Compensation Plan Types | Law Offices of Nehra and Waak

by Dan Jensen, Jenkon International, Inc.

1. Direct Selling Plans

Traditional Direct Selling
One on one, the distributor sells direct to the consumer and earns commission on those sales. Management is limited and often appointed. Sponsoring is not aggressively pursued except by those in sales management. Retail commissions are a large percentage of sale and are paid to the Distributor/Agent or retained in cash payment. Example: Rainbow Vacuum sales.

Party Plan
A one to many sales environment with the distributor arranging sales “parties” typically through a hostess. Distributor earns commissions on the inventory sold directly to retail customers in the party. Sales management is usually shallow. Distributors can often promote themselves to management through their recruiting and sales efforts though higher levels of management are often appointed. The distributor recruits other agents and hostesses who hold parties and recruit retail customers. Hostess receives purchase credit for efforts based upon party success. Generally, there are several levels of management commissions but only a small percentage of total sales dollars is paid to management. High retail profits (35 to 50%) are common. Example: Tupperware

2.Network Marketing / MLM Plans

Stair-Step / Breakaway
Characterized by distributors who are responsible for personal and group sales volumes. Volume is created by recruiting and retailing products. Various discounts or rebates are paid to group leaders. A group leader can be any distributor with one or more downline recruits. Once personal and group volumes are achieved, a distributor becomes a manager, and “breaks away” from their upline manager. From that point, the new manager’s group is no longer considered part of his upline manager’s group – hence he is called a “breakaway”. Managers receive commissions on the group sales of their downline managers which often becomes the majority of their earnings. These plans pay unlimited commission on limited downline groups. This is the most common type of Network Marketing plan.
Uni-Level
Often considered the most simple of compensation plans, Uni-Level pays commissions primarily based on the number of levels a recipient is from the original distributor purchasing product. Commissions are not based on title or rank achieved. By qualifying with a minimum sales requirement, distributors earn unlimited commissions on a limited number of levels of downline recruited distributors. Typically, there is no sales management position to achieve. Example: Kaire International, Inc.
Matrix
Similar to Uni-Level plan except there is a limited number of distributors who can be placed on the first level. Recruits beyond the maximum number of first level positions allowed are automatically placed in other downline positions. Matrix plans often have maximum width and depth. When all positions in a distributor’s downline matrix are filled (maximum width and depth is reached for all participants in a matrix), an additional matrix is started. Like Uni-Level, distributors earn unlimited commissions on limited levels of volume with minimal sales quotas. Example: Melaleuca, Inc.

Australian or 2-up Plan
Based on a large commission on unlimited depth of a small amount of a distributor’s total group. Large scale recruiting is necessary to drive the program. The distributor gives up the first two of his/her recruits to their qualifying upline. This pass up may move through an infinite number of levels. Typically, sales management positions are minimal. Volumes accumulate through unlimited depth but limited width. Earnings are unlimited.

Binary
Requires distributors to constantly assess their personal recruiting and sales management. Distributors activate Income Centers (also called Business Centers), then recruit distributors into each one. Income Centers can be considered a distributorship entity or business. Volume in each Income Center accumulates on each of it’s two legs (only two legs are allowed per Income Center – a left and a right leg). Successful distributors in a Binary plan must constantly watch their downline to ensure volume accumulates evenly. Compensation is made at fixed intervals of evenly accumulated volume up to a threshold where the maximum payment is made during a pay period. Volume accumulation starts again in the next period after maximum payment. Binary pans pay limited commission on unlimited levels of volume.2

About the Author: Dan Jensen is founder and Chairman of Jenkon International, Inc., a computer software firm specializing in the Direct Selling / Network Marketing industry. Founded in 1978 and having served over 600 industry clients, Jenkon has acquired an unequaled level of experience and knowledge about what makes companies successful in the industry. Many of Jenkon’s clients have risen to become industry leaders such as Nu Skin International, NSA, Cell Tech (Blue-Green Algae), Usana, Cabouchon, Melaleuca, and many others. Many industry leaders have come to Jenkon to utilize their advanced software technology including Shaklee, Avon, Stanley Home Products, and Nature’s Sunshine Products. Most of Jenkon’s clients start very small utilizing Jenkon’s Summit V business management software system in their office. Summit V software puts the tools to deliver total customer satisfaction into the hands of even the smallest network marketing or direct selling company. From accurate and timely commission checks to order processing to managing downlines numbering in the hundreds of thousands, Summit V has proven itself to be a formidable weapon in the competitive marketplace of direct selling. For many, it has become the key to their success. Jenkon, based in Vancouver, Washington, employs 60 people in the USA with another six in its UK office near Birmingham, England. For more information, contact Jenkon at 360-256-4400 or Fax 360-256-9623.