MLM INDUSTRY TERMS
MultiSoft Has Assembled a Comprehensive Glossary of Industry Terms Common to the Multi-Level Marketing (MLM), Network Marketing, and Direct Selling Industry
Activated - (Binary)
Active - (General)
Commentary: more often than not, and especially in unlimited width plan types, Active status is important with respect to compression. Refer to the “Compression” definition for an understanding of that concept.
AutoShip Personal Volume - (Australian, Breakaway, Matrix, Unilevel)
Note: all APV counts towards the PV tally by default; refer to the Personal Volume definition for additional information.
Commentary: AutoShip is a powerful tool for driving sales volume in the compensation plan.
Recognizing PV generated from AutoShip separate from PV generated by one off orders can be crucial to providing incentives, often times in the form of lesser commission qualifications, that encourage distributors to setup recurring orders for themselves and their constituents.
Binary Commissionable Volume - (Binary)
Breakage - (General)
Commission Cap, Global - (Binary)
A global commission cap ensures that no more than X% (variable percentage determined by company) of the total BCV invoiced for a commission period is paid out during that period’s commission calculations. Following is an example of how a commission cap works. This example is based off 60% of the BCV being the most that a company would want to pay out during a commission run.
This commission cap will ensure that no more than 60% of the BCV associated with invoices belonging to the current commission period is paid out during a Binary commission processing.
Note: only products with BCV that are found on invoices with a date inside the current Binary commission period will count towards the cap.
The mechanics of the cap are as follows. At the start of the commission run, 60% of the BCV for the current Binary commission period will be calculated. The resulting figure is referred to as the “Max Pay” – the maximum amount of commissions that it is desirable to pay out.Commissions are then calculated unencumbered without taking the commission cap into consideration. This is referred to as “Unencumbered Pay” – the total commissioning results that would be produced if no cap was in place.
Max Pay and Unencumbered Pay values will then be compared. If the Unencumbered Pay is less than the Max Pay, commissions are paid “as is” without an application of the commission cap being necessary. If the Unencumbered Pay is greater than the Max Pay, capping of the commissions will be required. To calculate what the Adjusted Pay (term for amounts paid after the cap has been applied) for each center is, the following calculation is used.
The Max Pay value is divided by the Unencumbered Pay value. The resulting amount is converted into a whole number by shifting the decimal place two positions to the right. The whole number is then subtracted from “100”. The resulting figure is translated into a percentage (called the Capping Factor) – the percentage is the amount that each check for the period must be reduced by in order to have the total payout for the period fall in line with the Max Pay value.
Example – There is $1,000,000 in applicable BCV for the period. 60%, $600,000, is the Max Pay for the period. Unencumbered Pay totals $625,000. To find the Capping Factor, Max Pay is divided by Unencumbered Pay; (600,000 / 625,000) = 0.96. 0.96 shifted two decimal places to the right is 96. 96 is then subtracted from 100 to provide the capping factor; (100 – 96) = 4, or 4%. Each check must be reduced by 4% in order to meet the overall 60% pay out goal.
Commentary: commission caps can come in different forms. For instance, some may not unilaterally reduce commission checks, they may reduce the top earners first and spare a reduction for those with lesser checks. Others may not focus the cap on a specific commission period, but rather grade the total percentage being paid over a number of commission periods.
MarketPowerPRO uses, by default, compression as defined in the definition and example above.Application of the commission cap is typically a worse case scenario. Companies generally do not wish to employ the cap – they have a vested interest in putting as much money back into the field as possible in order to maintain a motivated (read: selling) distributor force. Also refer to the personal commission cap for information on how the global commission cap interrelates to it.
Commission Cap, Personal - (Binary)
The following example assumes that the personal commission cap will be $20,000. E.g. income center X earns, unencumbered, $30,000 in commissions during a Binary processing. X will be paid $20,000 only. Further, X’s unencumbered earnings of $30,000 will not count against the global commission cap. Only the earnings that X was paid, $20,000, will be counted against the global commission cap.
Commentary: Also refer to the global commission cap for a complete understanding of the capping process.
Commissionable Volume - (Australian, Breakaway, Matrix, Unilevel)
Commentary: CV is also frequently referred to as BV, Business Volume or Bonus Volume. In almost all instances, CV and BV refer to the exact same thing, commissionable dollars
Compression - (Australian, Breakaway, Matrix, Unilevel)
The “Active” amount off which compression is triggered is based off PV. In many compensation plans, income centers are considered Active when they have a PV of greater than zero in the current commission period. The PV amount may, however, vary by compensation plan. For instance, “company X” may have an Active threshold of $30 PV.
Compression Example, unlimited width compensation plan – the company counts individuals as inactive only when they have not made a purchase carrying PV of any amount in the current commission period. Within the current commission period, the company has four income centers present: A, B, C and D. A is at the top of the organization. B is placed directly below A. C is placed directly below B. D is placed directly below C.
Focusing on the A position, A is Active and fully qualified to earn commissions. B is inactive. Both C and D are Active. When compression is enacted, B will be temporarily removed from the Downline. C will roll up to take B’s position and D will roll up to take C’s position. A will then be paid frontline commissions on C and second level commissions on D. After commission calculations are complete, B will again assume its position and the Downline will return to its pre-commission format.
Compression Example, fixed width compensation plan – Compression is applied on placement sponsorship lineage. When compression is applied to fixed width plans, the act of compression can break the number of frontline positions that is usually maintained. As an example, the company has a leg of Downline containing five income centers: E, F, G, H and I. E is at the top of the organization. F and G are placed directly below E. H and I both reside frontline to F. Focusing on the E position, E is Active and fully qualified to earn commissions. F is inactive. Both H and I are Active. When compression is enacted, F will be temporarily removed from the Downline. Both positions frontline to F will roll up to replace F. E will then be paid frontline commissions on G, H and I. After commission calculations are complete, F will again assume its position and the Downline will return to its pre-commission format.
Moving two (or more) centers to take the place of one compressed individual can temporarily, for commission calculation purposes only, break the rules of maximum width that are in place. If, for instance, this example belonged to a 2 wide Matrix, E would have three people frontline at the time of commissioning – G, H and I. Although this would temporarily break the normal width, it should not affect the overall payout; i.e. the company would not be at risk of breaking its maximum payback threshold, even with the compression taking place.
Customer - (General)
Z’s $50 CV will be added to Y’s $100 CV, placing $150 CV frontline to X at Y’s position. Z is not considered to be second level to X.
Commentary: the norm is for customers to not occupy a position in the Downline. Some companies will have a customer occupy a position in the Downline. In instances where a customer occupies a Downline position, any volume attributable to the customer is paid to the Upline from the occupied position – not through the enrolling sponsor’s position. MLM Builder does not, by default, have customers occupy positions in the Downline.
Cycle - (Binary)
Commentary: refer to the definition of “Step” for additional information; the term Step references incremental payout of a Cycle.
Distributor - (General)
Commentary: some companies permit distributors to have multiple income centers; refer to the “Income Center” and “Primary Income Center” definitions for additional explanation surrounding the distributor concept.
Downline - (General)
Enrolling Sponsor - (General)
First Generation - (Australian, Breakaway, Matrix)
Commentary: generations are often alternately defined as “down to but not including, the next inline income center of equal rank.”
Fixed Width Compensation Plan - (Binary, Matrix)
Flushing - (Binary)
Frontline - (General)
Group Volume - (Australian, Breakaway, Matrix, Unilevel)
Commentary: GV is sometimes calculated on a portion of Downline instead of the entire Downline. For instance, company X may limit GV to all CV present in an income center’s first 10 levels of Downline.
Income Center - (General)
Commentary: the “Primary Income Center” definition furthers the concept of income centers. Left to Right/Level by Level Spilling – (Binary, Matrix) LR/LL spilling is the most common spill type for non-Binary, fixed width type pay plans.
This spill type works as follows. When an individual sponsors a new enrollee, the first check will be to see if the sponsoring individual’s frontline is full. If the frontline is not full, the new enrollee will be placed there. If the frontline is full, spilling must occur. The LR/LL spill routine will then evaluate the second level of organizational Downline below the sponsoring individual. If available positions are present, the first position to the farthest outside left on the level will be selected for placement of the new enrollee. If there were no available positions on the second level, it would then move down one level to the third.
This spill type evaluates each level in the same fashion until the next available position is identified by asking the same two basic questions: 1. Are there any positions available on the current level (if not, go down one level)? 2. Once the level with an available position (s) has been identified, what is the first position, starting from the left and moving across the level to the right, which is not occupied?
Commentary: read the “Spilling” definition for a general understanding of the spilling concept.
Level by Level/Leg by Leg Spilling - (Matrix)
The LL/LL spill routine will then evaluate the second level of organizational Downline below the sponsoring individual. If positions are available on that level, the level will be targeted as the one on which the center being spilled should be placed. The first level with available positions is the one on which placement will occur. If only one position is available on the level, the center being spilled will be placed there. If, however, there are multiple positions available on the identified level, another series of selection routines must be undertaken in order to decide where the center being spilled should be placed. The next series of routines will determine which leg on the level the center being spilled should be placed in. To do this, each leg of the level will be checked to see the number of centers within it. The center being spilled will be placed in the leg with the least number of centers.
As an example, the level on which to spill the new center is identified within a three wide Matrix. There are three legs of Downline (three placement sponsors immediately on the level above) on this level – Leg 1, Leg 2 and Leg 3. Being a three wide Matrix, each leg can have three centers.
Leg 1 has two positions filled in it. Leg 2 has one position filled in it. Leg 3 has two positions filled in it. The center being spilled would be placed in Leg 2, because it is the leg in the level that has the least number of centers. Note: if each leg in the level has the same number of filled positions, the center will be placed in the left most leg.
Commentary: read the “Spilling” definition for a general understanding of the spilling concept. Level by Level, Left to Right and Level by Level, Leg by Leg spill types could be used for any fixed width plan types, however they are almost always used with Matrices and not Binaries.
Levels - (General)
Personal Volume - (General)
Placement Sponsor - (General)
Commentary: refer to the “Enrolling Sponsor” definition for a complete understanding of the two sponsorship relationships typically tracked by companies.
PowerLeg Spilling - (Binary)
If the immediate frontline position below the individual is filled on the side selected, spilling must occur. The PowerLeg spill type takes the new enrollee and places the new enrollee in the outermost left or right (depending on side selected) position below the sponsoring individual.
The PowerLeg spill type never fills interior legs of the sponsoring individual, but continues to push the newly spilled enrollee into the outermost position available on the left or right side.
Commentary: read the “Spilling” definition for a general understanding of the spilling concept.
Primary Income Center - (General)
Qualification - (General)
Qualified - (Binary)
Qualified status can be met by being personally Activated and sponsoring two other income centers, one Left and one Right, that each achieve Activated status OR Qualified status can be met by personally sponsoring three other income centers, each of whom become Activated Commentary: refer to the “Activated” definition for a complete understanding of Qualified status.
Rank - (General)
Second Generation - (Australian, Breakaway, Matrix)
Spilling - (Binary, Matrix)
Once all frontline positions below an individual are filled, any new personal enrollments must be automatically forced into the next available position in the Downline. The rules for determining which position is the “next available” comprise the definition of the spilling type employed.
Commentary: refer to the “PowerLeg Spilling”, “Left to Right/Level by Level Spilling” and “Level by Level/Leg by Leg Spilling” definitions for an understanding of the mechanics behind three common spill types.
Step - (Binary)
Commentary: refer to the “Cycle” definition for additional information; the term Cycle represents payout of the “larger commission goal”.
Title - (General)
Unit Value - (Binary)
E.g., a Binary compensation plan may require 2 sales or points on the weak side and 6 sales or points total in order for someone to earn a step check. The sale or point value is represented by the UV assigned to each product.
Unlimited Width Compensation Plan - (Australian, Breakaway, Unilevel)
Upline - (General)
Volume Accumulation - (Binary)
Different companies have different criteria surrounding eligibility to accumulate volume, however eligibility to accumulate is frequently based off Qualified status (as previously defined).
Normally consists of:
- A single Affiliate;
- A partnership (maybe a husband and wife);
- A sole proprietor; or
- A corporation.
Business Tracking Center
CSV - Commissionable Sales Volume
All the reps, Affiliates and customers you sold directly and then sold indirectly by the reps or Affiliates linked by sponsorship under your business tracking center.
MLM or Multi Level Marketing
Commissions are paid to sales representatives/Affiliates based on direct and indirect sales linked by sponsorship.