Compensation Plans Explained

The world of Network marketing and compensation plans has a language all its own. It can be a little confusing when you join a company with the jargon that is used.

I’m going to help ease the confusion by explaining compensation plans and how they work.

The basic idea to keep in mind is that you are paid based on the amount of sales of your companies product, service etc. in your team that you build.
While this is the basic premise of the compensation plan there are several different ways a Network Marketing company can structure their pay plan.
Let’s take a look at each one individually.
Unilevel Compensation Plan
You sponsor people into your business and they are placed on your first level. The company has a set percentage that they will pay on the first level. It is usual around 20%, so you earn 20% of the orders on your first level.

People in your first level who sponsor people now builds your second level. You are then paid a lesser percentage for this second level usually around 10% . It continues in this fashion to a set number of levels deep. The usual depth is about 7 levels.

You can sponsor an unlimited number of people on your first level, so the width of your organization is limitless but the depth is set by the company.

One thing to consider with the unilevel pay plan is that everyone you sponsor is placed on your first level and every person is cross line from the others you sponsor. This basically means that if you sponsor “Bob” and “Jane” they will be next to eachother but will not benefit eachother in any way.

Here is an example I made for you. I only made it 3 levels deep but most companies pay up to 5-7 levels. In this scenario you can see how Bob and Jane are people you enrolled but they do not benefit from eachother.

Binary Compensation Plan
As the name implies this pay plan involves two legs or parts of your business. You are placed into a tree and you have a left side and a right side. The beauty of this plan is people above you may place their sponsored people below you which is called “spillover”.

Most companies call one leg your strong leg or long leg for the side that has the most distributors. They call your other leg the weak leg or short leg. You are usually paid on your weak or short leg and share your long or strong leg with your sponsor.

The difference in this plan compared to the unilevel plan is people you sponsor directly affect your other enrolled people.

In this scenario your weak or short leg has Bob and Jane. This is the leg you are building and your sponsor is continuing to place people on your right leg (long or strong leg).

In this case Jane’s efforts benefit Bob so he will do whatever he can to help Jane succeed even though he never met Jane until he joined your business.

This promotes team work for the business.

Australian Compensation Plan

I’m not here to tell you what to do, I’m only here to give you the facts, however, I would be very careful with this plan.

This Australian pay plan is sometimes called a 2 up or 3 up plan. This means that the first 2 (if it’s a 2 up plan) or 3 (if it’s a 3 up plan) people you sponsor are passed up to your sponsor and they get the commission. The next person that you sponsor in the business is when you start getting paid on the 2 or 3 people that they sponsor who are passed up to you.

This is a risky pay plan and one that does not benefit most people. Be very cautious with this type of plan. My feelings are if you make the effort to sponsor two people into your business you should be compensated.

Matrix Compensation Plan

A matrix plan usually has a number such as “3×7” matrix. The 3 indicates the width of your first level. The 7 indicates the depth of the business that you will be paid on. If you sponsor more than 3 people on the first level it is what’s called “spillover” so these people go somewhere in your downline which is different for each company.

Important point to remember
It is important that you understand in a network marketing company you will need to maintain a certain product purchase amount to receive commissions on the downline you build.
I also encourage you to not get bogged down with these pay plans. If you don’t have a proper business strategy to enroll people then you will not earn money no matter how good the pay plan is.
Don’t be fooled by companies telling you how great the compensation plan is. If you do not link up with a team who will help you build a downline you will not make money, period.

The compensation plan can be cutting edge with an amazing setup. The real key to success is finding a reputable company, product and upline who can coach you.

Myself and Jonthan Budd will teach you how to produce an effective marketing funnel to fill your downline.