Glossary
Compensation Plan
A compensation plan is the fixed set of rules a direct selling or network marketing company uses to calculate how much each distributor earns from personal sales and from the sales of people in their downline. It usually combines a retail markup, a bonus on team volume, and rank based incentives. Common structures include binary, unilevel, matrix, and hybrid plans.
Also called: comp plan, MLM compensation plan
Why it matters
The compensation plan sets the real economics of the business opportunity. It decides how much of every sales dollar goes to the person who sold it versus the people above them in the organization, and how much a distributor can realistically earn without recruiting.
Example
A company might pay a distributor 25 percent retail profit on personal sales, plus a 5 percent bonus on the combined volume of everyone in their downline down to a set number of levels.