about this plan is based on my observations and experience over a ten-year period.  However, I don’t expect everyone to see things the same way.  And of course, there are no doubt some variations out there that address some of these problematical situations.

But in any event, I’d rather see you put your hard work into a company where the distributor earnings are spread more evenly through the ranks, instead of all bunched at the top.  And where part-timers can earn a fair reward for their efforts.

I’ll return to the subject of MLM payment plans shortly.  Fortunately, there are more modern plans which are, in my opinion and experience, much more productive!

Today, I want to start a series of posts to help people new to network marketing understand the different MLM commission structures they're likely to be faced with.  That way, people who read this blog will have a clearer idea of their choices.

Please note:  What I'm about to say applies only to people who join a network marketing company intending to earn an income.  If you join purely to buy the products wholesale, it's not relevant to you.

But for those looking for a little extra income, or complete financial and time freedom, or anything in between, the marketing plan is a really crucial area. As an old mentor of mine used to say — even if we were selling gold bars, unless people got paid adequately for their efforts, nobody would take it on.

A networking company's "marketing plan" is simply the way that it compensates its distributors for the work they do in marketing the company's products.  In fact, it's frequently called the "compensation plan" — the terms are interchangeable.

Now you might think that there would be a relatively simple commission schedule, which anybody could read and understand.  Unfortunately not.  Although you can broadly describe how a plan works in words, the actual computer algorithms and payout schedules are very complex, due to the multi-level payment structure. 

The good news is, you don't need to understand the math to earn very large sums of money!  But you do need to be aware of what size of business, and how it needs to be structured, to produce the income you're looking for.

Here's where you need to forget hypothetical whiteboard or PowerPoint examples.  What it really comes down to is how the plan works in practice.  How much it puts into your pocket compared to the amount of work you do.  Or more accurately, compared to the amount of turnover that your work generates for the company via your personal usage and sales, and through your downline team.  Is the reward comparable to the effort?  (Beware of recruiters who say “I don’t know how much I earned in my first year — I’m still receiving it.”  You’re entitled to straight answers.  Hit them with something like, “Okay, how much did you pay tax on?”)

Remember that each of your downline must receive their fair share of the commission, too.  (The ones who do the work, that is.  The truth is, most distributors generate very little turnover, and so can't expect to be paid very much.  In fact, as many as 85 to 90 percent of

your downline may be wholesale buyers and customers only, which leaves just 10 to 15 percent to share in the commissions.  In practice, this is a good balance.)

I've been around this industry for a while, and I have a fair amount of experience on how different sorts of marketing plans work in practice.  That's what I want to share with you now, without baffling anyone with industry jargon. (And again, remember that I’m addressing ONLY those who join to develop an income stream.)

First point.  Be very careful of plans which have what's called a "front-end" and "back-end" structure.  They are fairly common, but are used mostly by the older companies. 

These plans probably worked well in the early days, when network marketing was mostly moms and pops selling to their neighbors, family and friends, and making a few extra dollars.  But in today's global marketplace, where thousands of people are looking for a replacement income, or a way out of a job they hate or a business that's killing them, and where MLM company turnovers are reaching into the hundreds of millions — even billions — of dollars annually, these plans don't work nearly so well.

At least, they tend to work for only a very small percentage of top people who garner obscene amounts of money, leaving the great bulk of mid- and lower-level distributors fighting over crumbs.

If you want to take your chances of making it into the top group, that's fine.  Just be aware that 99 percent of working distributors usually end up with little to show for their labors under this style of plan.

How do you identify plans of this type?  Just watch out for a structure like this:  everyone starts off at the bottom rung of the "front end" on a minimal commission level.  Then, as you enroll customers and enlist new distributors, your weekly/monthly group volume grows, and so does your commission rate, step by step.

Here's how this works:  you might start out (like everyone else) on 4 percent commission.  Once your wholesale group volume reaches say $1,000 per period, you might graduate to 8 percent.  But suppose someone you've sponsored accounts for most of this $1,000.  Your 8 percent is net of their base rate of 4 percent, and you end up with just 4 percent on most of your volume!

So what you're really getting paid in the front end of the plan is the rate applicable to your total group turnover (let's say it's 20 percent on $10,000 of group volume) LESS 4, 8, 12, or 16 percent payable to those underneath you.  What this boils down to is that, in practice, nobody earns a substantial amount on the front end of these plans.  As the great majority

of people never progress beyond the front end, this in turn renders these plans not terribly effective at providing substantial incomes to — guess who?  The great majority of people!

I'll talk about the "back end" of this plan in my next post.