Let’s Understand MLM Compensation Plans — Part 4
Sep 23rd, 2008 by admin
Time to dig into this.
Do you know how the circles of MLM work? You draw a circle at the top of a page and put your name in it. Then you draw some lines coming out the bottom of the circle, and each of these lines has a circle connected to it. Each circle in that new line represents somebody that is recruited or sponsored into the network marketing opportunity.
And then lines come out of the bottom of these, with circles connected, and lines and circles and lines and circles and lines and circles. Forever, we hope. Again, each circle represents one person.
Let’s compress this for now. Just think about the circle representing yourself and then the horizontal (going from side to side) line of circles immediately beneath you. We’ll call this line the first level or tier. I mentioned in Part 3 that infinite growth represented a potential problem for the company. The company cannot pay an infinite number of commissions on a sale of the product. So, how far can the company allow that first level beneath you to grow?
Notice that the growth here will be from side to side, that is horizontally. If you keep drawing circles in the row immediately beneath you, you will soon run out of room at the side of the page, not the bottom.
The answer to the question is, the company can allow the row to grow infinitely. Mathematically speaking there is no danger of bankruptcy. How can that be? Because the commissions of MLM flow up the line, not from side to side.
A simple way to see this is that there is no line connecting circles that lie side by side in the same row. No line, no commission flow. You could have a million circles in the first level beneath you (nice thought, huh?). If the person represented by any one of those circles makes a sale, the only people in the diagram who will make a commission will be that person and you. Of course there is somebody above you, too, but let’s not worry about that for now.
Just realize that horizontal growth is not the type that poses the threat of infinite commissions to the company.
Here is the first question you can ask about a particular MLM compensation plan. Do all the people that I myself recruit get placed into the first level beneath me? It may seem intuitive to you that your own recruits would be first tier, but frequently that’s not the case. Since the company can allow infinite horizontal growth, we’ll want to understand why the company would choose either to keep all your recruits at that first level, or not.
If the company does in fact put all your recruits into the first level down, here’s the next question. Do they allow that row to grow indefinitely? That is to say, will you yourself always get a commission from the sales of every single person you ever recruit, or will you eventually lose some of them?
That’s enough to think about for now. I hope this is making sense.
In Part 5 we’ll thicken the mix with vertical growth.
