MLM Comp Plans - How Companies Hide Matrix Breakage

In my previous post, "What Is Breakage In A MLM Comp Plan?" I explained what breakage is and how companies use it to pay reps less than what they claim … often a lot less. Now let's take a look at a practical application of this phenomenon in the form of a Matrix comp plan.

For illustration purposes let’s say you’re in a company with a 3 x 5 matrix comp plan. In this plan you have 3 recruits on the 1st level, 9 on the 2nd level, and so on down 5 levels. A full 3 x 5 matrix has 363 positions down-line of the original sponsor.

So where's the breakage, and how is it hidden?

• One-time infinity bonuses: "These are in place to reward top producers.
• Compensation outside the pay-line: "The infinity bonuses take care of that.
• Spill-over: "This helps you fill your matrix.
• Direct sponsoring: When it occurs the company keeps that to itself. This happens when someone joins without a sponsor code, or their sponsor is terminated and no up-line rep takes the terminated sponsor's place as direct up-line (this is called "orphaning").

Here's the problem with these three forms of breakage.

• One-time infinity bonuses sound good … until you fill the matrix. At that point the only way to make more money is to continue sponsoring for a one-time check. It's like being an employee only you still have to pay Social Security and earned income self-employment taxes.
• Compensation outside the pay-line is that residual income limit I mentioned earlier. If you sponsor prospect #364 and beyond, then you now have a commission-only job. Your residual check stops growing.
• Spill-over actually robs reps who receive it. Every position spilled from an upline rep's activity takes one point of residual earning power away from that down-line rep that receives it.
• Direct Sponsoring This puts the corporate entity, the company, in the place of an active rep. The company earns commissions and bonuses just like everyone in the distributor base. So the company's entire distributor base is in competition with the company and all its resources.

MLM companies use breakage to pay the bills, make a profit, and reward producers. It’s an inescapable fact of life in network marketing that companies don’t advertise.

Some companies do all they can to reduce breakage to the advantage of their distributor base. Others see breakage as a way to pay for luxuries, live a lavish life style, and squeeze as much production out of their reps as possible.

My best advice is to always look for what’s not mentioned about the comp plan. That’s usually where breakage is found and your real income potential lies.

I appreciate you,

Bill Tessore