Compensation plans are the backbone of the MLM business. If you are into MLM you might know that it doesn’t work in a traditional sense.
MLM indeed involves product selling, but it’s not the only fact. The true dexterity of MLM lies in how the sales were achieved. In MLM, sales are generated via a network of individuals, usually referred to as distributors.
But these distributors not only make sales but also recruit new members – that is where the network comes from. But it poses a challenge, how will you pay these individuals?
That’s the job of the compensation plan – it refers to the commission structure that an MLM business follows and defines how each member will receive its payment based on the sales and recruitment it has done.
Now, MLM compensation plans are many, but we are going to focus on two of the most commonly used plans – the Matrix and Binary Plan.
We are going to explore both plans, compare them, and tell you which plan will be right for your MLM strategy.
What is a Matrix Plan?
Let’s first tackle the matrix plan, also known as the forced Matrix plan. The matrix plan is designed to encourage teamwork, and spillover, and provide depth to the network.
The basics of an MLM matrix plan are like this – it consists of width and depth. A distributor can only sponsor a set number of people in their frontline, called width. Likewise, the network can only go to a certain level deep.
Here’s what the matrix structure looks like;
Width – This represents the exact number of people a distributor can add to its front line. Commonly, there’s a 2, 3, 4, or 5-member long width in a matrix plan, however this can vary.
Depth – The depth represents the levels up to which a distributor will receive a commission. Like width, the depth is also fixed in the MLM matrix plan. Depth can be 3, 4, 5 or more levels deep.
Take for example a matrix of 3×9. This means a distributor can only recruit 3 members in its frontline or width and receive commissions up to 9 levels deep.
But it raises a question – what happens when the matrix is full? That’s where the concept of spillover comes into play.
When a distributor has filled its entire downline, the upcoming members are placed on the below distributors’ front line. This is called a spillover effect and it acts as a strong motivator because downline members can benefit from the effort of their upline.
What is a Binary Plan?
The binary plan is another hugely popular MLM compensation plan often adopted by network marketing startups for faster network growth. The binary plan promotes balanced growth with its two-legged structure.
The binary plan consists of two legs – one is called the left leg and the other is called the right leg. This is how the Binary Plan Structure looks like:
Width – Distributors can only sponsor two frontline members.
One forms the left leg and the other forms the right leg.
Depth – The depth of a binary plan can go to many levels. Technically, there’s no limit on depth in the binary plan, however, companies often fix it to some extent.
After sponsoring the two members, what happens to the upcoming members? It is placed below the right or left leg depending upon available space. That’s how spillover works in the binary plan.
Comparison b/w Matrix Plan vs. Binary Plan
Here’s a simple comparison table between Matrix and MLM plans to help you understand the concept further;
|Aspects||Binary Plan||Matrix Plan|
|Structure||Two legged structure||Fixed width and depth structure|
|Width||Limited to two frontline distributors||Limited to a fixed number of front line distributors ( eg – 3, 4 5 etc.)|
|Depth||Unrestricted||Limited to certain levels ( eg – 4, 5, 6, 7 etc.)|
|Complexity||Typically considered simple to understand||More complex than binary plan due to width and depth restrictions|
|Downline Expansion||Easier due to no restriction in depth||Slower than binary due to fixed depth.|
Advantages & Disadvantages of Matrix and Binary Plan
Both Binary and MLM plans have their upside and downside. Knowing about the benefits and limitations of both plans will help you pick the best for your MLM business;
Advantages of Binary MLM Plan
- Promotes balanced growth.
- Offers spillover benefits.
- Provide quick income potential.
- Simplest MLM plan.
- Offers flexibility in the placement of members.
- Allow unlimited depth
- No limits on payout.
- Upline can actively support the growth of the downline.
Disadvantages of Binary MLM Plan
- Limited frontline sponsorship
- Growth in the weaker leg might be a challenge
- Bonus calculations are often complex
- The top leg be be overly saturated
- Requires continuous support for balanced growth.
Advantages of Matrix MLM Plan
- The matrix plan pays more than the binary plan
- Limited width makes it more manageable
- Top performers receive handsome rewards.
- More suitable for product-based companies
- Promote incentivised team building
- Less pressure on the front line.
Disadvantages of Matrix Plan
- Requires extra teamwork for growth
- Fixed depth might limit earning opportunities
- Requires more people to fill the matrix
Upon comparison, it is apparent that both Binary and Matrix Plans are the simplest of all compensation structures. However, both have their sets of advantages and disadvantages. So, the choice between Binary and Matrix plans comes down to individual requirements. Evaluate your needs and objectives and then assess the benefits and limitations of both plans. After careful consideration choose the plan that is closest to your MLM objectives. Remember, choosing the right MLM plan is the first crucial step towards sustained growth – so evaluate carefully and pick wisely between Matrix and Binary Plans. Good luck.