The Compensation Plan

Compensation plans are ultimately the way in which you get paid in a network marketing business and therefore it is important that you understand how they work. The 4 basic compensation plan structures include:

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

How to Understand a Compensation Plan

Despite the fact that every network marketing company’s compensation plan is different, most plans are based around one of the 4 basic structures. The main difference between the pay plans using the same structure is that they vary in the commissions paid and in additional bonuses.

Although some network marketing companies claim to have a better compensation plan, we strongly encourage you not to join a network marketing company purely based on what their compensation plan has to offer. Instead, focus on the complete package which includes the products, the practicality of the business opportunity and the fairness of the compensation plan.

On this page we will teach you how to understand a compensation plan. Given that every compensation plan is different, some of the terminology may be different to the plans you have previously looked at. Also, please bare in mind that not all the information on this page will be relevant to every plan.

To understand any compensation plan in its entirety, you need to first understand some basic concepts and jargon that is commonly used by people in the network marketing industry. Such terms might include sponsor, business centre, width, depth, levels, legs, upline, downline, crossline, point value, volume, commission, bonuses and organisation. These terms may look a little intimidating at first, but don’t be discouraged, we’ll talk you through them and then towards the end evaluate the different plans available.

Sponsor
The sponsor is the person responsible for introducing and signing you up with their network marketing company. Your sponsor is also the person responsible for making sure that you receive adequate training and support to help you succeed.

Distributor and Associates
You become a distributor once you sign the paperwork and join the network marketing company. Some companies may refer to their distributors as associates. These terms will be used interchangeably throughout this website.

Business Centre
When you first join a network marketing company you are given a business centre which then entitles you to get paid a commission in reward for the work your organisation achieves. The organisation refers to both yourself and all the members (distributors) that you and your team have sponsored. Think of your organisation like a big department store where all the shops inside are independently owned and operated. Although you are not the boss of each shop, as they are independently owned, you do earn a profit from their work. Likewise, in network marketing the more work your organisation does the more you get paid inturn. The diagram below illustrates both a business centre and your organisation.

Upline and Downline
Two of the most common terms used in network marketing are upline and downline.

Upline refers to all the individual distributors sponsored directly above you. Although upline distributors should provide training and support to the members of their organisation and help them become successful, their individual sponsoring efforts will normally have little or no impact on your commission cheque.

Downline refers to the individuals who have joined your organisation and are positioned below you in the compensation structure. Although you are encouraged to support your downline distributors, essentially each member of your downline owns and operates their organisation independently.

Width and Depth
One of the main differences between the numerous compensation plan structures is the width and depth of the plan.

Width refers to the maximum number of distributors that you can have placed immediately under you in the compensation structure commonly known as your “frontline”.

Depth refers to the number of levels deep in which you can earn a commission for their efforts. 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.

In the forced matrix structure the width and depth of the plan is normally written as a simple equation (width x depth). For example, the diagram below suggests this plan that has a width of 3 distributors (ie each business centre can sponsor a maximum of 3 frontline distributors) and is 2 levels deep, so therefore it would be written as a 3x2 plan.

In some compensation structures it is possible to have infinite width (Unilevel and Stair Step Breakaway plans), where others may have unlimited depth (Binary plan). Each plan will be discussed in more detail through the links listed at the bottom of this page.

Level
Level refers to the position of a distributor in a downline relative to an upline distributor. As demonstrated in the diagram below those highlighted would be referred to as 2nd level distributors as they sit 2 levels below your business centre in the compensation structure. Naturally those frontline distributors who are positioned directly below you could also be referred to as 1st level distributors.

Crossline
Crossline refers to the relationship between two or more distributors who work for the same company, but whose efforts do not influence one another’s commissions as they are not part of each others organisation. For example, all distributors on the same level would be cross line from one another.

Legs
Every frontline or first level distributor that you sponsor into your organisation forms a new leg. For example, in the diagram below there are 3 frontline distributors and therefore 3 legs (2 outside legs and a middle leg). If it was a 4 x 6 plan there would be 4 legs (2 outside legs and two middle legs). In some plans where there are a large number of frontline distributors these legs are often numbered from left to right 1st leg, 2nd leg, 3rd leg,…etc.

Another way to look at the legs of your business is that each leg represents a new organisation that is owned and operated by your frontline distributors. By helping your frontline distributors build their “organisation”, this helps you to build one of your legs and therefore can help strengthen your organisation.