MLM Compensation Plan Basics

MLM Compensation Plan Basics

MLM Compensation Plan Basics

Network Marketing Compensation plans are often difficult for inexperienced and aspiring marketers to figure out, and yet they are ultimately the way in which you get paid in a network marketing business. It is often difficult for prospects new to the industry to absorb both the jargon and the concepts presented in even the simplest pay plan. However, it is important that you grasp how they work, to determine whether or not a specific payment plan is suitable for your goals and skill level as you enter this industry.

In this article, I'll teach you the basics of MLM marketing pay plans and also provide links to other articles comparing the 4 basic compensation plans. These articles will help you evaluate the benefits and limitations of each of the common pay plan structures and help you to identify the best payment plan for your goals and skill level. The links below will take you to detailed explanations of each plan, but it is suggested if you are brand new to the industry that you first start here and get a handle on the basics first.

The 4 basic MLM Compensation Plan structures include:

• UniLevel Plan
• Stair-Step Breakaway Plan
• Forced Matrix Plan
• Binary Plan

Basic concepts and jargon commonly used by people in the MLM industry:

Sponsor: A sponsor is a person who first introduced you to and signed you up with their network marketing company. You should receive adequate support from them to get you started and help you succeed in the industry.

Distributor or Associate: You become a distributor when you join a network marketing company. You become bound by the terms and conditions agreed upon to distribute and sell products or services the company offers as an independent business owner. A few organizations may allude to their merchants as partners.

Business Center: Your new position when you sign up for a network marketing company is called a new business center. This provides you a spot in the company's pay plan from which you may then begin to build your own sales organization or team. The organization refers to both yourself and all the members that you and your team recruit. Having a business center entitles you to receive compensation in the form of commission on the sales volume you and your team sell as a team. The greater the sales your organization does the more you get paid.

Upline: Your Upline refers to all the individual recruits sponsored directly above you in the pay plan structure. these distributors were recruited into the business before you generation by generation in a related chain much like a family tree.

Downline: Includes all the individuals you have personally recruited into the business and the new associates they bring into the business center much like your own family tree, it grows and expands as you have children of your own and they in turn produce their own offspring. This offspring that has joined your organization are allocated under you in the business structure and are then
considered to be downline from you in the pay plan.

Width and Depth: Width and Depth relate to the dimensional proportions of actual compensation plans. Dimensional proportions and structures in pay plans vary by type and design.

Width: relates to the maximum number of distributors you can have placed immediately under you in the compensation plan structure, and how wide this is allowed to grow. The first line of associates directly recruited by you is frequently referred to as yours.

Depth refers to the number of levels deep dimensionally in which you can earn a commission from your organization. Of course, there are only so many ways in which you can split a dollar, so a commission based on the work of the distributors in your downline can only pay so deep, though some plans claim payout to infinity.
For example, in a common forced matrix structure, the width and depth of the plan are written numerically as (width x depth). This plan has a width of 3 distributors and is 2 levels deep.

Level: Level refers to the position of a recruit in a downline with regard to an upline distributor. Frontline associates who are located directly below you are referred to as your 1st level distributors. Associates next below your frontline associates would be 2nd level associates, below them 3rd level, etc. etc.

Crossline: relates to distributors who work for the same MLM Company, but whose efforts do not influence one another pay. They are a part of your business center but not of each other's business centers or sales teams. All distributors on the same level of your organization would be a cross line from one another. Their individual efforts and their team efforts benefit you directly but have no financial impact on each other's businesses. They are said to be crossline from one another.

Legs: Every 1ST level or frontline associate in your business is the beginning of a new leg in your business. For example, in a 3x2 matrix, you would have 3 frontline distributors or 3 legs (2 outside legs and a middle leg) in your business center. Unilevel plans can go as wide as you like with frontline distributors so you could have as many legs as you sponsor wide. In a simple Binary plan, the focus is on two frontline distributors or two legs in your business organization.

Point Value: For every product distributed in network marketing, a fixed amount of points (PV) is linked with the product being sold. Your commission payments are determined by the volume of points that flow through your sales(total volume) during a set period of time.

Higher priced products commonly offer a higher point value as a reward, but this is not always the case. Flagship products or products the company is trying to promote my offer higher point values as a reward for teams to sell more of that particular product.

Even more confusing is that companies determine the total volume differently. This gets confusing I know. These are some of the common factors a company pay plan may use in establishing total volume.

Group Volume: This is the total amount of points you and your whole team has accumulated during a pay period.

Leg Volume: The specific volume of points in each leg of your business that has accumulated during a pay cycle. Payouts happen when there is a specific ratio of balance between volumes in each leg in certain plans. An example would be payout happening when a 1/3 2/3 balance ratio is achieved. Confusing I know, don't be troubled about it just be aware of the concept for now.

Level Volume: The number of points earned by each level, or specific levels of your sales team during a pay period.

Carry Over Volume: is the volume from a previous pay period that was earned but that was not qualified (for whatever reason) to receive payment on. Generally, a balanced ratio for payment didn't happen. This volume is sometimes lost but often it is transferred to the next pay cycle where you may add to it and qualify for a commission payment on the volume. Carryover volume actually allows any unpaid points to carry over to the next pay period so that you don't lose any payments.

Variable Level Commission Rate: Stair-Step Breakaways, UniLevels, and the Forced Matrix Plansordinarily offer a variable commission rate for each level of associates within your business center. These rates vary by program and company but they tend to follow the following hypothetical outline. In these types of programs, differing commission rates apply to the volume generated by different levels in your team. For example, for your level one frontline associates you might earn 20% on the PV sold by this group. But on your second level deep you would earn a differing commission rate, let's say 10%. The third level may then start to reward you for building deep and pay 15% for volume generated by this group of distributors.

Some commission breakdowns offer a consistent commission rate where you earn the same pay rate for each level. For example, a 10% commission from all 3 levels may apply. It's important to visualize the payment structure of a particular plan in regards to your abilities and goals as a marketer, and evaluate whether the two are compatible.

 Pay structures that favor higher commission rates at the early levels of the plan favor novice distributors, part-timers, and those without the resources to build deep. A heavy hitter, who is competent in recruiting large numbers and building deep, will like the higher commissions deeper in the play structure. It's really a matter of preference and ability as one size may not fit the desires of everyone.

Rank and Advancements: Network marketing businesses use ranking systems to distinguish accomplishment levels earned by associates in the organization. As your business center grows and you pass certain benchmarks of achievement in the industry your rank titles climb the ladder of success. These titles are generally assigned to distinguish your achievements and earn respect from your peers, but in some cases, there may be bonuses, or privileges linked with rank as well.

These are some of the common ranks of achievements:

  • Bronze Director
  • Silver Director
  • Gold Director
  • Ruby Director
  • Emerald Director
  • Diamond Director
Bonuses: Bonuses have become a part of many Network Marketing companies' compensation plans. Car programs, cruises, vacations, pay bonuses, etc. It is important to understand that generally these bonuses only come to those who achieve a certain level of achievement, and is a way to recognize and reward those achieving success in an organization.

Compensation Plan Differences: Each company's pay plan is different to some degree. The biggest differences are between the 4 main pay type structures, but even among plans of the same type, they may vary. The biggest differences are in how commission payments occur, bonuses, and specific qualifying features of the plans. The lingo may vary some as well, usually with regard to rank designations or specific titles for features of the plan, but the information above will give you a good basis for grasping the terms and functions of MLM pay plans regardless.
Which plan is best?
Each person's abilities and goals vary greatly. Plans are like personalities, some are better equipped than others for a particular person, their experience level, skills, and situation. So trying to prescribe a one size fits all solution is an unrealistic proposition.
You should do your homework on any particular plan you may be considering, and you should take some time to assess your goals and abilities first. You should seek out third party information about exactly what it is going to take to be successful in this industry before you join any particular opportunity or Network Marketing as an industry.

That's actually my motivation for putting this article together. I think Network Marketing is an awesome opportunity for properly prepared people. But I also understand that it takes a lot of marketing knowledge, proper training, discipline, and mentorship, for most people to earn a significant income in Network Marketing. People need to hear the truth; they need answers, no B.S. They need mentorship and strategies that work.

So I wanted to reach out to people who are both looking at MLM and to those already involved, and help you learn how to build your business, and create a sustainable residual income from home using modern-day MLM tools, marketing systems, and strategies that work.

So what I've done is put together an incredible amount of cutting edge information, tools, training, and resources that will teach you exactly how to succeed in MLM, and it will work for you whether you're involved with a Matrix plan, Binary, Stairstep Breakaway, or any other reliable Compensation Pay Plan.

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March 9, 2020 at 9:39 PM

Very nice

Congrats bro Jaseem Ansari you got PERTAMAX...! hehehehe...