Ask DC
With MLM Consultant Daren C. Falter
www.dcfalter.com

Welcome to our new monthly column entitled “ Ask DC ” where Daren C. Falter, author of How to Select a Network Marketing Company and owner of www.dcfalter.com provides answers to your most frequently asked MLM questions.

In this Article, Daren is interviewed by
Home Business Advertiser Magazine:

Network Marketing Compensation Plans
An Interview with Daren C. Falter

HBA READER: “Daren, I want to select the best network marketing company. I'm trying to take your advice and look at the whole package. So how much emphasis should I put on the company's compensation plan and why?”

DC: “Great question. This may surprise you, but when I'm evaluating network marketing opportunities, the compensation plan accounts for only 15% of my ultimate decision to select one program over another. So many expiring network marketers put too much emphasis on comp plan, this is a BIG mistake. The most important thing is to know you're using a plan modeled after other plans that have been successful in the past. Don't go for a plan that does not have a solid track record. And don't be a pay plan pioneer by launching with a new plan.

When I'm evaluating a list of popular MLM programs, I use the compensation plan criterion mainly to ELIMINATE companies from my consideration. For example, if the company has a Forced Matrix, Australian 2-Up, Single Line Downline, or a plan that is not proven, I immediately advise my clients to grab their wallets and run. I always maintain a current list of companies with ‘at-risk' comp plans. But here's the shocker, distributors from many of these ‘here today, gone tomorrow' programs are running full-page display ads and advertorials in many popular trade journals THIS MONTH. I'm sure they're very unaware of how famous the above mentioned plans are for quickly putting companies out of business. If a company turns a bind eye to these simple facts, you shouldn't trust them to make correct decisions in other areas of your business.”

HBA READER: “So what choices do I have? Which compensation plans are legitimate and proven?”

DC: “Most of the main stream, ‘legitimate' network marketing industry is incorporating one of the following three PROVEN pay plan models into their businesses; the Unilevel, the Binary, or the Breakaway. These plans all have different pros and cons. In very limited space, I'll try to objectively explain a few of these key differences.

The most traditional of the three plans is the Stairstep Breakaway or Breakaway . This is the plan most widely used by home party plan programs and also MLM companies more than 15 years old. Although many Breakaway models have recently been modified to be more user friendly, a large number of Breakaways are still notorious for stiff group quotas and a ‘sink or swim' culture. Breakaways work great for full-timers and big money earners, but can discourage part-time distributors, who make up a majority of your downline. If the company you're evaluating has a Breakaway plan, be sure to study the qualification rules carefully and make sure the group volume requirements are fair and manageable for everyone. The breakaway can be a great plan if its designed correctly.

Binary plans gained popularity in the early 90s. The Binary encourages teamwork by allowing distributors to succeed with as few as 2-4 legs. Binary plans bring an element of excitement to compensation based on the emphasis on stacking distributors in long, vertical lines to create synergy. Although distributors constantly hear about the benefits of having extra distributors ‘spill-over' into their downlines, most distributors never receive any of this spill-over. You don't want to get caught outside the ‘power leg' in a Binary plan (more on this later). Most binary plans tend to concentrate the commission in the middle of the plan. Some of the newer Binary plans can pay much more, but have been criticized by experts for creating commission payouts that actually exceed safe levels, putting the company at risk of running out of money, or forcing the company to drastically alter its plan mid-stream. Time will tell if these new Binaries will survive and thrive. If you're looking at a company with a Binary, be sure to select a plan that has been proven over time and is paying commission levels that match your expectations. The Binary can be a great pay plan.

The Unilevel seems to be a great mix of both of the big money benefits of Breakaways and the synergy of the Binary programs, but seems to offer an element of fairness that also appeals to the part-timer and the big earners. Some have criticized the Unilevel plan for being a ‘plain Jane' plan with very little sizzle, which is true if the plan does not incorporate special bonuses to spice it up. The newer Unilevel plans, built with healthy bonuses for both the beginner and the advanced distributors, are the favorite of most of the successful companies in today's marketplace. The Unilevel is the plan I recommend to most of my clients.

Generally speaking, all three of these pay structures are acceptable, as long as the plan is not departing from a proven model. So if your plan is a Breakaway, Binary, or Unilevel, you should carefully study the plan and then cautiously proceed to other business selection criteria. If it is not one of these three, just say no. And remember, don't put more than 10-15% of your emphasis on the pay plan. There are so many other key factors that make or break a network marketing opportunity.”

HBA READER: “What else should I watch out for when picking a pay plan?”

DC: “Here's a short list of some of the most common things to watch out for.”

Infinity Bonuses: “The word ‘infinity bonus' implies that distributors will receive a commission for an infinite number of levels. However, it doesn't take a Harvard math professor to know that you cannot pay infinite levels on any compensation plan or the company will be infinitely bankrupt. Usually infinity bonuses are temporary bonuses paid on deeper levels until the next qualified distributor takes the bonus away from you. An infinity bonus is the 1990's way of saying the compensation plan has ‘compression'. The infinity bonus is a good thing to have, but don't let anyone convince you that it really pays to infinity.”

Training or Coding Bonuses: “Most MLMers know by now that it is illegal to earn commission strictly on recruiting other distributors. In fact, this is one definition of an illegal pyramid. However, some MLMs have devised ways to pay distributors for the act of training other distributors or for selling training packages to distributors. According to anti-pyramid laws in most states, these training or “coding” bonuses are illegal. There are still many telecom companies and other types of programs getting away with paying coding bonus commissions to distributors. But according to top legal authorities, these companies are sending up red flags that will eventually be spotted by government regulators.”

No Sales Volume Requirements: “Some network marketing opportunities get new distributors excited about the fact that all you have to do is make a one time purchase of product and then you never have to order again. Companies that do not have ongoing product sales volume requirements are usually doomed to fail. If there is absolutely no standard of performance expected from independent distributors on a month to month basis, there will be no activity. Also avoid companies that claim ‘no selling' or ‘no recruiting necessary'. These statements are commonly associated with scams.”

Product Down Payments: “Popular with some of the gold, jewellery, and collectibles schemes, sometimes companies have developed creative payout strategies that allowed distributors to put product on a “layaway plan”. For example, in some of the gold programs distributors could apply $50-$200 towards the purchase of a gold coin allowing people who could not afford to purchase one coin per month to break these payments up into manageable chunks. However, even though product were being held until they were totally paid for, commission checks were being paid on the moneys collected from thousands of down payments. A company that collects money for a product or service and then issues payment of commissions before the product or service is delivered is classified as an illegal pyramid. And yes, there are still companies doing this today.”

Product Vouchers: “Another ‘down payment' related practice is the issuing of product vouchers that can be redeemed for products and/or services later. The law states that distributor commissions on money collected in exchange for these vouchers should not be paid until the vouchers are redeemed for REAL products and/or services. No voucher deal has ever survived government scrutiny.”

DC's Final Thoughts on Comp Plans

“While in the process of selecting a network marketing company, DO NOT select a company because of its pay plan! There are so many other essential criteria for selecting a company that placing too much weight on the compensation plan can be a deadly mistake. However, you definitely want to consider DISQUALIFYING companies for their pay plans. Remember not to put any more than 10-15% of your emphasis on compensation plan..”

NEXT MONTH: Network Marketing Product Industries: What's Hot, What's Not? “ We'll be taking a close look at which product and service industries within network marketing are on the rise and which ones are flat. Send your questions to daren@dcfalter.com .”

Daren C. Falter is a network marketing trainer and consultant specializing in teaching aspiring MLM leaders how to select the best company and then how to building massive momentum within that company. You can contact Daren at www.dcfalter.com or call his home office at 360-491-7551.

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