Ramin Mesgarlou – The Forensic Networker – Interview MLM Compensation Plans
Ramin Mesgarlou is author of “The Forensic Networker” and the top rated MLM compensation plan expert in the industry. Ramin is the creator of the Free Flowing Binary Compensation Plan.
The Forensic training model takes the ‘hit and miss’ element out of Network Marketing and replaces it with business training targeted at the network marketing profession.
The challenge with Network marketing today is that the world has changed, attitudes have changed and the word of business has changed – but network marketing has not.
“If you don’t know how to read a financial statement, your financial life is in trouble”
-Robert T. Kiyosaki-
“If you don’t know how to read an MLM distributor compensation plan, your MLM profession is in trouble”
-Ramin Mesgarlou–
Ted: Ramin, you have created compensation plans for many companies, can you give us the history of MLM compensation plans?
Ramin: There are 4 LEGIT distribution platforms often referred to as “compensation plans”. I came from the Breakaway and Uni-level camp personally when I was on the field back in the early 90’s to early 2000’s. I will try to explain the four LEGIT distribution plans in simple ABC terms that everyone can understand.
1. Breakaway Plan – started in the 1940’s
The first compensation plans in MLM: (Amway, Herbal Life, Nu Skin, Shaklee, Mary Kay etc.)
Upside:
- Flexible pay on volume.
Lows:
- Unlimited width, very tough to manage and support
- Commission level cut off within 5-6 levels,
- Commissions and bonuses reduce as others in your team reach your level because they “breakaway” from your personal team (remain in your down line), hence its name: “The Breakaway Plan”.
- Most commissions and bonuses are ranked based and require qualification and requalification to maximize the plan.
- No spill over, as everyone is forced to recruit wide in their front line because of pay level cut off.
- Large group volume requirements to reach maximum discount pricing
- Flush volume!
2. Matrix plan
The second plan that took off in MLM was the Matrix Plan. This format did not become as popular as the other three and had opposition by industry leaders from day one. Melaleuca was one of the early companies using the Matrix plan successfully.
Upside:
- Flexible pay
- Simpler to manage than the breakaway plan, as you only have to build 5-8 legs as opposed to unlimited width, so your team becomes easier to support.
- Some spill over for down line.
Lows:
- Commissions payout cut offs after 8-10 levels,
- The beginning of lower commissions (CV commissions) – large bonuses comp plan structure.
- Breakaway bonus systems that are shared. When others reach your level, you lose most to all bonuses in that entire leg.
- Most commissions and bonuses are ranked based and require qualification and requalification to maximize the plan.
- Most offer little to no flexibility in the positioning of new members
- Flush volume
Ramin Mesgarlou The Forensic Networker
3. Uni-level plans
(The buying club concept, Life Plus, Kare, etc.):
This system started as a buying club concept where every member is a customer buying at RETAIL and when other customers are referred, commissions are paid out on RETAIL prices. Uni-level plans have evolved over time and almost all have now become a HYBRID plan, meaning they include some functions of other plans within their Uni-Level system. Uni-Level systems are evolving all the time and they have fallen in and out of popularity in different decades. The new millennium has been a good decade for the Uni-Level systems in terms of popularity.
Upside
- It is better than Matrix because it is more flexible in its payments.
- The payouts are usually less in percentage, but pay deeper in levels – Usually 10 – 20 levels, which is a significant increase over Matrix and Breakaway. As your business grows deeper in debt, which it always does with time, Uni-level generates higher commissions than both the Break Away and Matrix plans.
Lows:
- Commission cut off 10 – 20 levels
- Most offer little or no retail and wholesale profits
- Break away bonus system that is shared and when others reach your level you lose most to all bonuses in that entire leg.
- Most commissions and bonuses are ranked based and require qualification and requalification to maximize the plan.
- Flush volume
4. Binary plan
( Usana and now 50% of MLM plans):
The last of the legends;
Binaries had a bad rap in the early 90’s and still a bit of that stigma persists today even though the issues no longer exist. In the late 80’s and early 90’s Binary had a real rough start as in those days the software technology could not support the complex Binary tree structure that splits into 1000’s of branches. This caused many down lines to disappear from the tree or shift to another group completely for no reason. This problem was the cause of the demise of many early companies that adapted the Binary system. Credit to a hand full of Binary companies like Usana, they were the early companies that survived that mayhem.
The second thing that gave Binary its early negative stigma was the strict 50-50-balance requirement to be able to get paid in full. One leg will always be stronger than the other and distributors found themselves always chasing after the larger leg to get paid in full. Of course over time, software technology evolved and the 1/3-2/3 Binary plans were introduced which are far superior to the basic 50-50 plan that companies like Usana started with. The 1/3 – 2/3 plan allowed full commission payments even if one leg is twice as big as the other.
- Binary is the last and the absolute best form of compensation plan to enable the average person to hit a financial home run in MLM for the following reasons:
- Good Binaries pay on both legs and to INFINITY.
- It is easier to understand, as you only have to build TWO teams as opposed to 5, 8, or even worse, infinite width.
The misconception in MLM is that since Binary is restricted to two legs than other none restricted plans must pay more. Not true because the 2-leg restriction only means that you place your personal recruits deeper in the Binary tree and since there is NO COMMISSION LEVEL CUTOFFS in Binaries like other plans no advantage is lost and much is gained.
- Binaries are VOLUME driven which is PERMANENT as opposed to the other three plans that are RANKED driven which are reoccurring qualifications.
- Binaries offer massive spill over opportunity from up line
- Most Binary companies offer multiple business centers with the initial package. This provides an opportunity to be able to double dip on the same volume or save the additional positions for loved ones.
- Good Binaries do NOT FLUSH
So to sum it up aside from everything else, the NO FLUSH rule and INFINITY payout seals the deal instantly for 1/3-2/3 Binaries that pay on BOTH legs against any other form of plan that flush volume and has level payout restrictions no matter what type of bonuses they offer. Also you don’t have to be a mathematician to know that getting paid to INFINITY is much better than getting paid to 8, 18, or 180 levels.
To put things in to perspective for everyone, getting flushed in a comp plan or commission level cut off is the same as working as a sales person at a job and portion of your weekly sales is disqualified or not counted towards your weekly commissions.
If there is a commission cut off at any level, you are out of the game.
Now I can hear the amateur comp plan warriors say, “oh oh oh wait our uni-level pays to infinity because we have “Infinity bonuses”.
Well after assessing over 200 comp plans over the past two decades, I know there are two problems with so called “Infinity bonuses”:
1- Bonuses must be qualified and re-qualified monthly as opposed to CV commissions that are permanent and do not require requalification.
2- Bonuses are most often NOT to “infinity” as they are called. Most companies who offer INFINITY bonuses offer a “breakaway bonus” system that pays you to infinity until the next person in your team who reaches your level and you lose that bonus to the new promoted distributor. So although it is called “INFINITY” it is not because as soon as your people catch up to your rank, you lose that bonus on that entire leg.
I call these predicaments “comp plan contradictions” where you are supposed to help your team member to achieve their dreams and targets but you are contradicted by the fact that if you help and they move up you lost part or all of your bonuses to them. These so called bonuses have no place in MLM in my opinion. If you qualify for your bonus it should be yours to keep and not get penalized when you help others move up in ranks.
Ted, as you know I conduct full day comp plan trainings and teach people how to read distributor compensation plans. I teach seasoned million dollar earner MLMers to be able to identify the pit falls in their own comp plan, as well as the traps (comp plan contradictions) that are evident in most plans. Here I am just sharing some basic info on the highs and lows of all plans.
All in all I can get really detailed on the mechanics of all plans but it can get complex for the average MLMer to understand. All you need to remember is one thing. In any MLM compensation plan you get paid (or should get paid) on ONE thing and that is Commissionable Volume (CV). More CV = more commissions or at least it should in a well-prepared compensation plan.
Naturally you want as much CV as possible because it earns you more income. That is true in Binaries however not so true in other plans like Uni-level because even when you do create the CV, with time the CV will get deeper and deeper automatically in your organization and there is nothing you can do about it.
If there is a cut off on pay levels you will eventually find yourself with some or most of your volume outside your pay level, which you will never get paid on. In the Breakaway and Uni-level plans I participated in the past we only got paid 6 – 12 levels and I remember creating over a million dollars in CV in my team every month only to see $600,000 + of it fall below my pay level which I never got paid on.
Of course I still received a much smaller bonus to “INFINITY” on some legs but the % was far less than the commission payout would have been in an infinity plan. Eventually on my biggest leg I helped one of my leaders in my team to reach my rank and I lost the “Infinity” bonus on that entire leg to him. This disaster does not happen in Binaries. All that said Ted I am not condoning all Binaries because not all pay to INFINITY or on BOTH legs so you need to be aware of those pitfalls when you chose your Binary.
Ted: In closing Ramin, I am interested to hear more about this brand new Binary you have created for your company that is described to be way superior to the industry’s norm 50-50 and 1/3-2/3 Binaries. You titled your new system “Variable FREE FLOWING Binary System ®”. Can you tell us the advantages of your binary over the traditional Binaries? Also if your system is that effective why don’t more companies copy it?
Ramin: “Variable” Binary System provides incredible advantages over the standard Binary. Simply put:
“Variable Binary” has the pay flexibility of Uni-level, Matrix and Breakaway systems that standard Binaries don’t have with the INFNITY payout of a Binary that the other three plans don’t have”
FREE FLOWING format means that there are no restrictions at all in the form of RANKS that restrict the flow of funds (and CV) from the company to you. From day 1, a new participant is able MAXIMIZE the comp plan without qualifications or re-qualifications. The cycles can take place in a 50-50 scenario, 1/3-2/3 scenarios or ANY combination (thousands of ways) that meet the cycle volume requirement. Hence its name, “VARIABLE”. This is the FIRST in the industry.
So why don’t more companies copy it? Simple, it’s too costly to the corporation as commissions go out automatically every week permanently with no qualifications and re-qualifications, and CEOs and stock holders don’t like that. Most plans over the past 15 years are set with less CV commissions and more large one-time bonuses that participants have to qualify for every month to receive. I came from the field so I still possess distributor mentality hence I have removed all pitfalls and “comp plan contradiction’s to free the flow of funds from the company to the consultants.
I believe if the industry adapts the clean and simple FREE FLOWING concept I have introduced to the industry, the work force and the industry as a whole will be much, much better for it. We hope they do!