Generational compensation plans can be tricky to understand and explain, especially for the newcomer. They function similar to unilevel pay plans, except instead of levels, you are paid on generations. A generation is all volume from you down to the next person in your downline who is the same or higher rank. The next generation is all volume from that person down to the next person your rank or higher, and so on.
Let’s keep this simple and use an illustration. Let’s say there are 3 ranks: silver, gold, and platinum. Most people start out as a silver. In our simplified example, you need to have 4 frontline distributors to qualify as a gold. Every distributor who has sponsored 4 distributors is highlighted to stand out.
Advantages of Generational Compensation Plans
You can quickly see how powerful a generational comp plan can be. You can be paid many levels deep – in this example it is 16 levels, although it is only 4 generations. Typically you are paid the most on your first generation, and then less for each subsequent generation. So while you might be paid 10% on your first generation, it may only be 6% on your second, 4% on your third, and 2% on your fourth. However, you can see that in this example you are paid on 127 distributors through 4 generations, but it would only be 43 distributors if it was through 6 levels.
For people just starting out at the first rank, silver, a generational compensation plan typically pays less than a unilevel plan. Here’s why: Let’s assume that to be silver you must be on a 100 point autoship order. Then you are paid 8% on your first generation, 4% on your second, 3% on your third, and 2% on your fourth. Well, since it’s easy to become silver, most people in your downline will be at least silver, so you will probably only be paid 4 levels deep anyway. A unilevel plan might pay on 6 levels. So in the beginning, you’ll probably make less. Once you advance to gold, you can start to see the great benefits of the pay plan as in the above picture. And on to platinum, well, then it can become very lucrative without having to build very wide.
Disadvantages of Generational Compensation Plans
Probably the biggest weakness of a generational compensation plan is its complexity. This makes it difficult to explain to a prospect. Many people who are already reps don’t even completely understand it. Therefore, presenting the plan to a prospect (especially if you are a new rep) can be a very daunting task.
Another problem is the just as in a stairstep breakaway plan, there is a breakaway. Usually it is a much softer breakaway because it breaks away slowly, in small pieces. However, the plan often does not promote teamwork and working deep down into the plan. If someone in your downline gets a promotion, you might get a pay cut. If the plan is properly designed, this flaw is usually kept to a minimum.
To Succeed in a Generational Compensation Plan
If you are considering joining a generational compensation plan, here are a couple of things to look for. First, look for a plan the pays on several generations of a particular pin level. The more, the better. Some plans pay 2 or 3 generations, while others pay 4 to , or even more. This will smooth out the breakaway. Secondly, look for a company that uses a simple, easy to understand method of presenting the compensation plan. Most new reps won’t be able to explain it clearly enough, and everybody knows that confused prospects do nothing.