What Is Breakage In A MLM Comp Plan?

I did a Google search on comp plan breakage. This is what I found at "MLM Compensation Plan Breakage - Why And How", by Dan Jensen, Chairman, Jenkon International, Inc

"Breakage is defined as the commissions left unpaid each month compared to the theoretical maximum of the plan." This article goes on to explain that breakage is used to assure the company makes a profit and to fund financial incentives to reward reps producing outstanding sales results.

That sounds fair and innocent enough ... right?

Here’s The Truth …

This definition is technically true enough, but the dirty little secret MLM companies and master recruiters don't want you to know is how tirelessly they work at incorporating unnecessary forms of breakage where ever possible.

There are 4 basic ways of creating breakage in a MLM comp plan.

1. Front Loading: a product that costs 2 to 4 times less than what it retails for. Prospective reps are promised "whole sale buying privileges". That brings the bloated price down to 2 to 3 times more than what the product is worth.<

2. Pay Plan Limits: any pay plan that stops paying beyond a certain team growth level. Limits may be set on depth, width, or both.

3. Unrealistic Qualifications: extremely high personal and/or group volume, multiple forms of different yet related qualifications, and sometimes even balancing requirements are put in place in order to get a check.

4. Direct Sponsoring: a company directly sponsors a rep when that rep signs up at the corporate site without a refering rep's ID number, or when a sponsoring rep is terminated. This puts the company in direct competition with its distributor base.

Many MLM companies have become very creative in how they incorporate breakage into their compensation plans. Over priced products no one would buy without a comp plan attached, compensation outside a rep's pay line, outrageously high and or complicated qualification requirements, and direct sponsoring are all ways companies hide breakage.

Some companies look for ways reps' can get a check. They offer products at a fair price point, they provide for unlimited team growth so the pay line is endless and stable, they craft compensation qualifications that work for the masses, and they do not put themselves in direct competition with the distributor base.

There is no perfect compensation plan. Breakage is a fact of life in network marketing, and every company works hard on the breakage in their respective comp plans. But which company would you rather build with … one that works hard to create breakage, or one that makes every effort to find it and then put that money in your pocket?

I appreciate you,

Bill Tessore