Assuming that you are in this industry in order to secure your financial future, then before choosing a Network Marketing business opportunity you should look closely at their Compensation Plan. This is, of course, what will ultimately determine how much your paycheck will be. Considering the amount of time and effort you put into building your organization, why not make sure that each addition to your downline constitutes a significant raise for you?

Are you looking at your Compensation Plan through rose-colored glasses?

Caution needs to be taken when trying to evaluate a Compensation Plan merely by looking at the way it is presented to potential distributors. Often a company may explain it in their literature and on their website in a way that is simply trying to paint a pretty picture for your financial success.

For instance, some companies would have you assume that everyone in your organization will be ordering their required auto ship and, in the case of the binary plan, that both legs are equally balanced. Yeah, right…in a perfect world! They don't illustrate the reality and consequences of breakage and spillover. These are funds that are retained by the company and never make their way into the pockets of the distributors who put their blood, sweat and tears into generating them.

As a result, the majority of Network Marketers do not understand the dynamics of compensation plans. This is primarily due to the lack of statistical information available in the MLM industry.

Compensation Plan Basics

The first step is to understand what type of Compensation Plan a company offers. Assuming you have a basic knowledge of MLM, here is a very brief overview of the five most common plans and how they work:

Matrix: A fixed number of people in width and depth paying a percentage based on each spot.Unilevel: Unlimited width with a fixed number of levels that pays out a certain percentage for each level.Binary: Two people in width and unlimited depth. Pays on volume cycles when a fixed amount of volume moves through each of the sides.Stairstep Breakaway: Unlimited width with a volume based percentage payout that breaks away once someone in your downline hits a particular level of sales.Aussie 2-Up: The commission on the first two people you sponsor goes to someone up-line from you.

Often these are designed to work in combination with each other, so it is important that you analyze your individual plan thoroughly. Ultimately, however, the goal should be to find a plan that provides the most income with the least amount of people.

Do the math

Look at your Compensation Plan and ask yourself the following question:

How many people will it take in your organization to make $10,000 a month?

I'm talking about passive, recurring, residual income on the backside, not including bonuses, one time commissions and any additional perks. This $10,000 figure can be replaced with whatever dollar amount you choose in order to reach your personal goal for financial success, but we'll use $10,000 for the purpose of our example.

While the simplest method for determining this figure would be to ask someone in your upline how many people they have and how much money they are making, they may not be exactly forthcoming in their response. So the best solution is to figure it out for yourself.

Crunch the numbers

Although the formula for this equation is relatively simple, depending on what type of Compensation Plan you have it will probably require the use of a calculator. But the time expended on this short remedial math exercise will prove to be well worth the effort and will give you a clear idea of exactly what level of success you can expect from your efforts. It will save you a lot of frustration and feelings of failure later on when you realize your paychecks aren't quite what you were expecting.

Formula for Success

For a matrix or unilevel plan the equation is pretty straightforward. Figure out the average percentage of commission you are making on each level (usually there is a different percentage for each). Then determine the average monthly dollar amount (BV, PV or CV) spent by each member of your organization. Divide that by the average percentage, leaving you with the dollar amount generated by each member of your downline. Divide $10,000 by this average amount and you have the number of people you will need.

Example: Say you have a 5 X 7 matrix that pays an average of 7%, seven levels deep. If the average monthly purchase for each member is $50, then 7% of $50 is $3.50 per person. $10,000 divided by $3.50 equals 2,857 people.

Wow! They didn't explain that in the literature, did they?

Just for reference, for a monthly income of $10,000 a stairstep breakaway plan typically requires anywhere from 1600 to 1800 people (if you can keep them from breaking away), a binary somewhere in a range of 3000 to 5000 (taking into consideration the balancing act you'll need to perform), and a matrix about 2200 to 3200. However, I recently crunched the numbers for one unilevel plan that required almost 14,000 people!

Do your math homework

If you do a bit of investigating, you will find that there are some great Network Marketing companies with beneficial compensation plans requiring less than 500 people in your organization to make $10,000 a month. But don't just take the company's word for it. Do the math! Just because you happen to be mathematically challenged, don't let this deter you from figuring out how much your paycheck will be. Even if math just isn't your thing, it really shouldn't take a rocket scientist to figure this out. But if you have difficulty it's worth eliciting the help of one if needed. And if you can't find one on a nearby street corner, I'm sure you can find someone who is more left-brained than you are that will be willing to help.

Don't rely on recruiting alone

One final tip: Make sure that your company offers a product or service that has a legitimate need in the marketplace and that it is priced competitively. The company must emphasize getting products or services into the hands of consumers, not just on finding new recruits. If the company is not centered around the movement of a product or service, your success, if any, will be limited.