Compensation Plans

Introduction

Most compensation plans can be confusing to those who are new to network marketing, and sometimes even to those who have some experience. We will take a look at some basic compensation plan types in the following pages, how they work, their strengths and weaknesses, and most importantly, some money making tips on how to maximize each type of commission system.

Most compensation plans have 2 parts: the front end and the back end. The front end refers to one time bonuses paid in connection with recruiting new distributors. The back end is the commission paid monthly or weekly for ongoing product sales or service usage. We will focus on the back end portion of the compensation plan for one main reason – it is sustainable in the long term. Front end recruiting bonuses are nice, and often lucrative, but they should always be the icing on the cake. Most people join network marketing so they can spend several years creating long-term residual (or recurring) income, and then “retire” from the business. It is the back end of the compensation plan that generates this residual income.

As far as residual income goes, most network marketing companies will pay residual income, but some don’t. In order to have residual income, you must have a product or service that people will buy every month for a long time. There are some companies that sell knives, plastic containers, pocket books, or jewelry. Unfortunately, most people who buy those things won’t buy them every month, so those companies require ongoing efforts. However, such companies often pay very well for retailing those products, so if you are okay with ongoing responsibilities, you can still make a significant income.

Next: Basic Terms and Definitions

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