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The 3 Main MLM Compensation Plan Types [Breakaway, Unilevel & Binary Definitions]

The 3 Main MLM Compensation Plan Types [Breakaway, Unilevel & Binary Definitions]

The breakaway, unilevel, and binary compensation plans. Chances are, if you’ve spent time in the MLM industry, you’ve heard of at least one of them. Each plan has earned a spot in direct selling’s core commission Hall of Fame—they’re dependable, time-tested, and a great foundation for any MLM comp plan. Whether you’re new to direct selling or just want to brush up your industry knowledge, we’ve got you covered with all the basics for each type of plan.

The Breakaway Commission
We’ll start with the oldest core compensation type: the breakaway. Most seasoned, successful MLM companies still have a breakaway at their core—it’s a classic structure that gives many companies a solid earnings base for the rest of their contests, promotions and supporting commissions.

The Breakaway Rank
Essentially, the breakaway plan pays distributors in two different ways, depending on whether or not they’ve reached the “breakaway rank.” As new distributors grow and develop their business, they’re paid a differential bonus. After reaching the breakaway rank, though, their entire earning plan changes, becoming a generation bonus instead.

Group Volume Commissions
Distributors in breakaways start out by earning commissions on group volume. For sales people distributor types especially, this will be their main source of income. Most of the time, this will look like either a level or differential commission. Level commissions pay distributors on a certain number of levels of their downline, and differential commissions work by paying distributors as they meet certain requirements and reach higher “steps” of the commission plan.

Generation Commissions
So here’s where the breakaway rank comes in—when a distributor reaches the top level of the group volume commission, they cut their upline breakaway sales leader off from all of their own group volume and form their own unit. Here’s what it looks like:

Distributor A is a new breakaway distributor, and Leader B is A’s leader. Before A became a breakaway distributor, B was getting a group volume commission for A’s organization. But now, A has cut her off from that volume. So, to continue getting rewarded for training and building up a new leader, B gets a generation commission from A’s breakaway group volume and a group volume commission from any other non-breakaway distributors under her.

If done right, this bonus works really well as a positive reward for leaders who have helped budding distributors break away from their own groups. They can continue to be rewarded for supporting and growing breakaway downlines after losing out on the differential bonus they were previously earning.

Inherent Motivation
Because of the way these two commissions work together, it’s easy for ambitious distributors to be motivated to become breakaway leaders. Reaching the breakaway rank is an impressive accomplishment that has the potential to drastically change their commission checks and establishes them as a leader within your company. This motivation is an effective tool, so be sure to take advantage of it if you have a breakaway-based plan.

Unilevel
Next in our team of heavy-hitters, we have the unilevel commission. Though not as old as the breakaway, this commission has proved its worth throughout the years, coming out on top as a consistently-effective commission structure for many of the best MLMs today.

Unilevel Commissions
Unilevels were created to be a simpler and more inviting direct sales model than the breakaway plan. The goal was to make the opportunity easier to explain and sell to new recruits with this basic premise: each level of recruits (horizontal groups connected to the main distributor) is assigned a commission percentage. As distributors achieve new ranks in the plan and grow their downlines, they’re eligible to receive commissions from more of their downline levels. It’s simple—the higher the rank, the more levels of downline sales they benefit from.

Flexible Structure
Another reason unilevels have been so popular is the fact that they allow distributors to build exactly the kind of organization they want. This is usually true for breakaway plans as well, but never true for binary compensation plans. In a unilevel, a distributor decides how to build their own organization, where to put new recruits, and can create their own strategy for building the structure to create the earnings they want. Many people love this flexibility, but too much freedom can lead to problems, like stacking issues.

Stacking
Stacking is a common problem for unilevel plans that haven’t put appropriate measure in place to avoid the issue. Rampant stacking can be a very serious problem for MLMs, but with enough foresight and monitoring, large problems are easy to avoid.

It starts when a distributor tries to amplify their earnings in a dishonest way. Instead of finding real people to recruit, they choose to create fake distributor accounts to create artificial downline levels. This way, when they do find real distributors, their commissions are amplified through the artificial levels to give the distributor a higher commission.

Variations of this model include things like a group of friends agreeing to stack their accounts and split the profits, or signing up distributors who have no intention of selling anything—like an unknowing grandma or obliging spouse. The point is, uncontrolled flexibility can lead to stacking in some unilevels if issues go unchecked or rules aren’t put in place to prevent behaviors like stacking.

Binary Compensation Plans
Last but not least, we have the binary compensation plan. This iconic staple of the MLM industry was developed in the 80’s. Many people thought it was far too bizarre to catch on permanently, but it’s had huge success since then, helping companies to reach billion-dollar earnings.

Binary structure
The first thing you should know about binary plans is they have very specific structure requirements. Structure completely defines a binary plan—every distributor is limited to no more than two distributors on their first level of sales.

Pay Leg Commissions
The basic binary payment plan is as easy to understand as the structure requirement—in its simplest form, distributors earn commissions from only one side (or leg) of their downline—the lesser earning leg, or “pay leg.” The other leg, which generates more money, is called the “reference leg.”

Although it seems strange at first, this rule is great at encouraging teamwork. Paying on the greater-earning leg may seem fairer to distributors at first, but a rule like this persuades distributors to focus all of their attention on the higher-earning side of their business, avoiding any contact with the weaker leg and allowing it to, essentially die. Instead, balancing earnings between both legs becomes the focus for ambitious earners—they understand that equal volume in both legs means they’re getting the most out of their entire downline.

“Do-nothing” mindset
Originally, binary opportunities were sold by eager distributors as a “no work, all gain” guarantee—they convinced new recruits that, because of the limited number of spaces for new people joining the company, a hard-working upline would fill their downline slots for them, giving them a check for doing nothing. Luckily, most modern distributors understand the need to work for their commissions and that rhetoric has largely disappeared among distributor groups.

Capped earnings
Binaries pay a set commission percentage for every level of distributor earnings in the pay leg. It doesn’t matter if the sale happened one level away from the distributor or five—the percentage they earn from that sale remains the same. As commissions start rolling in, then, it’s possible that the company will pay high-level distributors more in commissions than the original product sale is worth. To avoid this, most binary plans cap the commission payout for the company. They pay distributors proportionally, rather than based on the commission percentages they’ve actually earned. This decision creates mixed feelings for some distributors, but capping earnings is a crucial decision that prevents bankruptcy and other budgetary issues from occurring in a comp plan.

A Word of Advice
Even though these plans have been successful, it’s important to keep in mind that all have weaknesses. Some companies that are just starting out try to craft the perfect compensation strategy out of a single commission type, tweaking rules and percentages until they think they’ve made a singularly perfect compensation plan out of just one commission type.

Unfortunately, though, that’s just not practical. Even though all three of these commissions have worked really well for so many companies, it hasn’t been without the help of supporting commissions and strategic calculations.

Each of these three foundations is great for generating stable revenue—they pay sales people and mid-level leaders a great income, which supports sales and the growth of your company. But every core commission struggles to adequately pay beginning and high-level distributors. So, if you’re starting out, keep in mind that successful companies use a variety of commission types, temporary promotions, and contests in their overall compensation strategy on top of a great core commission.

So, there you have it! Now you know the basics of each of the three most effective direct selling compensation plan types—how they work, why they work, some of their strengths and some of their weaknesses.

For more commission know-how and advice, check out Mark Rawlin’s book From Commission Plan to Compensation Strategy.

Already have a working compensation strategy? Is it playing out the way you want it to? Give us a call or contact us here to learn more about our tools and how they can help you maximize your success.

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