In my nearly 17 years experience in the Network Marketing Business the topic of compensation plan is always a fun topic. Nearly everyone who has been in the business as a full time networker proclaims his or herself as a compensation plan expert. Whilst I use to proclaim such, the more I have been around and the more compensation plans I have experienced it seems the less I know. ☺

Nonetheless, during my 13 years of full time work with just one company in this Network Business we were subjected to a number of compensation plans: 1. Breakaway 2. Unilevel 3. Hybrid’s and then back to Breakaway. Plus, in practically every country there were iterations of our own compensation plan adding to the confusion of, or the implementation of, these different compensation plans. This gave me a lot of experience in not only earning a living by them but also teaching others how to earn and build using different compensation plans and variations thereof.

This much I do know, because I have personally spoken with compensation plan software developers and founders of MLM companies, and they all say the exact same thing; “compensation plans are engineered to “forecast” or predict an actual payout or expense line item to and for a company’s profit and loss statement.” In other words they will design a compensation plan and hope that the actual expense or cost to the company will not exceed a certain amount. One of the first questions software engineers will ask company CEO’s or founders is, “How much do you want to pay out?” and then the software engineers will begin working their actuary magic to compose restrictions or qualifications for the distributors and “predict” what the masses will do, the rain makers will do; based on behavior and thus come up with a “theoretical pay out”. And this is where the fun begins in deciphering which compensation plan pays out the most or which compensation plan in the network marketing business is the most lucrative. Herein lies the great debate! Herein lies the great mystery! Herein lies the TRUTH and most people have no clue what questions to ask or what the compensation plans really pay!

Let’s take some time to reverse engineer or expose some of the mysteries of compensation plans, according to book of Glade Poulsen.

“UP TO”. Our compensation plan pays UP TO 67% (or whatever % ….they all vary but they usually have a pretty high number) What a joke. NO company will EVER pay the UP TO portion of the compensation plan purported.  They would go broke. There simply is not enough money to pay that high of a percentage. PURE AND SIMPLE! There are a number of public listed companies where the financial data is available. We get “the truth” or reality from these numbers. Amway, the granddaddy of all Network Marketing companies, Nu Skin, Herbalife USANA and others are public listed companies where the financial data is available. (Amway was publicly traded for a short period of time in Asia and that is when their financial data was available for public purview) In MOST cases of the publicly traded companies the UP TO is in reality 28-44% and not the High 60% or the 70% that is talked about! Breakaway, Binaries and most every compensation plans BANK on, hope for, have planned on and will in fact change the requirements of the compensation plan if they exceed the (on average) 34-40 % actual payout. This personally happened to me a number of times in my 13 years with the one company I was with. Every time the company ended up paying higher than what the software engineers had “planned on” or engineered and the founders were paying in excess of that “hoped for number” they changed the compensation plan. This we deadly to the distributor force. They lost confidence and trust in the company every time they changed the compensation plan.

Here is a true statement and one that brings the IRE of company executives and you can quote me on this; “I have never seen a major compensation plan change that benefits the distributor! It is always to improve the bottom line of the company taking money away from the distributors and adding to the profitability of the company.”

“Breakage” The difference between the theoretical payout or the UP TO and the ACTUAL payout is known in the Network Marketing Business as breakage. As stated, companies plan on, bank on, hope for and in fact watch to insure breakage keeps their margins in tact.

CV (or commission-able volume) versus Actual dollar value of products. Let me explain. Let’s say you are buying a product for $100.00 (actual dollar paid for the product) but the CV or the point value or commission-able volume is 80. You paid $100.00 but you are only paid on the 80! Let’s say that the actual payout was 40% of a company (which is one of the highest in the industry of public traded or public listed companies) 40% of the 80 is $32.00 In reality that is only 32% of the $100.00 you paid. Here again is another way companies “play with the numbers” and in reality only pay out 32% of the actually $100.00 paid. What if your company is a Binary and only paid 32%. Example. 32% of 80 is $25.60 or in reality $100 paid out and $25.60 paid to the distributors or 25.6% ACTUAL payout for $100.00 paid!!!!! Highly profitable for the company. (see number one below)

In my Blog How to Choose a Network Marketing Company I stated there are 5 Key elements required for success in the MLM or Network Marketing business.  The number 4 key element is Compensation Plan. That is what I am talking about today. In his blog, John Godzich explains in detail about Binary compensation plans. I totally agree with John Godzich and Doug Wead on their View of Binary compensation plans. In fact Binary compensation plans are illegal in many countries around the world. They are deemed impossible or improbable for most people to build and therefore just a few distributors, key distributors, make a lot of money and the company ACTUALLY pays out less than 35%. Binaries become very profitable for a few key distributors and highly profitable for the company but very unfair for nearly all distributors. The appeal is that it seems so easy to build a Binary. “1/2 of the work is already done!”  “All you have to do is build one leg!”

According to the book of Glade Poulsen,  I believe there are some key elements that make a compensation plan FAIR and attainable to whatever level of income you choose to pursue:

1. A true ACTUAL pay out that the company and distributors know! No breakage, No High Actual price paid and lower commission volume (CV)

2. Fair to the part time distributor. In actuality, 85% of distributors for a Network Marketing company are part time participants. However, most compensation plans are written, designed for and pay according to a full time, rain maker activity level. This kind of compensation plan makes it very difficult for the part time participant to “get to the money”.

3. Rewarding to the rain-maker. Whilst most compensation plans are written for the full time person it is tricky to have a compensation plan that rewards the part-timer and also rewards the hard working, rain-maker distributor who works so hard and pays a price that most are not willing to pay. There have to be function or reward to the Rain-Maker.

4. Fair to the late comer. Shame on us if it is only good for us getting in right now. What about those who join us 20 years from now? In my opinion, there must be something that rewards or is fair to those who join us later on. It may be more difficult but if they get there, they share in the overall growth and development of those who went earlier and paved the way. (Global Bonus Pools)

In my humble opinion, Xango addresses all of these key elements.
1. A true 50% pay out. No up to! 100% of the 50% is paid out through dynamic compression
2. No Breakage again via dynamic compression
3. Nearly every product is 100% CV 1$ for 1 CV
4. Dynamic Compression, Fast Start Bonus, 50% payout and Global Bonus pools make it fair for part-timer, rain-maker and late-comer.

There you have it; My 17 years experience in the Network Marketing or MLM business experience around the world and literally hundreds and hundreds of conversations with people from an plethora of companies. I hope this help you in deciding or in your due diligence in determining what opportunity you would like to align with. You would never go get a job working for a company and not know what your pay is? How you get paid? What are the qualifications of getting paid and alike?

Nor should you in the network marketing industry.