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11th May 10
quickmon9The stairstep breakaway pay plan is the oldest MLM compensation plan. Having stood the test of time, it is the most commonly used compensation plan. The oldest and largest MLM companies, Amway, Herbalife, Mary Kay, Neways, Nu Skin still use this type of pay plan. It is also the most complex form of compensation plan and the most difficult to explain to new prospects.
Before the days of computerised databases and online ordering, distributors did not deal directly with their MLM company. They actually bought products at wholesale price from their sponsoring upline, who bought from his sponsoring upline and so forth until the first “direct” distributor who dealt directly with the company.
In fact, some companies still use “direct” to distinguish their top producing distributors from others, with designations such as Gold Direct, Platinum Direct, Emerald Direct, Diamond Direct etc.
Back in the old days, throughout the 1950s, ’60s, ’70s, ’80s and even ’90s, it was the direct distributor’s job to train and motivate their downline organization. It was their job to calculate and pay commissions to their frontline distributors, who calculated and paid commissions to their frontline distributors and so forth.
Direct distributors would order huge amounts of product from their company and warehouse it in their garage, and this is where their local downline distributors would get their products from.
Thankfully, distributors no longer have to do any of their own book keeping, and this level of inventory loading is a thing of the past. Technology has made ordering products much, much easier. Today, all distributors in all legal network marketing companies deal directly with their companies. However, the stairstep breakaway plan still works the same way.
In a stairstep breakaway pay plan, a distributor moves up the volume rebate scale (bonus scale) in steps, or “stairsteps”. He may get a rebate of 3% for the first 100 points of volume he and his group produces, 6% if he produces 200 points, 9% for 300 points and so on and so forth.
When a distributor reaches the top of the volume rebate scale, his group volume would be signficant enough that he’d be better off dealing directly with the company, and therefore he qualified to become a direct distributor. He now had the responsibility of sourcing the products for his frontline distributors in return for higher commissions.
But the new direct distributor would “breakaway” from his upline direct and form something of a separate business entity. However, the breakaway direct’s volume would no longer count toward the volume for his sponsor and therefore, the sponsor lost a considerable portion of her volume and therefore, income. This is the primary pitfall of the stairstep breakaway compensation plan.
The sponsor would get an override commission on the total volume of the breakaway leg, but this is only a small percentage compared to the commissions she would have received prior to her new direct breaking away.
So under these circumstances, there would be no incentive for your sponsor to support you in building your organization once you reach a certain level. When you reach the same rebate level as your sponsor, you break away and their income drops.
The stairstep breakaway plan rewards the few who can consistently sponsor new distributors and build multiple breakaway legs. But unfortunately, industry statistics show that the vast majority of distributors will not be able to sponsor enough people to get the most out of this pay plan.
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