Network Marketing Compensation Plans Part 1: The Stair-step Breakaway
Posted on 18. Jan, 2010 by Ty Tribble in Amway, Arbonne, Evaluating MLM, Herbalife, Network Marketing - MLM
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Stair-step Breakaway Plan
Company examples: Amway, Arbonne, Nuskin, Avon, Pre-paid Legal, Herbalife.
History and definitions:
The stair-step breakaway is the oldest of the compensation plans and was created by Amway in the 50's. Most early Network Marketing companies copied the plan and based on the fact that these companies have been around for a very long time, the largest companies in the industry typically have a stair-step breakaway plan.
The stair-step breakaway allows for an unlimited number of people to be personally enrolled on your front line and pays in a volume based stair-step manner. For example if you enroll 3 people who do $100 of volume, those 3 people might qualify for a 3% bonus on the the $100, where you would have a total of $300 on your team, you would qualify for 6%. The company would pay you the difference between 6% and 3%. This % "stair-steps" up so as your volume grows your % gets higher and you make a larger % difference.
The breakaway part of the plan is that when a person gets to a certain level, they will "break away" from you, causing you to earn less money on the volume that person creates.
Commentary: Problems with the breakaway plan are numerous. Most of the time the issue starts with the company and what % they pay back to the distributors. Amway has averaged a payout of roughly 30% back to it's distributors which is about 40 to 50% less than the fastest growing companies in the industry today which pay 40 to 45%. In other words to get paid the same in Amway vs. many other companies today, you would have to create 150% more volume.
The other major issue with the breakaway plan is the actual breakaway. You could put your blood, sweat, tears, hundreds of hours and money into one of your teams and then if they match your level ( in other words you help them succeed), your income will drop significantly once they "breakaway".
Stair-step breakaway plans are also back end weighted but it usually takes some additional maneuvering to make a large income. You will hear about tools and training system income, distributor pools where distributors have multiple positions and share the revenues and other shenanigans that offer the appearance of large incomes even though the largest producers are making a fraction of what they portray.
The Bottom Line: Stair-step Breakaway plans are like a used car: Folks can get attached to them but new cars outperform them in every category. The fundamentals of this plan were developed in the 1950's and there is a reason why you rarely see a new company using a breakaway.
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15 Responses to “Network Marketing Compensation Plans Part 1: The Stair-step Breakaway”
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concerned
18. Jan, 2010
I just read your description of the breakaway plan. I have researched many comp plans and find this one to be the BEST. Why? because you can make money at every level and get FAIRLY compensated. You can earn as you learn. No, you can’t ride on someone’s coat tails by signing up an ace and taking a nap…and rightly so. I passed up several consultants that were originally above me because they didn’t do anything. They always have the opportunity to get their rear in gear, catch up with my level and get paid on me. Why should they get paid on me when I’m a level above them and know WAY more than them. They aren’t in a position to help me anyway. This comp plan ensures that you’re paid what you’re worth.
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Ty Tribble
18. Jan, 2010
I disagree (as do most MLM consultants and experts).
The breakaway plan is an antique that offers virtually zero reward for the newest person and very little long term reward for the leaders.
I can’t name a single successful company that has launched with a Stairstep Breakaway in the last 5 years.
[Reply]
Brent Bryson
18. Jan, 2010
The top five volume producing companies in the direct sales (MLM, Network Marketing) are breakaway plans. They send more checks, bigger checks to more people and over a longer period of time. If you are looking for long term stable business join a company with a Stair Step Breakaway Compression Plan. They are the only fair plans. If you want to wander from company to company as an MLM junkie join some start up with some unproven compensation plan. Cars are cars. Compensation Plans are not cars. They either work or not. Volume is what people get paid on Volume, Lots of Volume lots of people make money. Good luck balancing that leg……
One last thing never join a MLM until it is 5 years old. 99% fail in the first 5. Think penny stocks vs. Blue Chips.
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chris turpin
19. Jan, 2010
Ty, I can’t believe your forgot to mention Forever Living Products. Forever is a Stair Step that pays Bonuses on Full Sugg. Retail. The only company in the industry to do that. Most companies now-a-days pay at wholesale or below.
When a a Distributor makes Manager your bonus ACTUALLY increases by 1%to3% on the managers group depending on the number of Managers You have.
4 of the companies you mentioned are Billion dollar a year companies along with Forever Living at 2.5Billion plus and all have at least twenty plus years in business. I place to build True Residual Income.
Are New Distributors make 15% of retail and get a 15% discount for joining for FREE.
No annual due, No Regressions, No Passups and Unlimited Earning Potential, Bonuses Paid on RETAIL
Stairstep are the Most Successful because for the most part they allow the Newbie and the mlm Veteran to make money.
Loyalty to the product and the company seems to be better.
look at all the heavy hitters that jump into a bianary, make the cash and then jump to the next one. It seems to be an epidemic.
my two cents. 15 years with Forever Living, I understand the Stairstep. It may not be the flavor of the week but it will get you where you want to go and in style.
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ibofightback
19. Jan, 2010
Ty is also incorrect with regards the best known stairstep program – Amway. He says regarding stairsteps “your income will drop significantly once they “breakaway”.
In Amway when a leg matches you at the top of the bonus scale and “breaks away” instead of getting the 3% differential you now get 4% plus you participate in various other leadership bonuses.
Ty was in Amway, so he knows this.
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Ty Tribble Reply:
January 19th, 2010 at 9:08 pm
IBOFightBack…that is a load.
Most of the time when someone breaks away in Amway, the person doesn’t have the volume to qualify for 4% and you are also assuming that a person goes from 22% to 25%.
What does a person earn on that breakaway leg if they are doing 2399 points (equal to $7500) outside of that leg?
Answer: ZERO
Plus Amway has paid out around 30% back to the field, one of the worst of all breakaways.
[Reply]
Dan Mitchell
19. Jan, 2010
IBOFightBack,
I thought we’d heard the last of you when you posted this back in July of 2009:
“This used to be a reasonable blog for catching up on MLM news. It’s a shame that it’s turned to an MLM bashing site so you can make your quota of posts for Ty.
Off my blog roll.”
Seems like your still lurking around. Clearly not a man of your word!
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SRIDHARAN R
20. Jan, 2010
yes.I am an IBO, what my question regarding Amway is if I able to do with my ability why I am not directly taken the distributorship from the company instead of in the existing system like network21, britt etc., because for example I dont know about 2 and above levels directly to me,but they are somewhat benefited out of my turnover. In this I saw many people who merely introduced one sucessful but benefited for their selfuse and his upline even not known the sucessor who benefited the breakaway of 4% . offcourse the staircase commission at all level was fully spent for the team development and meeting expenses. I think these are the weak points in the MLM. Thank you.
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ibofightback
21. Jan, 2010
So Ty, you’re admitting your analysis is actually of what happens in a “worst case” scenariou where you personally actually haven’t built the business?
Even then you’re wrong for all of the Amway world except North America. Any where else, if you only have the one team with serious volume, then you’re likely not getting a volume differential anyway – you’re making nothing on that downline as you’re both at the same. You need more than 2400 points in side volume to be at 21% (top of the scale) ahead of an 18%. Even in the American scale you need 2000 points from 21% to 23%, so your scenario only happens if you fail to increase your side volume by 400 points as the main leg goes from 4000 to 7500 points.
There’s ways to not get paid in every plan Ty, are all your plan analysis going to be based on “worst case” scenarios?
Dan – no offence, but you’re a child. Go play in your room.
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Ty Tribble Reply:
January 21st, 2010 at 10:54 am
Sadly in a stairstep breakaway plan, the worst case is the norm.
[Reply]
Ty Tribble
21. Jan, 2010
Let’s make this even easier….
How much money does a person make in the Amway Stairstep Breakaway on a team that is doing 7500 PV (somewhere in the neighborhood of $25,000 sales) if they are doing 2499 PV (probably over $7500 sales) outside of that team?
I’m speaking about the U.S. system just to be clear.
[Reply]
ibofightback
21. Jan, 2010
Gee, why’d you pick 2499PV Ty?
The fact remains, you picked one particularly scenario for your “analysis” and ignored all others.
I’d love to see you’re data and research showing 2499PV is the norm when a downline breaksaway :-/
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Ty Tribble
21. Jan, 2010
Your right….the vast majority of time it is lower!
[Reply]
rocket
26. Jan, 2010
Once again, IBOFB (aka David Steadson, the 100 PV’er) insinuates that he knows all about North American Amway.
And he does all this for fun, and is in no way compensated by anybody to defend Amway 24-7?
Ty has given a reasonable analysis of what he sees, and yet IBOFB, the spinner of spinners claims its a worse case scenario.
Well, I got news for you Dave, your pro analysis of Amway in every way, shape and form is cast in a best case scenario.
Because, you know, that’s how it would normally be, according to you.
Too bad there are hundreds of thousands, even MILLIONS of North Americans who had a bad experience in Amway, because that pretty much puts your theories about Amway in North America precisely where they belong.
In the toilet, which is where Amway’s reputation is here.
That’s about the only thing Amway has earned on this side of the world.
Five short years from now, Amway will truly be Global, in that everyone will know what a crock of a business it is.
BTW, for someone who LOVES lurking and trolling online about Amway on other’s websites, you sure have a problem publishing opinions that oppose your views on your own site.
Hypocrite.
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