Balancing Leg: In the Binary compensation plan, the distributor has to balance the sales volume on both legs to achieve maximum payouts. The balancing leg may refer to the leg that needs more attention from the distributor. Otherwise, the company may calculate commissions based on the weaker leg sales volume.

Ex: Distributor X is part of an MLM company that employs the Binary compensation plan. His left leg achieves a sales volume of $4500 and the right leg achieves a sales volume of $2000. Here, the right leg becomes the balancing leg. The distributor has to focus his efforts on balancing both legs in terms of sales volume to achieve a higher payout.

Binary: A popular compensation plan where each distributor can only recruit two members in their frontline. These two members form two legs of a binary tree- the left leg and the right leg.

Ex: Distributor F is part of an MLM company employing the Binary compensation plan. He recruits J and K in his downline. J is placed on the left of the genealogy tree and becomes the left leg. K is placed on the right of the genealogy tree and becomes the right leg.

Bonus: Most MLM companies reward distributors with additional earnings called bonuses when they achieve specific milestones, ranks, or titles within the MLM network. Bonuses can be of different types such as Rank advancement bonuses, Leadership bonuses, etc.

Ex: Distributor C completes his sales and recruitment targets for the given period. Therefore, the company promotes him to a higher level and rewards him with a rank achievement bonus. Similarly, if he keeps achieving his target consistently over some time, the company may award him with a leadership position and add a leadership bonus to his payout.

Breakage: Breakage in MLM occurs when network members fall short of specific targets set by the company, leading to unpaid commissions.

Ex: An MLM company B sets a monthly sales target of $8000 for all their distributors, for which they receive 10% as commissions. However, Distributor D could achieve only $4000 in sales. Hence, he was not eligible for the monthly payout. The unclaimed commissions he earned in the month i.e. 10% of $4000, $400 is the breakage amount.

Breakaway: A distributor may break away from a particular network of an organization and operate independently. This feature of the genealogy structure is known as a breakaway feature. This is mostly observed in organizations that employ the stair step or breakaway plan.

Ex: An MLM company employs the breakaway plan and sets a breakaway target of $50,000 in three months. Distributor A achieves the target in that time frame and forms an independent network. A will now be eligible to receive higher commissions and other bonuses from the company.

Business Volume: The total sales volume achieved by network members that are considered in calculating their payouts is called Business volume. For distributors, the sales made by them personally and the collective sales of their team are included.

Ex: Distributor X is part of an MLM company. He personally sells $1000 worth of products. The combined sales of his team is $10,000. In this scenario, the total business volume associated with Distributor X would be $11,000. Therefore, his payout would be calculated based on this volume.

Buyback policy:This policy is enforced by the MLM company. According to this policy, the company will buy back the products sold to the distributor within a specific period at the current market price, if the goods remain unsold with the distributor.

Ex: Distributor A has $4500 worth of company products stored in his warehouse. If the goods remain unsold for 3 months, the MLM company will buy back the products to the distributor and resell them to other distributors who has a wider customer base.

Cold Market: In MLM terminology, the Cold market refers to individuals or potential customers who are not family, friends, or acquaintances of the salesperson. The cold market represents a boarder audience that requires more effort in terms of marketing and relationship building to convert them into customers.

Ex: Salesperson G decides to advertise his MLM company’s beauty products at a business fair organized in his city. Here, the business fair represents the cold market. He will approach prospective customers and convince them to buy the products.

Commissions: It is the basic earnings that a distributor receives on every sale he makes.

Ex: Direct Seller M sells about 50 pieces of a particular product in a day. Each product is worth $23. By selling 50 products, he accumulates $1,150. His commission rate is 10%. Therefore 10% of this amount, ie. $115 is the commissions he earned on that day.

Compensation plans: It is a structure by which MLM companies manage their marketing network. MLM companies can employ a particular plan based on their marketing requirements. Each plan has an elaborate structure that defines the members’ placements and also their commissions and bonus structure.

Ex: An MLM company employs the Matrix Compensation plan to manage its marketing network. The plan helps companies manage a defined network structure and also lays out terms and conditions for member payouts to make things easier.

Conversion rate: In MLM terms, conversion rate is a metric used to calculate the percentage of leads who are successfully converted into network members or customers. A high conversion rate signifies the effectiveness of the marketing campaign that is drawing those leads to the business.

Ex: A website receives 1,000 visitors. 20 of them join the marketing network and 30 make a purchase. Therefore the conversion rate is calculated as 50/1000 * 100 i.e 5%.

CRM tool: It is a software tool that helps MLM businesses manage customer relationships effectively. It helps them centralize customer data, streamline communication, and enhance customer experience, helping them create a positive brand image. Most CRM tools like Hubspot come integrated within MLM software.

Ex: An MLM company uses CRM tools like Hubspot to automate their customer data. This way, they can focus on the core activities of their business.

Cross-selling: Cross-selling is a sales strategy where sellers promote related products or services to customers who have already made a purchase. The goal is to increase the overall transaction value while solving a customer’s related needs.

Ex: Salesperson Y is part of an MLM company selling Home goods. One of his customers purchases an Area rug from him. He will try to increase the transaction value of the sale by suggesting related items like matching pillow covers or curtains to complement the rug.

Customers: Customers are individuals who purchase the products of an MLM company.

Ex: An individual S buys a product from a direct seller R. S becomes the customer of the company.

Depth: The depth of a genealogy tree usually refers to the number of downline levels allowed in an MLM organization. Most compensation plans have a depth limit, meaning there can only be a fixed number of levels in the genealogy tree.

Ex: A company employs a 3X2 matrix structure, 3 signifies the width of the structure, i.e. the number of members in the 1st level. 2 signifies the depth, i.e. number of levels of the structure.

Direct referral: A new recruit personally sponsored by a distributor is called a direct referral.

Ex: Distributor A sponsors a new member F who is placed in the distributor's downline. He is called a direct referral of distributor A.

Direct seller: A direct seller is any person who is legally eligible to enter into a contract with a direct selling company. He/she purchases the company product mainly to sell them. They are also often referred to as sales representatives. They earn commissions based on the sales volume they generate.

Ex: An individual R joins a direct selling company’s network to earn a source of income. He becomes a direct seller and is responsible for selling the products directly to the customers.

Distributors: A distributor is a member who joins the marketing network of an MLM company. He works independently and is not an employee of the MLM company. His main function is to recruit new members and also market and sell company products. He receives commissions on personal sales as well as sales made by his downline members.

Ex: An individual “A” is looking for a business opportunity. He comes across an MLM company that provides attractive commissions and bonuses. He joins the company and becomes Distributor A. He is now responsible for recruiting new members and Expanding the network along with marketing and selling the company products/services himself.

Downlines: The downlines of a distributor are members who are positioned in the next level of the Geneology tree.

Ex: Distributor A is in Level 1 of the genealogy tree. All the members in level 2 are the Downlines of A.

E-commerce integration: This feature in MLM software allows MLM businesses to integrate their business activities with an e-commerce store. With the rise in online selling, there is a great demand for an online store. This feature allows companies to facilitate online sales, track customer orders, and manage inventory easily.

Ex: MLM company X wants to expand its business with an online presence. They reach out to an MLM software firm for the same. The experts suggested getting MLM software with E-commerce integrations like Bigcommerce or Woocommerce. Thus the company was able to open its online store and manage its operations effectively with the software.

Enrollment Package: An enrollment package refers to a set of products, marketing materials, and business tools that new distributors have to purchase when joining the MLM business. These tools equip members to promote and sell the products effectively.

Ex: An individual S decides to join a health and wellness product MLM company. The company mandates the purchase of an enrollment package worth $100 for all new members.

E-wallet: An E-wallet is a virtual space where individuals can store, manage, and transact various forms of currencies, including digital money and cryptocurrencies. An e-wallet integrated into MLM software makes it easy for members to send and receive money from anyone in the network. All the transactions are safe and quick.

Ex: An admin of an MLM company wanted an easier way to process payouts to the network members. He heard about the E-wallet feature integrated into the MLM software. The company decided to get their MLM software integrated with E-wallets. Now, the admin sends and receives money from various partners just by clicking a button.

Fast Start Bonus: An MLM company provides a fast start bonus to new distributors if they achieve a certain sales or recruitment target in the initial months of their joining.

Ex: Distributor Z joins an MLM company. They provide a fast start bonus of $50 cash to their new members if they achieve a sales target of $300 and recruit two new members within 14 days. Distributor Z achieves the sales and recruitment target set by the company and receives the $50 as a fast start bonus.

Frontline: The frontline members of a distributor are his direct sponsors, placed in the next level of the genealogy tree.

Ex: Distributor A is in Level 1 of the genealogy tree. He sponsors four members B1, B2, B3, and B4. They are placed on level 2 of the genealogy tree. These four members form the frontline members of Distributor A.

Genealogy tree: It is a graphical representation of the hierarchy of the MLM organization’s marketing network. It clearly shows each member's rank, status, and position within the organization. A typical genealogy tree contains two legs based on the direction, the left and right legs.

Ex: A marketing network of an MLM company has 200 members. A visual picturization of the network will make it easier for members to understand the network hierarchy and also provide information regarding the number of levels, members in each level, and upline and downline members of each member.

Group Volume: It is the total sales volume generated by a distributor’s entire downline in a specific period. MLM companies use this to calculate member commissions and other bonuses. This term is often interchangeable with Business volume.

Ex: Distributor A’s downline consists of 5 active members, Each member brings in sales of $1000 in a month. When combined with his personal sales volume of $1000, his group volume stands at $6000 for that particular month.

Hybrid plan: A hybrid MLM plan is a combination of different MLM compensation plans. MLM companies may adopt hybrid plans by combining elements of different compensation to create a more versatile flexible model that suits their business goals better.

Ex: MLM company A introduces a hybrid MLM plan that combines the elements of a Binary and Unilevel plan. The distributors are encouraged to build two teams with unlimited members in each team. The plan also provides unlimited earning opportunities for members.

Independent distributor: Individuals who join an MLM company in search of business opportunities are called Independent distributors. The term is often interchangeable with other titles such as “representatives” or “Consultants”.They are not employees of the company but operate independently.

Ex: Individual A joins the marketing network of MLM company X. He may assume the title of a “Distributor”, “Independent representative” or a “Consultant” based on the company policies.

Indirect referral: A new recruit joining the network of a distributor without being personally sponsored by him is called an indirect referral.

Ex: Distributor A sponsors Distributor B to join the network. Therefore, A becomes the direct sponsor of B. Later, distributor B sponsors new distributor C to join the network. In this case, A is considered the indirect sponsor of C since C was brought into the network by someone other than A.

Infinity Bonus: An MLM company awards an infinity bonus to its distributors who enjoy leadership roles in the network. It is usually based on the entire sales volume of the organization. However, If any downline member achieves the target, the higher-ranked distributor may not receive the infinity bonus.

Ex: Distributor H has been associated with the MLM company for a long time and has achieved a specific sales volume. He receives an infinity bonus, a percentage of the total sales volume of the organization.

Joining Fee: A joining fee in an MLM network refers to the initial cost or fee that new members or distributors pay to join the MLM program. This fee may cover the enrollment package, training material, and access to the MLM company’s products and services.

Ex: Distributor A joins an MLM company. According to company policies, he is required to pay a joining fee of $150, which includes an enrollment package and other training materials.

KPI: Key performance indicator (KPI) is a metric used to evaluate the performance of distributors or the overall success of the MLM business. It can include factors like sales volumes, recruitment numbers, or team growth. KPIs provide insights regarding the effectiveness of a company’s MLM strategy and help in decision-making.

Ex: A common KPI used in MLM companies is the “ Monthly sales volume”. Monitoring this KPI will help MLM businesses identify the top-performing distributors and assess the overall health of the sales network.

Lead capture pages: Lead capture pages are landing pages in most MLM software, that help businesses capture information regarding interested candidates. Most lead capture pages open when someone clicks an online ad or an optimized search result. The admin can later contact the lead for successful conversions.

Ex: An individual was looking for a business opportunity when he came across an ad to join an MLM company as an agent. He clicked on the lead capture form and entered his contact information. A company representative got in touch with him and provided him with all the necessary details which eventually led to him successfully joining the company.

Marketing Plan: An MLM company’s marketing plan is a blueprint that outlines how the organization will build its marketing network. These plans are crucial for guiding businesses in their efforts to reach their business objectives. They are often referred to as compensation plans.

Ex: An MLM company wants to focus on the quick expansion of its network marketing team. It also wants to provide an attractive incentive structure to its members, Therefore, the organization employs the Unilevel MLM plan to expand its network and provide incentives to the members.

Matrix Plan: One of the most popular compensation plans is the matrix plan. The plan limits the number of members at each level. This allows for a structured growth of the marketing network with active members at each level. Companies employ various matrix structures like the 2X2, 2X3, 3X5, etc.

Ex: An MLM company employs a 3X2 matrix. This network structure will have 3 members in the first level and two levels only.

Matching bonus: Every distributor receives a matching bonus, which is a percentage of sales made by their personally sponsored downline members.

Ex: Members P, Q, and R are personally sponsored downline members of Distributor A. The company has set a matching bonus of 5%. If the members collectively bring in sales worth $1500, A receives 5% of $1500 ie, $75 as a matching bonus.

MLM Company: MLM stands for Multi-level marketing. It is a company with a business model containing a network of members that work independently to market and sell the company products through direct sales.

Ex: A company is looking for a convenient and cost-effective plan to market its range of cosmetics. They register themselves as an MLM company. Members join the company’s network as independent distributors or direct sellers. These members recruit other members to join the network and also directly sell the products to the target consumers.

MLM software: It is a specialized business management software that helps MLM companies streamline their marketing network. The software comes with extensive features and integrations that help businesses automate their business operations, leading to a happy partner and customer experience.

Ex: A newly formed MLM company X is finding it difficult to manage their growing marketing network. They heard about MLM software to simplify their operations. After implementing it, they found that calculating member commissions, managing orders, and communicating with members has become a breeze with the MLM software.

Network Marketing: It is a type of marketing technique employed by MLM companies. Network marketing is another way of referring to direct selling, where members of an MLM company’s network work to promote and directly sell products to customers.

Ex: Company O manufactures beauty products. It employs a direct selling network to effectively promote and sell its products to the targeted audience.

Override Commissions: Every upline member in the network receives a percentage of commissions on every sale made by their downline members. The percentage is usually pre-set by the MLM company. Depending on the structure, members on each upline level receive a different percentage of sales of their downlines.

Ex: A company places Distributor A on level 1, B on level 2, and C on level 3 of the organization. J, K, L, and M are the direct downline members of Distributor B. According to the company overrides commissions policies, A receives 10%, B receives 5% and C receives 2% of over-ride commissions on sales made by J, K, L, and M.

Payment gateways: Payment gateways are digital systems that streamline the process of sending and receiving payments through various modes like online transfer, e-wallet, credit cards, or debit cards. MLM businesses need to provide various payment options to their customers to build brand credibility and enhance user experience.

Ex: An E-commerce MLM business was facing the problems of discarded carts on its E-commerce platform. They later found out that it was a result of limited options in their payment process. After integrating various payment getaways, the business began to see a rise in the number of customer checkouts.

Prospect: A prospect is anyone who shows interest in joining the MLM network and planning to buy its products. Network members can get in touch with prospects through lead capture pages of MLM websites.

Ex: An individual S is looking for a part-time income and comes across an opportunity presented by an MLM company. He becomes a prospect by filling in his details in the lead capture form on the MLM website. The company representatives are then responsible for successfully convincing this prospect to join the network.

Pyramid scheme: It is an illegal way to make money by enrolling new members into a particular network. Pyramid schemes operate without actually offering a tangible product or service to customers and are considered scams.

Ex: An individual R is looking for income opportunities and comes across a scheme promising high rewards for referring other individuals. While he may initially earn a small amount of money for referrals, the scheme eventually turns out to be a pyramid scheme as the company has no actual product or service to sell.

Qualification requirements: A specific requirement that a network member has to meet to be eligible for incentives or leadership levels is called Qualification Criteria. An MLM company sets this based on its business requirements. Meeting these criteria demonstrates the dedication and commitment of network members toward the MLM program.

Ex: Distributor A joins an MLM company. The company sets a sales volume of $50,000 as qualification criteria for the distributor to get promoted to a leadership level. He is promoted to the leadership role as he hits the required sales volume.

Recruit:

A recruit is a new member who joins the network. They are typically sponsored by a distributor. The main aim is to sell the products and services of an MLM company through direct selling. They can also sponsor new members into the network.

Ex: Member B1 is a new recruit, who is sponsored by Distributor A.

Referral marketing: It is a form of marketing also known as Word-of-mouth marketing. It works when existing satisfied customers refer the company products to their social circle. It leverages personal recommendations and trust to generate new customers. Some companies run reward programs that encourage their customer to refer their products.

Ex: An MLM company X provides its customers with a 40% discount coupon for every successful referral. This is called referral marketing.

Replicated websites: An MLM company provides its distributors with personalized landing pages within their E-commerce site. These landing pages are often referred to as replicated websites. Distributors receive a unique referral link and can promote the company products easily through the website.

Ex: MLM Company X provides Distributor A with his own replicated website. With this, the distributor can capture and manage leads, create marketing campaigns, and share them on social media sites integrated into the website to expand his promotional activities.

Residual income: A distributor earns residual income every time their customers or downline members make a repeat purchase. This helps distributors have a steady income stream through initial sales efforts.

Ex: Distributor A sells a health product to customer X. A receives a one-time commission on the sales. However, X is extremely satisfied with the product and has placed another order. Distributor A keeps receiving residual income whenever X or other customers place repeat orders.

Roll up: The roll-up feature in a genealogy tree allows distributors to promote downline members to an empty position above them. An empty space is created in the genealogy network when a member drops out or remains inactive for long. Hence, the distributor rolls up a performing member to the available position.

Ex: A network has distributor A in 1st level, A1 and A2 in 2nd level, B1, B2, and B3 in the 3rd level, and C1, C2, C3, C4, and C5 in the 4th level. The company allows commissions of up to 2 levels deep. Hence, A received the commission for sales made by A1, A2, B1, B2 and B3. B3 is inactive for some reason. Hence, the company rolls up C1 to B3 position.

Roll-up or compression bonus: It is a program that helps distributors fill “empty holes” in their downlines with active members further down the network. Distributors are eligible to receive a part of the sales commissions of the new rolled-up member as a bonus, which is referred to as the roll-up or compression bonus.

Ex: A network has distributor A on top, followed by distributor B. Member C is placed directly below B and member D is placed below C. The company provides distributors with commissions that run 2 levels deep. Therefore, A is eligible to receive commissions for B and C. Due to personal reasons, C is inactive for the month. Hence, D is rolled up to C’s level. A receives a roll-up bonus as a percentage of sales made by D.

Spillover: Certain compensation plans provided a limited number of downline positions for each member. Hence, new members are placed under the next available position, rather than under the sponsor. This method is called spillover.

Ex: Distributors A1 and A2 are at level 1 of the network. A1 sponsors three members B, C, and D. However, the company's network structure limits only two downline positions per member. So, while B and C will be placed directly below A in the genealogy tree, D will be placed in the next available position.

Sponsor: A sponsor is typically a distributor who has successfully introduced a new member into the marketing network. The distributor is responsible for training that new member and overseeing their performance. He also receives a percentage of commissions made by the new member.

Ex: Distributor A recruits a new member “B1” into the organization. Therefore, Distributor A is the sponsor of B1.

Stair Step Breakaway: This is a compensation plan where the network hierarchy is arranged in the form of Stair Steps. Distributors need to achieve specific sales targets in a period to climb each step. They break away from the network and form their own team upon reaching the highest level.

Ex: Distributor A is part of an MLM company that employs the Stair step plan with 5 levels. He starts from the 1st level upon joining and climbs each stair step after achieving the sales target. The company sets a breakaway target sales of $25,000 within 6 months. Distributor A finally achieves the target and breaks away from the network to form his own network.

Strong leg: The strong leg is part of a distributor’s downline network in the binary MLM plan. The leg that generates more volume is known as the strong leg. Though it is an important part of the company’s binary network, the commissions are often calculated based on the weak leg to encourage the distributor to balance his efforts between both legs.

Ex: Distributor A recruits members B1, B2, B3, and B4 in his downline. B1 and B2 are the left legs, whereas B3 and B4 form the right leg of the network. The left leg generates a monthly sales volume of $25,000 and the right leg generates a sales volume of $60,000. In this scenario, the right leg is referred to as the strong leg.

Stockpiling: The practice of distributors overstocking products to earn more commissions and incentives is called Stockpiling. Though it is not a recommended practice, most distributors hoard products to reach targets.

Ex: Distributor A has to achieve a target of $500 more to earn a bonus. Though the demand for the product is slow, he hoards the stock of products worth $500 just to achieve his target. If the product is not sold, the distributor may incur a loss.

Team members: Network members at the same level are called team members. A term also refers to all the downline members of a particular distributor.

Ex: Distributor A recruits J, K, L, and M in his downline. All these members form a team headed by distributor A.

Unilevel: Unilevel is one of the simplest MLM compensation structures. Under this plan, companies allow distributors to recruit unlimited members in their downline.The network places no restrictions on the width and depth of the structure. This encourages fast growth of the network.

Ex: Distributor A joins company B’s network that employs the unilevel compensation plan. All his sponsors are placed directly in their downline. Similarly, members sponsored by his downline members are placed in their downline. With an unlimited number of members joining each level, the network expands in both width and depth.

Uplines: The uplines of a particular member in the genealogy tree are all the members who are positioned above them, including their sponsors.

Ex: Member B1 is at level 2 of the company’s genealogy tree. His sponsor Distributor A and all other members in Level 1 form his Uplines.

Volume Points: A numerical value assigned to products or services based on their sales volume is called Volume points (VP). These points are used to calculate commissions, bonuses, and other incentives for network members. They have to accumulate volume points through personal or downline sales to receive incentives.

Ex: Distributor A sells a product that is assigned 50 VPs. If he sells 10 such products, he accumulates a total of 500 VP. These VPs contribute to his overall sales volume and impact his commissions and bonuses.

Weak leg: In the binary compensation plan, the leg with lower sales volume is called the weak leg. It is also referred to as the pay leg as the commissions are based on the sales volume of this leg.

Ex: Distributor A recruits members B1, B2, B3, and B4 in his downline. B1 and B2 are the left legs, whereas B3 and B4 form the right leg of the network. The left leg generates a monthly sales volume of $25,000 and the right leg generates a sales volume of $60,000. In this scenario, the left leg is referred to as the weak leg.

Warm List: A warm list is a term used for family, friends, and other acquaintances of a salesperson. Unlike with the cold market, the salesperson does not have to put much effort into convincing these people to buy their products, as he already has their trust due to a pre-existing relationship.

Ex: Sales Person M joins an MLM company that sells health and wellness products. He falls short of his monthly sales target. He decides to contact his warm list, i.e. friends and family members to buy the products and help him achieve his sales target.

Width: The width of the company’s network structure is the number of members that it allows in the first level. This varies depending on the compensation plan that the company employs.

Ex: MLM company R employs the matrix compensation plan. If the company employs the 3X2 matrix structure. There can only be three members in the first level of the network. Therefore, three is referred to as the width of the network structure.

X-Up plan: An X-Up plan is a compensation plan where distributors pass up a certain number of recruits or sales to their sponsors or upline. The X is replaced by a certain number. For MLM companies employing the 2-Up plan, distributors need to pass the sales commissions of two of their recruits to their upline. This plan fosters teamwork and mentorship.

Ex: Distributor A recruits Distributor B in an MLM company employing the 2-up plan. Distributor B recruits members C and D. They collectively make a sale of $300. Distributor B passes up the sales commissions made by them to A.