To understand how multi level marketing works and how you are compensated let’s look at the various options for earning a multi level marketing living.
There are various compensation packages with multi level marketing firms. Here are some of the most common.
The first is called the stair stepping breakaway plan. It may also be referred to as a unilevel compensation plan. It’s the oldest MLM payment plan and seems to be the most popular with the contractors themselves. There are two distributor types in this plan. They are non-managers and managers. There are also three ways of getting paid. The first way is through base shop overrides. These are manager overrides that come from their subordinates, the non-managers. All together these overrides are referred to as the base shop. Any other sales structure, even those that aren’t multi-level marketing plans, pay this way.
Then there are generational overrides. These are the overrides managers earn from the base shop of other managers that had previously been their subordinates. Most of the multi level marketing programs have three or more generations of these managers.
The third part of this unilevel plan is executive bonuses. These are strictly commission-based, for managers who have exceeded their sales quotas. If, for instance, 2 percent of the total sales revenue for the whole company is designated to the executive bonus pool, and managers have a sales quota of $10,000, then all those managers whose revenue is $10,000 or more share equally in that two percent.
Matrix multi level marketing compensation plans put a limit on how wide each level can be in each distributor’s group, which forces the strong distributors to spill their recruits over the people who didn’t even sponsor them.
In binary MLM compensation plans the width of each distributor’s level is limited to only two legs. The distributors’ commissions are based on pay cycles, and the distributors are paid a predetermined amount whenever the two legs both reach a quota of sales units. Commissions are paid in increments when each leg’s sales volume matches.
Matrix compensation plans are sometimes known as elevator multi level marketing payments. These have a list or a game board on which each contractor must pay in at least one product unit to participate. When a predetermined number of units are paid, the structure is then split and the earliest participants get the consideration.
The United States Federal Trade Commission (FTC) has advised the a multi-level marketing firm whose incentives are greater for recruiting others than for the sales of the products should be viewed by potential contractors with skepticism.
In April of 2006, the FTC proposed legislation called the Business Opportunity Rule, which would require anyone selling a business opportunity, where multi level marketing or not, to document enough information that prospective buyers could make informed decisions about the likelihood that they would make money with the MLM. This is not signed into law as yet, and generally any FTC trade regulation bill takes up to three years, and at least 1.5 years to be signed into law.