Understanding MLM Compensation Plans

One of the most important things for you to do before going ahead with a particular network marketing venture is to find out what kind of compensation plan they have. There are several compensation plans actually. A few of these plans are quite simple, but then there are complicated plans too, which might take some understanding on your part.

It is absolutely vital that you understand your compensation plan in its entirety because this is what most people will use when they have to decide whether they want to join your downline or not. You will have to explain your compensation plan to a lot of people. They will ask you a lot of questions. If you are not able to answer them, they won’t be so confident about joining your venture.

At the same time, you have to understand the compensation plan for yourself. If you don’t, you might not realize what you are missing out on. You might be missing just small sums but these could amount to something huge when you think about the long run.

Single and Multilevel Compensation Plans

These are the first two that you have to learn about.

Single Compensation Plans – Most of the businesses of the world work on this premise. You buy something from a seller and you pay the seller the price for it. Now, the seller could be an affiliate or a salesperson. So the price you are actually paying the seller for the product is a commission. In this model, there is just one level – the seller. Hence, this is a single compensation plan. This model does not benefit the seller much; it is the manufacturer who keeps the bulk of the payment that you make.

Multilevel Compensation Plans – Here, you find several tiers of marketers, each one trying to sell a product. Here, the company that manufactures the item will eventually get the price of the item, but there will be a lot of reduction in what the consumer actually pays. The reason for that is there will be a lot of commissions paid out to the people in the network that sold the item. Every company has their own rules regarding how many upline members must earn their commissions on a particular sale.

Now, these are the points you need to bear in mind when you are looking at the compensation plans of your network marketing opportunity.

1. Shop around. Some opportunities pay more than the others. Don’t take up the first opportunity that comes your way.
2. Multilevel plans are better than single compensation plans because the commissions can have a better snowballing effect from the sponsors.
3. There are two types of scenarios here – Some plans pay more commission to people immediately in their downline and the members in the downline’s downline will get lesser commission. The second scenario is when some plans pay more to people who build their networks, in which the entire network makes a profit. Make sure you see which scenario applies to your network marketing opportunity.

Besides that, there are several kinds of network marketing plans within the multilevel framework.

Unilevel Plans

These have the highest commission for the first level and the commission goes on reducing drastically for every subsequent down level. However, the plan has no restriction on how many people earn commissions within the first level. This plan can be best described by – unlimited width, limited depth.

Stairstep Plans

There is a ranking system here, and the level that gets the best rank gets the best commissions. The ranking applies to only the members in the first level. The other members also get their commissions, but they are significantly lower.

Binary Plans

These plans are quite simple and uncomplicated. Each member is supposed to have just two other members.

Ambit Energy’s compensation plan is very similar to a binary plan in that you would build two strong legs that will help you grow your business. However, the plan does deviate as you go higher, requiring more legs as you go up. Please Click Here to see more about the Ambit Energy compensation plan.

The Australian Two-Up

The Australian Two-Up is a complicated network marketing compensation plan known as the Australian two-up which some businesses are using nowadays. Note:  The Australian two-up has numerous drawbacks. One being that you don’t earn a dime until you have turned over your first two sales to your upline. If your upline is not helping you everyday, you’ll never get those two sales and you’ll never earn back the money you paid to get into the program.