Understanding MLM Compensation Plans

by: Ted Riley

Introduction

Down lines, up lines, overrides and spill over. Understand? Of course not! But it was exactly these types of terms that I was bombarded with when I was at first trying to learn about the world of multi level marketing. It made it a slow process to say the least, so I thought that I would write an article to help the folks out there that are about to undertake the same journey.

The way that a multilevel marketing company pays the person who invests in it and sells the products or services that it provides is through a “compensation plan,” and there are a great many types of them that are employed.

Matrices

The first one we will look at is the one that revolves around the idea of matrices.

"Matrices" is the plural form of the word matrix. In the context of multilevel marketing everyone below you in the matrix you have entered ends up giving you a portion of the income they generate in the company. This turns into a commission paid by the company that you have invested in. Alternatively you are in the matrix of the person who recruited you.

The people you recruit into your matrix are referred to as your down line. The people who they also recruit are also in your down line. The people in your down line are the ones who are responsible for the amount of income that you will receive and if you can recruit good sales people into the down line of your matrix you will have a good residual income.

Alternatively people who are above you in the matrix of the MLM that you have chosen are referred to as being in your up line with money going from you and your down line up to them.

Sideline Compression

Another term that is often used is sideline compression. Sideline compression is what happens when a member does not have enough sales. They are then moved down line and a person with better sales is moved up line to take his place. Making sure this does not happen to you is important to say the least, and a small amount of training can go a long way when you are starting a business for the first time. The MLM you join will provide this for you when you sign up if it has any interest in staying in business.

Spill over

There are many other things that the world of MLM that you should be made aware of and one of those things is called spill over. Spill over is the term used to describe what happens when the first line of your matrix is filled up and you need to put the new recruit into your down line. The new recruit can be placed into the frontline members down lines. This can be a big help to the new members having even newer members placed in their down line from their up line. You may think that you are losing money if they are placed further down in your down line but the faster the levels of your matrix are filled the sooner you will get paid and the person is still in your down line anyway.

Cycles

“Cycles” is a term used in the context of when a level of the down line is filled and the quota is filled, payment is made by the top level of the up line and a cycle is completed.

Expandable depth commissions

Expandable depth commissions are a way to describe the types of compensation plans that are able to sustain an either infinite or, as the name would suggest, “expandable” number of people in the down line. Some are mathematically limited and cannot support high numbers.

Overrides

The term overrides is used simply to describe the amount applied to the sales volume from the sale of the product.

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About The Author

Ted Riley is an entrepreneur and educator interested in teaching others on the benefits and rewards of having your own home business. He writes frequently for the web site "A Grandmother's Business", a web site dedicated to the needs and equirements of the mature woman entrepreneur and job-seeker. To see more articles like this visit: http://www.grandmabiz.com/