A breakaway compensation plan is one of the three foundational MLM commission structures in the direct selling industry. And, until the ‘90s (when binary and unilevel plans became popular), it was the only type of strategy that proved it could sustainably pay distributors and fuel its company with a steady stream of revenue. Read on for a rundown of how they really work and some of the pros and cons of this classic MLM plan type.
The first thing you should know about breakaways is that all of the commissions depend on group volume and the breakaway rank. All distributors, no matter where they are in the comp plan, earn commissions based on group volume. But, when a leader “breaks away,” they become eligible for additional commissions, including commissions from downline breakaway groups. Don’t worry if it sounds a little complicated at this point—we’ll break it down for you step by step below.
But, first, let’s walk through a basic definition of a breakaway group to help you keep track of the differences.
What’s a breakaway group?
A breakaway group is made up of a leader who’s reached the breakaway rank and anyone below her down to the next person who’s broken away. In the example below, each group is shown in the same color. The leader at the top has a downline of 29 people, but only nine—the group marked in red—are part of her breakaway group.
Before Breaking Away
First, we’ll look at the plan as it plays out for new recruits. Most distributors will start inside a breakaway group and continue to stay there as long as they’re with your company. But, for those who want to become high-earning leaders, this in an essential phase to help them get to the breakaway rank and beyond.
When someone starts building a business in a breakaway plan, most of their earnings come from making sales to customers. Usually, the people who thrive in this first commission phase are the sales people distributors in your company. Their main focus is on building sales volume, recruiting, and, if they’re a budding sales leader, progressing to higher ranks.
Beginning distributors get their income based on their personal group sales volume—a percentage of whatever’s sold during the commission period. And, in most plans, group volume is paid through a differential commission.
Differential commission A Differential commission can seem pretty
complex at first, but, once you’re familiar with how they work, they can become pretty intuitive. This compensation type has a set commission percentage for distributors to earn on their group’s downline sales based on rank—each rank has a different amount. The higher the rank, the higher the percentage. And the higher the percentage, the closer the distributor gets to the “top” of the differential—the maximum amount they can earn. So far, it sounds similar to a level bonus. But here’s the tricky part: higher-ranking distributors earn the difference of lower-ranked distributor earnings in their downline.
The “Stairstep Breakaway”
Another common way to explain differential commissions is by using the graph below. Because it’s shaped like a staircase, breakaways are also called “Stairstep Breakaways.”
The example below shows a distributor’s commission breakdown at each rank leading up to “4-Star,” the breakaway rank. At the 4-Star point in the compensation plan, Distributor B is making a personal commission of 15%. The commission comes from both her personal volume and her own customers’ volume.
At the bottom of table, you can see that Distributor B, as a 4-Star, makes a 15% commission on her 1-Star distributors’ personal and customer volume. As her distributors reach higher ranks, her earnings percentage decreases—she earns 10% for 2-Stars and 5% for 3-Stars.
Still not totally clear? Here’s a table to show you how it works as a distributor advances through the compensation plan. As a new distributor, A starts out in the 1-Star rank, where she isn’t qualified to make a commission. Her upline leader, Distributor B, makes a 15% commission on A’s personal and customer volume.
As A moves up in rank, she starts to earn part of the differential commission, leaving less to transfer to Distributor B. As A’s earnings percentage increases, B’s earnings percentage decreases.
Now that we’ve got the beginning of the plan covered, let’s move on to talk about what happens after a distributor advances through this stage of the commission plan.
After Breaking Away
The breakaway rank is really the place where the commissions start to heat up. We’ll show you how, at this stage in the compensation plan, distributors’ earnings and responsibilities completely change.
We hinted earlier that ambitious distributors who start out with the group volume bonus might be interested in growing into sales leaders someday. Essentially, that means these distributors incorporate more training and recruitment into their business efforts. Like sales people, they’re focused on getting product to customers and building volume. But, they also work hard to recruit new distributors into their downline, show them the ropes, and help them reach their potential.
After a distributor breaks away and shows that they’re ready to be a sales leader, their commissions change to reflect the shift they’ve made. Now, in addition to the group volume that they get from their own group, they’re eligible for a generation bonus from other breakaway groups beneath them.
Generation commissions Generation commissions work in tandem with the group volume bonus. Remember how we talked about how to define breakaway groups earlier? Here’s where that becomes important: once a distributor reaches the breakaway rank, she continues to earn group volume commissions from the sales within her own group—so, from anyone that hasn’t already reached the breakaway rank. For breakaway groups beneath her, though, she starts to earn a small percentage of their group volume, too. Before, none of that volume counted toward her paycheck. But now, she can reap the financial benefits of training and building up distributors beneath her to build a strong organization of their own.
Great at rewarding customer sales
Breakaways are very sales-centric, as all great commission plans need to be. Both the group volume and generation bonuses are very successful at encouraging distributors to make sales to customers, since both commission types rely heavily on sales volume.
They work beautifully for partyplans
Because parties are a great way to connect with customers and build sales volume, partyplans pair very naturally with breakaways’ qualifying rules and structure.
They’ve proven their worth
As the MLM industry has watched the rise and fall of so many “big ideas” for compensation plans, breakaways continue to be successful. They’ve been the plan of choice for the biggest companies in the industry today (ones with billion-dollar earnings or more). That’s nothing to sneeze at!
The breakaway takeaway
The most common downside of this type of compensation plan is that, if you’re not careful, distributors can feel like they get penalized for training and helping others to do well and move up in ranks. A leader who trains a promising downline distributor to break away from her group can suffer a serious earnings drop when she loses all of the commissions from that new group’s volume.
Some distributors have found it hard to earn a steady income in a breakaway plan—as distributors constantly switch between group and generation bonuses, the difference in their earnings make it hard to count on commissions earnings. This isn’t typical for all breakaways, but it’s something to watch for in your plan.
Breakaway plans play a huge role in the direct selling world. They’ve been so pervasive that when most people think of MLM compensation plans, they think of breakaways. Over and over again, they’ve proven that they really work as a motivational revenue base for all kinds of companies. As long their weak spots are compensated for and people build on their foundational strengths, breakaways will continue to be a powerhouse compensation strategy for the industry.
Want to learn more about direct selling commission plans? Check out our blog about the three main comp plan types. If you’re looking for more tips for maximizing your compensation strategy, you can find our commission software here.