Inside Multi-level Marketing: MLM Compensation Plans

There are several terms involved with multi level marketing (MLM) that you will need to learn. You will have to know about downlines, uplines, overrides, spillovers, compensation plans, commissionable volume (CV), level bonuses, etc.

All multilevel marketing companies have a Compensation Plan. This plan defines all the different ways in which the company is going to pay someone who invests in it or sells its products and services. While every company is going to have its own customized plan, there are certain key concepts that these plans follow.

Matrices

One of these concepts involves Matrices (or multiple matrix). A matrix can be thought of a series of points with each point having one parent point and many children points. This is valid for every point in the matrix. Every point is going to be the parent point for some matrices and the same point is going to be the child of one parent matrix. In the multi level marketing way of thinking, the points are people. When you first join such a multilevel marketing plan, you will be at the child level with one member above you. That member can have several more members above and this chain going upwards is your Upline.

People who are recruited by you are placed below you in the matrix and are referred to as your downline. Each member in your downline can start a new line and this cycle can go on indefinitely. Every member in the downline of every member who is in your downline automatically becomes a part of your downline. So if you recruit 12 people and they recruit 100 people, your total downline is 112 members.

The more people there are in your downline, the better your chances are of building a decent residual income. The reason for this is that, just like you receive a cut from the earnings of all members in your downline, the people in your upline are receiving a similar cut from your earnings.

Sideline Compression

If you read this term in a multilevel marketing plan, then you might wish to avoid it altogether. Unlike other multilevel marketing concepts, people with good marketing and networking skills are the only ones who can successfully avoid the dangers of sideline compression.

What sideline compression does is take a structure like the Matrix discussed above and studies it to determine which members are not generating "enough" sales. The definition of "enough" is usually very fuzzy. These members in the matrix are simply pushed downline and other downline members who are generating better sales are pulled up to take their place.

Needless to say, you do not want this to happen to you. Most multilevel marketing companies will provide training to help you stay where you are in the matrix. It is best to pay close attention to early training if you are new to the MLM way of generating income.

Spill over

Theoretically, there is no limit to the number of members you can have one level below you (the downline you recruit personally). However, most multi level marketing companies have a cap as to how many members you can have per level and how many levels deep your downline can go.

When your downline gets full, new members will be placed into the next free slot available in the downline of any other member already in your downline. This has three benefits. First: you do not lose new members as they are still going into your downline. Second: it helps to fill up the downline of your downline members, thereby decreasing the number of people they must recruit while generating more commission for you. Third: true income from MLM does not come from your personally recruited downline, it comes from how fast you fill up the grid below you.

Cycles

Apart from all the upline and downline matrix filling, each level in the matrix is also assigned a quota that it must meet. Once that quota is filled, payment in the entire line is made as per the applicable rate of the top level in that upline. The cycle is then considered complete.

Expandable Depth Commission

As stated earlier, theoretically, there is no limit as to how deep a downline can go, but due to economic and management reasons, most MLMs will have some kind of predefined limit. This limit can sometimes be overcome if the MLM employs the Expandable Depth Commission model. Basically, this model allows a limited MLM to operate as an infinite-depth MLM.