Matrix compensation plan
A multi-level marketing (MLM) company’s compensation plan structure is the engine that fuels sales and growth. What is a matrix MLM compensation plan? Matrix compensation plans are widely used by MLM companies today, which makes understanding how the plan works, as well as its advantages and challenges, important for MLM company decision makers and sales representatives.
Across all of the various MLM compensation plan structures available – such as unilevel, binary, matrix, and hybrid – the primary purpose is to define how independent sales representatives are paid for the sales they make as well as the new representatives they recruit and sponsor. An MLM company’s compensation plan is documented and executed via its MLM software and becomes the foundation for how the company is able to incent and reward sales representatives. Below, we take a deeper dive look at the matrix MLM compensation model and the MLM strategies it best supports.
The matrix MLM compensation plan structure
How an MLM chooses to structure its sales team is based on the company’s direct sales strategies and the types of products it sells. The hierarchical structures are known as the company’s genealogy because, much like a family tree, they provide current and historical records of the organization’s growth and how different sales representatives are related to each other through sponsorship and recruiting. All genealogy types are defined by the parameters they set for the number of representatives included in the structure’s “width” and “depth.”
How do you fill in a matrix MLM compensation plan’s downline?
Matrix compensation plans, which are sometimes also called “fixed matrix” plans, are characterized by their fixed width and depth. Here’s an example. In a 3 (width) x 5 (depth) matrix MLM compensation plan, each level of the structure includes three representatives, up to five levels. To fill in her downline in this matrix plan, a sales representative would need to recruit three members for the first – or frontline – level, nine members for the second level, 27 for the third, 81 for the fourth, and 243 for the fifth and final level. Typically, as new sales representatives are recruited, they fill in the matrix MLM structure in order. For example, in a 3 x 5 matrix plan, the first three representatives would fill in the frontline level, with the fourth person recruited “spilling over” to fill in the second level of the downline, and so on.
Matrix MLM compensation plans are designed to limit the number of representatives within a downline and encourage strategic recruitment in order to maximize the payout and continuing growth of the downline. Matrix MLM plans provide a broad view of the overall MLM and promote long-term representative engagement and earning potential.
How matrix MLM compensation plans work
Matrix MLM compensation plans are among the most commonly used MLM genealogies, largely because the fixed width and depth provide MLM companies with greater control over payout volumes. At the same time, the matrix plan structure offers sales representatives a range of compensation opportunities available through a mix of commissions and bonuses.
The MLM company is able to define the compensation plan criteria that is then programmed into the MLM software to reward the sales and recruiting behaviors it wants to drive. Some common compensation rewards within a matrix MLM plan structure are:
- Sponsor bonus: Received when the representative adds a new representative to the matrix structure.
- Level completion bonus: Received when the final representative is added to complete a level within the matrix. The bonus amount can vary by level.
- Matrix completion bonus: Received when a sales representative completes her matrix by filling in all of the downline slots.
These types of bonus payouts help keep a focus on recruiting, promote teamwork, and offer successful sales representatives appealing earnings potential. To further engage and incentivize the team, many MLM companies also pay a matching bonus percentage to upline representatives when milestones, such as level or matrix completion, are achieved by representatives in their downline.
The advantages of matrix MLM compensation plans
The main reasons MLM companies choose the matrix MLM compensation model are to promote team collaboration and drive increased group sales. The defined width and depth of the matrix ensure that sales representatives focus on recruiting to fill in their frontline first and then developing the downlines. For the MLM company, this helps to build a team culture that supports new representatives and rewards initiative. The fixed structure also makes the overall and individual teams easy to manage.
The relative simplicity of the matrix MLM compensation plan is easy to explain to potential representatives, and the spillover approach assists in developing strong MLM networks. For sales representatives, the earning opportunity is significant. As the matrix structure’s depth fills in, the representative’s opportunity for compensation and bonuses increases.
Many matrix MLM compensation plans allow for position compression to fill in gaps that appear in the structure if a sponsoring representative drops out. Position compression enables the gap to be filled by moving a downline representative into the open spot in the matrix structure. The downline opening is then filled by recruiting a new representative to fill that spot. In the meantime, imbalances in commission and bonus payouts caused by the frontline gap are avoided or minimized.
The challenges of matrix MLM plans
While teamwork is a hallmark of matrix MLM compensation plans, there can be a downside. Representatives at lower levels of the matrix may see less of the benefits of teamwork because of the variable pay scales at different levels. In addition, some sales representatives may rely on the matrix-inspired teamwork for their earnings while putting in less selling and recruiting effort than others.
The fixed depth of the matrix structure can demotivate upper-level representatives to continue recruiting at the same level once the entire depth of their downline structure is completed. This makes offering a range of incentive bonus opportunities critical.
Matrix MLM software solutions
After designing and documenting a matrix compensation plan, it gets programmed into the company’s MLM software. This integration and automation makes the plan easy to execute as the organization grows. The MLM software enables the company to effectively track the expanding downlines and accurately calculate commission and bonus payouts based on the plan’s defined parameters.
The best matrix MLM software provides the company with the flexibility to set – and adjust as necessary – customized compensation parameters, including variable pay by level, commission calculation criteria, and bonus triggers. Matrix MLM software also streamlines the management for growing MLM organizations, providing tools and automation for both the company and its sales representatives to manage downlines, address and fill any gaps, and reward the desired sales, recruiting, and teamwork behaviors.
Matrix MLM software functions as the operational backbone of an MLM company, ensuring it has the efficiency, accuracy, and analytics it needs to achieve its growth goals.
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