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. In this chapter we will teach you how to understand a network marketing pay plan and in particular discuss the 4 basic compensation structures listed below. This chapter will also evaluate the benefits and limitations of each of the common pay plan structures and help you to indentify the best compensation plan.
The 4 basic compensation plan structures include

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.