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How To Analyze Compensation Plans - The Binary And The Matrix

MLM compensation plans can be baffling. Let's simplify things with the main thing we ask of any company -

The 10k Question:

"How many active people do I need in my downline to generate a walk away residual income of \$10,000 per month?"

The key word for this discussion is "residual". How much money will I be making after all the recruiting and fast start bonuses and early bird specials settle down and people are buying product week after week and month after month?

That's the key to a stable long term MLM business - long term sale of product. You want to find hundreds or thousands of loyal customers and get paid well. You do NOT want to have to continually recruit new reps or customers to keep your check.

Think residual. If your check stops when recruiting stops, you are in the wrong business. You will never be able to retire.

Let's analyze the Bongo Juice Company that promises "Eight ways you can get paid!"

The company has a great product called Bongo Juice extracted from the Bongo Berry by Bongonian Buddhists on the side of the Billybongo Mountains on the remote Pacific island of Bongobongo with a centuries old extraction method, but hold on. The berry doesn't pay us. The Bongo comp plan pays us ...

Let's simplify things by figuring out what parts of the pay plan we can ignore and which parts we should consider ...

1. Direct Sales (n/a): You sell the stuff. Most people don't join an MLM to become retailers and you can't do it all yourself. When you are making \$10000 per month, your own contribution to your check will be small, perhaps a few hundred dollars.

You can buy a bottle of Bongo Juice for \$30 and sell it for \$40, making a profit of \$10, or 25% of the retail price, a fair commission. If you wanted to earn \$10000 per month selling like this, you would need to sell 10000/10 = 1000 bottles or 250 cases of 4 each month. Whew!

And you need to read the fine print. If you find a loyal customer, say your Aunt Jean, who buys from your website, the company gives them a 15% discount. That makes Aunt Jean’s price \$34, and your profit \$4 rather than \$10. Seems like a strange way for the company to reward you for finding a loyal customer. If you want to earn \$10000 per month with loyal customers on autoship, you'd need to sell 10000/4 = 2500 bottles or 625 cases per month. Double whew! That’s a lot of Aunt Jeans!

And that's why we leave direct sales out of the 10k calculation.

2. Bulk Order Bonus (n/a): A one time bonus paid when someone you personally sponsor orders 3, 6, or 12 cases. That's an order of \$360, \$720, or \$1440 for which you get paid \$25 to \$75 if you are on 200 pts autoship, or \$10 to \$30 if you are on 100 points autoship. This is 7% down to 3%, and note that the more your team spends, the lower your commission!

We have never seen anyone buy 3 cases, and neither have the Bongo reps we have spoken with, and that's why we leave this out of the 10k calculation.

3. First Order Bonus (n/a): The name says it all. It's not residual, so it's not included in the 10k calculation.

4. Big Bongonian Builder Bonus (n/a): A one time bonus when one of your team promotes. Not residual. Not included.

5. We'll come back to Team Commissions after we dispense with three more bonuses.

6. Executive Check Match (n/a): Comp Plan experts have told us that the check match usually increases your check by only about 1% or 2%. The most we've ever seen is an increase of 10%. It's a bonus that favors the sponsor monsters, not the average networker. To be more than fair, we reduce the 10k answer by 10%.

7. Global Leadership Pool (n/a): This bonus promises a chunk of a 1% contribution by the company of all revenues worldwide. About 1/10 of 1% of distributors see any of this money. Most of us will never dip a toe in the shallow end of this pool.

8. Multiple Business Centers (n/a): Once you reach a certain level, Bongo offers you the opportunity of building new centers above your present position. We maintain that one position should be good enough to generate an income. Why maintain and qualify several? Even if you do open other centers, you still have to add people, and it does not affect the 10k answer.

5. Team Commissions:

Bongo has a binary plan in which you must sponsor and place a person on the left and a person on the right to qualify for any commissions. Let’s call them Alice and Betty.

If you sponsor Alice and she starts to build, you earn no commissions on her team until you sponsor Betty. That could be quite a while, and you can miss out on commissions you deserve until you jump through that hoop.

Once you have sponsored Betty, the reality of the binary sets in. Most people sponsor just two or three people in their lifetime, and you have been forced to split up your two best people into separate legs. As you only ever get paid on one leg, you will be paid on Alice OR Betty, never Alice AND Betty, even though you have brought both of them to Bongo.

It gets worse. You only ever get paid on your WEAKER leg! That means that if Alice is a stronger builder, you will get paid for Betty’s results and vice versa. No matter what they do, you will always get paid on the weaker of the two people you have sponsored. Your will always be rewarded for less, and sometimes for much less than half of your efforts and results. You can watch your commissions from your best builder disappear into the distance as you struggle to keep up with your weaker builder.

(Some companies require TWO personally sponsored and active people on each side. That means you get paid on Alice and Carl OR Betty and Dave, never on all of your team, resulting in huge breakage and much less paid out by the company to you, the reps.)

Once your weak leg reaches a volume of 500 points (about \$800), matched by 500 points in your strong leg, Bongo will pay you 10% of that 500 points, or \$50. 500 points will be removed from both legs, and a new ‘cycle’ begins. 10% is small enough, but look more closely. You have sponsored both Alice and Betty, so you are actually being paid \$50 on 1000 points, or 5% commissions, 3% commissions on the dollar value.

If our basic unit for a rep or customer is 100 points, that’s \$5 per person, making the 10k answer 10000/5 = 2000 people. Let’s take off 10% for check matching to make it 1800 people. Is that a small number or a big number?

(Our answers for the 10k question range from as low as 400 to as high as 27000!)

Let’s assume for a moment that Bongo has a matrix or unilevel instead of a binary, and the levels pay commissions as follows:

1 – 11%
2 – 10%
3 – 8%
4 – 6%
5 – 4%
6 – 2%
7 – 1%

That’s an average of 42/7 = 6% commission over all seven levels. 6% of 100 points is \$6 per person, making the 10k answer 10000/6 = 1666 or about 1700 people.

You might also think about this. If the lowest answer to the 10k question is 400, you are working four to five times harder than you have to in the Bongo Juice Company. You may not mind working that hard, but you will be inviting others to join you and work four times too hard. That’s how we spell attrition, and you will have to go through many more people than you have to in order for your team to find the 1700 or 1800 people required.

And if you want to have some fun, call your upline or rep support and ask the 10k question. You’ll be amazed at the answers you get!