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The MLM industry has a language all its own. This can be a little frustrating for individuals in the business, especially newbies. Test your comprehension:

Differential, pool, and single level commissions are targeted commissions.

                                      Mark Rawlins 

Understanding Multi-level Commissions and Their Role in a Successful Company

Get it? If not, look up “differential commission,” “pool commission,” and “single level commission” in the following list of terms/definitions, which should help you better understand the MLM business:

Autoship -  Pre-defined orders sent to a distributor on a regular basis--typically monthly--per his/her request.

Binary – A commission plan that requires a distributor to have two organizations or legs with approximately equal sales volume. A distributor sponsors two people, creating two downline legs, and then builds a downline under those two legs.  You strive to generate downline sales volume that is balanced between the two downline legs. When they reach specific levels of sales volume, you receive a commission check.

Breakage – Money that doesn’t get paid out in the commission plan because of unqualified distributors, too few levels, or some other reason. This money usually reverts to the company as profit.

Breakaway – A commission plan that allows distributors to break away from their sponsor and form their own group as Sales Leaders when they advance to a certain level. The plan then pays these distributors—called Breakaways—a new, different type of commission usually referred to as a Sales Leader Override. Their group volume is no longer included in their sponsor’s group volume. This requires the sponsor to go out and replace that person in his/her organization.

Business Center – Some commission plans allow multiple occurrences of a distributor in a tree. Each of these occurrences is known as a business center.

Commission Volume (CV) - The volume amount that commissions are paid on. Commission volume is determined by adding up each sold item's commission price for each period. Each item is assigned a commissionable amount that may be different than the qualifying amount and price of the item.

Commission Blocking – When a distributor’s commission is blocked by a qualified distributor in his downline. A differential commission can be a blocked commission; a level commission cannot. Earnings can go to zero overnight if a distributor’s entire check is based on a commission that can be blocked.

Commission Plan – The combination of rules, commission types, and structure that defines how distributor compensation is calculated and paid.

Commissions – An amount paid to a distributor on his/her direct and downline commissionable volume. One component of a commission plan whereby earnings are distributed between a distributor and his/her upline. Most companies employ several types of commissions, i.e., unilevel and infinity.

Compression – A mechanism for bypassing unqualified or inactive distributors when determining payout so that the upline is paid on the number of active levels. Only active distributors count as levels in the commission plan.

Consumers – Those people who wish to only purchase your products.

Critical Mass – The point at which distributors begin making enough money to change their lifestyles, thereby providing a compelling reason to continue building their business.

Differential Commission – A type of commission whereby a distributor receives the difference between the amount for which he qualifies and the amount for which his first level distributor qualifies. For example, if distributor A qualifies for 10% and his first level distributor B qualifies for 5%, then Distributor A receives 5% commission.

Direct Sales – A method of distributing product that employs independent contractors who earn their commissions only on their own sales and not on the people they recruit into the business.

Direct Selling Association (DSA) - The national trade association of the leading firms that manufacture and distribute goods and services sold directly to consumers. More than 200 companies are members of the association, including many well-known brand names. The Association's mission is "to protect, serve and promote the effectiveness of member companies and the independent business people they represent. To ensure that the marketing by member companies of products and/or the direct sales opportunity is conducted with the highest level of business ethics and service to consumers."

Distributor Status - A company-defined status that defines an individual’s relationship with the company.

Distributor Tree - This is a distributor’s sales organization.

Downline – The organizational descendants of a distributor on down to the bottom of the tree.

Earnings Emphasis – Occurs when a commission plan emphasizes a specific range of commission check sizes in conjunction with the company’s overall marketing strategy.

Enroller - The distributor who receives credit for signing up another individual or company as a new distributor. A “second sponsor” to whom part of the commission can be paid. This allows a distributor to place someone in his/her downline and still remain as that person’s enroller, or second sponsor, and receive part of the commissions on that person.

Enroller Tree - The hierarchy of enrollers and their downlines that compose an organization.

Fast Start  – A program where when a distributor signs up a new recruit, he/she is paid a commission for certain products, product packs, or a specific amount of product the new distributor initially sells. The purpose of the fast start is to get higher sales commissions to the upline on the first few sales as well as to newcomers to the program. Distributors can earn fast start commissions each time they recruit someone for as long as they are in the company, but they’re only paid for the first few months or on a certain amount of a recruit’s sales volume.

First Level – Those people directly under a distributor in the tree, or those whom he or she has personally recruited.

Front-end Loading – Also known as garage qualifying. This is an unethical practice in which distributors and companies sell excess inventory to their downlines to receive more commission. Hence, the distributors fill up their garages with products that they can never use or sell. Many companies have been destroyed by front-end loading practices. In an effort to curb this practice, the DSA created a standard policy of allowing the distributors to return any resalable product to the company within one year of purchase.

Genealogy - A distributor’s downline.

Group Volume - The quantity of business transacted by a specific, downline organization. Companies that use group volume as a qualification have a rank in their commission plan that is defined as a group or leader rank. It’s also often called a “breakaway” rank because it’s earned when the distributor breaks away from his sponsors group. In most companies, a distributor’s group volume includes anyone for whom he is the first upline distributor who has not achieved this group rank.

Hybrid Unilevel – A commission plan where, typically, the unilevel commission is the backbone and other commissions like fast starts and/or pool bonuses are added to increase earnings.

Infinity Commission – A type of commission in which a distributor is paid on all volume in his organization down to the next person with the same rank.

Kit – A collection of product that is sold as a single item.

Leg - A portion of a distributor’s organization starting at one of his/her first-level distributors and encompassing his/her entire organization. If a distributor has ten first-level distributors, he/she has ten legs.

Loop - Occurs when a distributor is in his/her own upline.

Matrix - A commission plan with a limited-width structure normally paid with a unilevel-type payout. Limited-width refers to limiting the width of an individual’s downline. A distributor cannot have an unlimited number of first-level distributors directly beneath them. A company uses this plan in order to force the distributor tree to be built according to a certain structure. The theory behind this plan is that it requires the upline to help the downline.

MLM – Multi-level marketing. MLM actually refers to a compensation type within the network marketing industry. An MLM company uses a method of distributing product that allows its distributors not only to sell product, but also to recruit other distributors, and then receive commissions on at least two levels of their downline activities.

Multi-Center Tree - A concept that allows a distributor to have more than one position in the downline tree. Multi-center trees are implemented in two ways. First, once distributors succeed in filling in their original matrix, they can have a new business center in the tree and build a new downline from that center.   Second, all of the business centers are created at the time the distributor is sponsored, and the distributor’s entire downline is placed under these multiple business centers.

Network Marketing – Another term for MLM often preferred because it doesn’t carry the negative connotations that the term, MLM, picked up because of the unsavory practices of a few participants. However, MLM is actually a compensation type within the network marketing industry.

Organization - A distributor’s entire downline, including breakaway groups, within the sponsor tree.

Organizational Volume - The quantity of business transacted by an individual’s organization, which is everyone in his/her downline.

Paid Rank – The rank at which a distributor is qualified to be paid for the current month.

Qualifying Points (QP) -  One of the four standards prices on a product price list. Each company has its own name for QP. BV – business value and PV- Point value are two of the common variations. QP is used to calculate the qualifications for a commission plan. For example, when a commission plan has a qualification of 100 personal sales volume, it is 100 QP. The primary reason companies use QP is that it allows for international commission plans and commission plan flexibility.

Qualifying Volume (QV) - The volume amount the Commission Process uses to calculate rank advancements and/or qualifications.

Rank – The title a distributor has earned in the organization by the sale of products or the building of an organization. Typically, a higher rank entitles a distributor to higher percentages of earnings.

Rank Advancement – The process of promoting a distributor to a higher rank.

Renewals - It is standard practice for a network marketing company to charge its distributors annual renewal fees for support services offered by the company.

Remote Sponsoring – Sponsoring a distributor over a long distance, rather than person to person. All sponsoring and supporting activities are conducted via mail or electronically.

Reversion - When distributors fail to qualify for certain rewards for a selected period of time, they may lose their rank or part of their organization. This demotion is termed reversion because a distributor reverts to a lower level.

Rules – The qualifications for the activities of selling and recruiting that a distributor must abide by in order to achieve ranks or receive commissions--one component of a commission plan.

Sales Leaders – The people who handle all the administrative aspects of recruiting plus downline training and management.

Single Level Commission – The entire commission goes to a single individual.

Sponsor - The distributor who signs up an individual as a new distributor; a distributor’s immediate upline.

Sponsoring Regulation - A rule that defines who a distributor can recruit and under what conditions. For example, a company may have a regulation that forbids recruiting anyone under 18.

Sponsor Tree - The hierarchy of sponsors and their downlines that compose the organization.

Stacking – A practice where distributors attempt to beat the system by recruiting everyone whose name they can think of, planning to be paid a higher percentage based on the high number of recruits. This practice usually backfires because the distributor must then generate sales to back up all these names.

Structure – The specific set of rules in commission plans that determine where people are placed in the organization--one component of a commission plan.

Tree – The hierarchy of sponsors and their downlines that comprises an organization.

Uni-level - A type of commission plan that pays percentages on personal or group volume, going so many levels deep in the organization. Within the context of the tree structure, a distributor is allowed to sponsor an unlimited number of first-level distributors.

Upline – A distributor’s sponsor plus that individual’s sponsor and so on, all the way up to the top of the tree.

Volume Pushup - The process used to credit a distributor with volume.