MLM Compensation Plans – Breakage Can Break You

by bobandanna on November 8, 2012

Here’s an expensive combination:

  • MLM compensation plans are confusing.
  • Most people hate math.

And here’s a definition of breakage: Money kept by the company that could be paid to the distributors. It’s on paper but not in your pocket.

Let’s look at an example of breakage combined with poor pay in a new mobile phone MLM company.

You are paid for creating ‘trios’ and helping others create more trios. A trio is a rep with three customers, four people in total. For each trio, you are paid $20 per month.

Now here’s where the breakage comes in. Suppose you sponsor Alice and Alice begins to use the mobile service. You are responsible for bringing Alice’s business to the company, but are you paid on her usage? Not yet, because Alice has not created her trio.

Now Alice gathers a customer Betty who begins to use the service. Are you paid on the usage of Alice and Betty? Not yet, as Alice has not created her trio.

When Alice gathers her second customer Carol, there are now three people on the phone – Alice, Betty and Carol. Are you paid on their usage? Not yet, as Alice has not created her trio.

It’s only when Alice gathers a third customer Dave that you start to get paid.

That’s breakage.

It could be months before Alice gathers three customers. All that time the company is collecting the revenue on Alice, Betty and Carol and paying you nothing, even though you brought those three people to the company!

The company also pays nothing to Alice and nothing to anyone in the upline.

Once Alice has her three customers, if one of them, say Dave, cancels the service, you and Alice drop back to zero commissions on Alice, Betty and Carol. That’s breakage.

Now let’s look at the poor pay in this plan …

Our favorite question to ask of any company is The 10k Question:

“How many people do I need in my business to generate a residual income of $10000 per month?”

The chart in the company presentation shows that you will need 1500 trios. A trio consists of four people (the rep and 3 customers), so that’s 1500 x 4 = 6000 people!

From our experience in a services company (Excel Communications), we know that not all reps will gather three customers. You will have many reps with two or one or no customers, and in this plan, you will not be paid on any of them. That’s breakage.

The 10k answer, then, is not 6000 but more likely 8000 or 10000 people for you to earn 10k per month in residual income.

We have studied the compensation plans of over 700 MLM companies and have found a HUGE range of answers to the 10k Question, all the way from a ridiculous 40000 down to a reasonable 400.

If there is a company out there where you need only 400 people to earn 10k per month, and you are in a company where you need 6000, you are working 6000/400 = 15 times harder than you have to in order to reach your financial goals.

It gets worse. You may be prepared to work that hard, but your new recruits are not likely to share your enthusiasm for frustration and low pay, and that’s how we spell attrition.

“No pay, no stay.”

It’s not rocket surgery and the math is not that tough, but most people never bother to figure out how hard they and their team will have to work. The MLM highway is littered with the wrecks of reps who have joined the Cross Your Fingers Club, experienced failure and have quit altogether. They abandon their vehicles in the ditch and trudge muttering down the road clutching their maxed out credit cards and bank papers for their remortgaged homes.

All because they refused to ask the right question and do some simple math.

Your first choice may not be the right one. If you are frustrated, it might not be your fault.

“If you are in the wrong vehicle, it doesn’t matter how well you drive.”

To learn a few simple tips to help you analyze your comp plan, read this free report Big MLM Lies.

You can also email compplanhelp@togethertothetop.com

To learn the driving skills you need once you’ve chosen your vehicle, visit www.BigAlSkills.com.

Bob and Anna Bassett
519-371-1028
bobandanna@togethertothetop.com
Tom ‘Big Al’ Schreiter’s 25 Skills
Material Connection Disclosure

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