Network Marketing Compensation

Just as no two people can truly be the same, it is very rare that plans in two different companies can be designed exactly the same arrow by arrow. Let me establish some facts first.

If you were given a choice, would you rather sponsor someone who doesn't know network marketing or someone familiar with network marketing?

The reason most people would choose the second option is simple, you don't need to spend so much time training them and they would bring results well on their own.

Now where would I find these types of people? Of course, in other network marketing companies!

If you expect to start a successful network marketing company or build a very large network, you had better get familiarized with the terminology or jargon!

Builder
A builder is a distributor who is actively looking for downlines. A builder is not the same as a customer who only consumes the products or recommends them to friends.

Upline
You are in their organization. An upline usually earns commission from your group volume. You may have several uplines possibly up to 10-20 levels in depth. Normally, an upline is responsible for your success. An upline may not necessarily be an upline leader/mentor.

Upline Leader/Mentor
This is an upline that you actively seek counseling from on how to build your business. They are here to guide you and are here to mentor you and make sure you succeed in the business.

Sponsor
You are directly under him or her. Normally they are the one who introduced you to the company.

Downline
They are in your organization. Depending on the nature of the plan, your commission from their group usually is smaller the deeper they are in the organization. Sometimes, your downline's downline could be many levels deep in your organization so you might not even know him personally.

Sideline/Crossline
These people are not in your organization and neither are you in theirs. Basically there are no monetary relationship between your group and the sideline's group. However, depending on the culture promoted in the company, they are either perceived as the worst competitors, or valuable allies. Take note also, that somewhere along the line, they are also in your upline's group, so helping your sideline means helping your upline and his group.

Front Line
These are downlines that are personally sponsored by you or are directly under you. You must be directly responsible for their success because you are the one who introduced them to this business. Furthermore, the development of your frontline will determine the success and failure of an entire downline group.

Leg
A leg is a downline group in your network starting from the person you personally sponsored. He and all the downlines under him are considered one of your legs. A distributor usually develops many legs simultaneously.

Width
The number of people you can personally sponsor. Matrixes and Binaries usually limit the maximum width. Normally a strong downline is one that builds and develops a very large width.

Depth
Depth refers to the level of your downline's downline. A person who has build depth usually has a secure organization.

Override
An override means you are paid a certain percentage over your downline's group. Normally an override is calculated on your frontline only.

Profit Sharing Pool
Profit sharing is a bonus that is paid out to achievers who have reached certain conditions in the marketing plan. A pool is a collection of sales volume from distributors all over the company regardless of whether the sales volume comes from your sideline.

Maintenance
A mandatory (sometimes optional depending on certain criteria) sales volume a distributor must achieve. Often maintenance is done to override your downline, become eligible for profit sharing, or maintain a certain rank or even the distributorship. Normally this is enforced because the company needs to make money as well.

Total Payout
This means that a percentage of a product sold by the company that is set aside for distributors and retail sales only. The company only keeps the remainder.

Let's clear up some common misconceptions regarding compensation plans both for the distributor and the company.

The compensation plan is not important; all I need to do is recruit people
A good plan will make or break a company. Survivability among distributors is one of the main causes of attrition. Would you be as excited as when you first started if you are not making money?

Factors like payout, maintenance and even the joining fee are crucial. If a company has quite a high maintenance and their distributors are not making money, they will drop out even faster.

I will only be a serious builder once I find the best compensation plan
There are people who do not work hard enough in their business, that they blame the plan for their failure.

They blame the plan, the management, or even call them a scam. If you decide to leave a company for a better plan, make sure you leave strictly based on business reasons and not to justify your failure!

Now that we are very clear how important it is to learn about marketing plans, let us seek to understand more about its basic mechanics. This will be covered over a course of a few books.

Over the next few pages, I will outline the basic plan mechanics and outline its benefits based on the following topics:

1. What downline building strategies are the best?
2. How well does it synergizes with the product?
3. If I start a company with this feature, what are the strengths and weaknesses?

Point value, or PV in most network marketing usually relates to a monetary value that translates into how much money you will get after purchasing a product from the company. An illustration would look like this:

SCENARIO 1
Let's say, a product costs $100 and each dollar spent on the product gives you 1 PV:
I get paid on 100 PV for purchasing $100 worth of products and if I am eligible for 10% override, I earn $10
Hence the dollar to PV ratio is $1:1 PV - a dollar to dollar equal comparison

SCENARIO 2
Sometimes, the same price of a product will only give you 0.5 PV for each $1 spent.
I get paid on 50PV for purchasing $100 in this scenario. If I am eligible for 10% override, I earn only $5
Hence the dollar to PV ratio now is $2:1 PV - you don't get as much as 1:1 because you have to spend more to earn more points

SCENARIO 3
Certain companies might give away promotions for products and offer $1:1.1 PV so if you buy $100, you get paid on $110 value. At 10%, I earn $11 - more commission from the company on the product for less spent buying it,

Downline Building Strategies
If I need to generate large volume for my group this month, I would ask my downlines to focus more on selling or moving products that give a higher point value. That way, everyone spends less but earns more.

Product Synergy
Products on promotions usually give a higher PV ratio. Other products that are outsourced (acquired from outside companies) usually give either a smaller PV or the same PV but a smaller business volume because they have to pay to the outsourced company as well. These products pay the distributor less but give more variety on the business catalogue.

Starting a New Company
Giving a high dollar to PV ratio usually encourages the distributors since they get paid more for the same effort. If I were to focus on moving high ticket items (like water filters, air treatment systems or expensive cookware) I would offer a higher PV incentive to distributors to move these items and go for the big bucks.

A company's marketing plan must be as transparent as possible and written in a simple way that can be understood by veteran and newbies alike. Payout transparency refers to the portion of money that is paid back to the distributors listed in detail.

Downline Building Strategies
A transparent payout is useful to motivate your downline especially new prospects who are evaluating the company. By teaching your downline to understand what all these percentages mean, you can effectively close more sales.

Product Synergy
This is very important for the product because too high a mark-up of the product means it will be very hard for retail customers (people who are not members of the company) to afford the product. In Multi-level Marketing, you have to pay to many level of distributors so if a product can sell without being people joining the company, then there is strong demand for the product.

Starting a New Company
Calculate the payout before hand and most of all; decide the total mark-up. Be careful especially in Binary Plans (which will be covered in the next book) because you don't want to overpay your distributors or else your company will go into bankruptcy.

A buy back policy is a clause in the company's terms and conditions where it protects its distributors in case they quit their business and want their money back. Normally this applies more to offline companies.

A very strong company usually has money back guarantees for their products even after the product has been used halfway or if the product is totally used up. This kind of satisfaction guarantee normally compels the company to absorb the risk because there will always be lots of quitters in network marketing or people who want to rip the company off trying the product for free.

In most countries, they offer either a 10 day cooling off period, or a 6 months to one year period where they will refund 90% to 100% of the products (whether used or unused depending on the company) due to the laws of the country or by the Federal Trade Commission.

Downline Building Strategies
A buy back policy forces the upline to be at his best because the moment a downline exercises a buy back policy, he might lose future potential income or even has his commission recalled or deducted. This is quite normal as in network marketing, the upline must go all out for the downline and make sure they succeed. A good way to prevent buy backs is to train the downline to be good product users so that even if they quit in the business, they will always remain loyal customers.

Product Synergy
In network marketing (or direct selling), testimonial of a product is critical as it is the driving force of the industry. Citing a money back guarantee gives prospect the confidence to try the product.

Starting a New Company
If you decide to include a money back guarantee in your new company, you must be very careful as you are absorbing the costs for any type of refunds. It is no point to keep a customers money anyway no matter how much you try to stop them from getting back as complaints to the consumer associations or even BAD word-of-mouth can destroy your reputation. In the end of the day, you must make sure your product is superb or else people will accuse your company for being a Ponzi or Pyramid Scheme.

Breakaway is a feature found in most Unilevel or Stairstep plans where a downline reaches a target faster than his upline.

Let's say in this company, you need to recruit three downlines in order to advance from having a 9% commission to 12% commission. The SPONSOR has to recruit 3 downlines then only he goes to 12% but his downline achieves this criterion before him.

This is a very common scenario on network marketing because you can't possibly as a downline to slow down (it is HIS business after all) and different people put in different amount of effort.

Depending on the company plan, a breakaway in this case means that the upline will no longer be eligible to receive commissions from the downline group forever. The commission that is due to the UPLINE will go to HIS UPLINE (the one even higher up) who has achieved the rank higher than all those under him. In some cases, the downline will even bypass his sponsor and his entire group will join his new upline.

Downline Building Strategies
It is very important to understand that the upline and the downline are all part of a team and as a team you have to work together. At the same time as helping the downline, the upline must work his own share as well. In some cases, depending on the relationship within the team, the downline may opt to 'wait' for his upline so all can achieve the goal together without leaving anyone behind.

Proper team planning and relationship building is very important to prevent factors like sabotage (the upline deliberately 'slowing down' the downline to prevent breakaway).

Product Synergy
In spite of the disadvantages of breakaway, it is very important for the upline to put in a lot of hard work. For example, if an upline sees his downline growing very fast, he will work harder to generate more product sales so he will be eligible for bonuses and also 'catch up' with his downline.

Starting a New Company
Breakaway has his advantages and disadvantages. The advantage is that it rewards distributors for hard work. Whoever recruits more or moves more products gets more rewards. This is very important for the company as you don't want to pay out unnecessary commission to free-loaders. The disadvantage as the company, you must strike a balance between to fairly reward all parties. This is tricky and requires planning.

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