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MLM Compensation Plans- The Basics

While there are many types of compensation plans out there amongst a myriad of distributors, there are some basic common components that they all share.  Anyone seeking information on an MLM comp program should know the following:

• The Distributor is given a discount off the suggested retail price that becomes known as the wholesale cost or personal purchase volume (PPV) and is considered the commission.

• Distributor (A) sponsors (B) who is placed on his/her (A’s) first level (can change in a matrix and in a Binary).  When B sponsors (C) on their first level, this constitutes A’s second level and when C sponsors his/her first level it becomes A’s third level and B’s second, etc.  This group constitutes a leg for A.  When A sponsors a second person on their 1st level it begins the start of the second leg, third person, 3rd leg, etc.  All of the people in all of the legs are called A’s downline.   All of those same people are in A’s sponsor’s downline because A is the first level of his sponsor and begins one leg.

• When a company has a varied product line that doesn’t have the same amount of mark up, the company may establish a bonus value (BV) for the product.  The Distributor is paid his bonus on either BV or PV.  Watch this.  It can make a difference in what you think you’ll make.

• The total sales of each person’s legs (downline) are called GPV (Group Purchase Volume or GBV (Group Bonus Value) and it is on this amount (which can also include personal sales) that the bonus or override is based.

• The amount of compensation paid on the sales of a Distributor depends on the position of the sponsor and the sponsored person in the organization.

• All moneys are (must be) paid on the sales, never on recruiting.

• Although a Distributor is paid on x number of levels in many plans (example six), in reality, when the Distributor makes a purchase his upline, x number of levels (example 6 levels), makes a bonus on the amount of his purchase.

• Most plans pay out a total of 40% to 60% of wholesale and any plan can pay out as much as another, depending on the structure of course.

• Most plans require a certain amount of personal purchase volume (the Distributor should have personally sold some of that or more) per month to collect bonus.

• Most plans pay bonus on the wholesale amount not retail.

• Taxes are paid on product according to the state in which the product is sold.  No commission is paid on the taxes or handling charges, such as shipping.

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