Understanding the Basics of Mlm Compensation Plans
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Mlm Compensation plans are often difficult for new and aspiring marketers to understand, and yet they are ultimately the way in which you get paid in a network marketing business. It can be difficult for prospects new to the industry to understand both the jargon and the concepts presented in even the simplest pay plan. However, it is important that you understand how they work, to determine weather or not a specific pay plan is suitable for your goals and skill level in the industry.
In this article I’ll teach you the basics of MLM compensation plans and also provide links to other articles evaluating the 4 basic compensation types. 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 compensation plan for your goals and skill level. The links will take you to detailed explanations of each MLM compensation plan, but it is suggested if you are new to the industry that you first start here and grasp the basics first.
The 4 basic Mlm Compensation Plan structures include:
Basic concepts and jargon commonly used by people in the network marketing industry:
Sponsor:A sponsor is the person who first introduced you to and signed you up with their network marketing company. They are the person responsible for making sure that you receive adequate training and support. They are there to help you succeed.
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 contractor or business owner. Some companies may refer to their distributors as associates.
Business Center: Your new position when you join a network marketing company is considered to be a new business center. This provides you a position in the companies 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 (distributors) that you and your team sponsor. Having a business center entitles you to receive compensation in the form of commission on the sales volume you and your team sell as an organization. The more sales your organization does the more you get paid.
Upline: Your Upline refers to all the individual distributors sponsored directly above you in the pay plan structure. They were sponsored into the business before you generation by generation in a related chain much like a family tree diagram.
Downline: Includes all the individuals you have personally brought into the business and the new distributors they bring into the business much like your own family tree 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 all positioned below you in the compensation structure and are thus considered to be downline from you in the pay plan.
Width and Depth: Width and Depth refer to the dimensional proportions of particular pay plans. Dimensional proportions and structures among pay plans vary by type and design.
Width:refers to the maximum number of distributors that you can have placed immediately under you in the compensation plan structure, and how wide this is allowed to grow. The first line of distributors directly sponsored by you is commonly referred to as your “frontline”.
Depth: refers to the number of levels deep dimensionally in which you can earn a commission from your organization. Naturally there is only so many times in which you can split a dollar, therefore a commission based on the work of the distributors in your downline can only go so deep, though some plans claim payout to infinity.
For example, in a typical forced matrix structure the width and depth of the plan is stated numerically as (width x depth). The diagram below shows a 3×2 plan. This plan has a width of 3 distributors and is 2 levels deep.
Level:Level refers to the position of a distributor in a downline relative to an upline distributor. Frontline distributors who are positioned directly below you are referred to as your 1st level distributors. Distributors next below your frontline distributors would be 2nd level distributors, below them 3rd level, etc. etc.
Crossline:refers to distributors who work for the same Mlm Company, but whose efforts do not influence each others commissions. They are a portion of your business center but not of each others business centers, or sales teams. All distributors on the same level of your business center would be cross line from one another. Their individual efforts and their team efforts benefit you directly, but have no monetary impact on each others businesses. They are said to be crossline from each other.
Legs: Every 1ST level or frontline distributor in your organization is the beginning of a new leg in your business. For example, in a 3×2 matrix you would have 3 frontline distributors or 3 legs (2 outside legs and a middle leg) in your business. 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 center.
Point Value: For every product sold in network marketing, a predetermined amount of points (PV) is associated with the product being sold. Your commission payments are determined by the volume of points that flow through your organization (total volume) during a set period of time.
Higher priced products usually offer a higher point value as a reward, but this is not always the case. Flagship products or products the company is trying to push may generate higher piont values as an incentive for distributors to sell more of that particular product.
Not only that but every company and MLM compensation plan likes to calculate total volume in a slightly different way. This gets confusing I know. The following are some of the common factors a company pay plan may use in determining total volume.
Group Volume: The total amount of points you and your whole sales organization/ business center 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 period. Payouts can occur when there is a specific ratio of balance between volumes in each leg in certain plans. Example would be payout occurring when a 1/3 2/3 balance ratio is achieved. Confusing I know don’t worry about it just be aware of the concept for now.
Level Volume: Is the amount of points generated by each level, or specific levels of your business organization during a pay period.
Carry Over Volume: is volume from a previous pay period that was earned but that was not qualified (for whatever reason) to receive payment on. Usually a balanced ratio for payment was not achieved. This amount is sometimes lost but often it is moved to the next pay period where you may add to it and qualify for commission payment on the volume. Carry over volume basically allows any unpaid points to carry over to the following pay period so that you don’t lose any commission.
Variable Level Commission Rate: Stair-Step Breakaways, UniLevels and the Forced Matrix Plans normally offer a variable commission rate for each level of distributors within your organization. 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 downline. For example, for your level one frontline distributors 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 begin 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 (featured on the right) where you earn the same commission 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 weather the two are compatible. Plans 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 recruiting large numbers and building deep, will appreciate higher commissions deeper in the pay structure. It’s largely 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 achieved by distributors in the organization. As your organization grows and you pass certain benchmarks of achievement in the company your rank titles climb the ladder of achievement. These titles are generally assigned to distinguish your achievements and earn recognition from your peers, but in some cases there may be bonuses, or privileges associated with rank as well.
The following are some of the common rank achievements
Bonuses: Bonuses have become a part of many companies’ MLM compensation plans. Car programs, cruises, vacations, pay bonuses, etc. It is important to understand that normally these bonuses only come to those who achieve a certain level of success, and is a way to recognize and reward those achieving success in an organization.
Compensation Plan Differences: Each company’s compensation plan is different to some degree. The biggest differences are between the 4 main compensation type structures, but even among structures of the same type, they may vary. The biggest differences are in how commission payments occur, bonuses, and specific qualifying features of the plans. Terminology 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 understanding the terms and functions of Mlm compensation plans regardless.
So what’s the best plan then?
Every marketer’s abilities and goals vary greatly. Plans are like personalities, some are better suited than others for a particular person, their experience level, skills, and situation. So trying to recommend 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 specific opportunity or Mlm as an industry.
That’s actually the reason I put this article together. I think all the Mlm plans are a great opportunity for the right person. 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 from home. People need to hear the truth; they need answers not hype. 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 reputable Mlm compensation Plan. Come check me out on my blog at www.daveschlueteronline.com and sign up for some free training.
I hope this article was helpful to you and that you will continue on to learn more about the fantastic opportunities that await you in this exciting industry. If you’d like a chance to work with me directly or get additional training come check me out at: www.workwithdaveschlueter.com
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