Types of compensation plans within multi-level-marketing; an overview of how various kinds of compensation plans work:
MATRIX PLANS--most MLM companies use some kind of matrix-based compensation plan; a system where you sign up some people one level below yourself; and those people sign up more people on the next level, and so forth (7 levels seems to be the average depth of matrix based plans).
Typically, you will get a commission on the "purchases" made by everyone who ends up within some fixed number of levels from you. For example, you may get a commission of 5% on sales generated by everyone who ends up in your first 7 levels. (Many systems pay different percentages on different levels-- company may pay 3% commission on purchases made by people in your first and second level, but 7% on the sales from the third level.)
Your basic model of a matrix plan would be the classic "8-ball" model which contains a total of 15 members. The triangular setup in the billiard game of eight-ball corresponds to an arithmetic progression 1 + 2 + 3 + 4 + 5 = 15. The pyramid scheme, in contrast, is a geometric progression 1 + 2 + 4 + 8 = 15. In The 8-Ball Model, the person recruiting does not get paid at all until they have recruited 3 levels worth of new members. When the 8 are recruited, Person A receives the "participation fee" for all 8 people of level 4.
UNILEVEL PLANS--In a unilevel system, you can sign up as many people you want on your first level, and everyone under you is free to do the same. This type of plan is often considered the simplest of compensation plans. Commissions are paid primarily based on the number of levels a recipient is from the original representative who is purchasing the product. Commissions are not based on title or rank achieved. By qualifying with a minimum sales requirement, representatives earn unlimited commissions on a limited number of levels of downline recruited representatives.
FORCED MATRIX SCHEMES--The matrix is different amongst the pyramid schemes. A matrix is a pay plan that is fairly easy to explain to those you want to get involved with it. Why? Because it simply is a matter of getting a certain number of people on your first level downline, and duplicating that a certain number of levels beneath you and them.
If you're in a four by seven matrix, for example, what that means is you will have people placed under you as they are sponsored into your distributorship until you have four on your frontline directly beneath you. Once this line is filled the next level will be filled, again, four wide, until you eventually have all seven levels filled with a grand total of 28 people in your organization. Once you have your required number of people in your matrix it is considered 'filled' and you either start over on your eighth level with a new matrix or you just let your organization grow.
One Advantage of a Forced Matrix is Spillover. Spillover occurs when you sponsor more people then can fit on your first level.
BINARY PLANS--a multi-level marketing compensation plan which allows distributors to have only two, level one, downline distributors. If a distributor sponsors more than two distributors, the excess are placed at levels below the sponsoring distributor's level one downline.
What to watch for within a binary payment plan: Most of the companies that use this type of program, generally pay you on the weaker leg in the binary. Your legs may be unbalanced causing you to have to keep a close watch on both legs.
BREAKAWAYS--once someone achieves a certain level of success, they "break away" and form their own group. This type of plan is characterized as having distributors who are responsible for both personal and group sales volumes. Once a predefined personal and/or group volumes are achieved, a distributor moves up a commission level. This continues until the distributor's sales volume reaches the top commission level and "breaks away" from their upline.
Pro and Con: assuming you meet certain qualifications, you are generally eligible for an override, an additional bonus based on the volume of that breakaway group; that group may well contain people who would have fallen more than seven levels away from you, so you are now getting something from people who before would have not generated any income for you. The downside is that you no longer get full commissions on that person, or those in their group who had fallen within your first seven levels. It is very important not to get sucked into graphs and numbers brought out and displayed for you.
INFINITY BONUSES--a system where a distributor can benefit from sales made more than seven levels away. Instead of stopping after a certain number of levels, this bonus continues through "infinite" levels UNTIL the system finds someone else who has met that qualification.
AUSTRALIAN "TWO-UP" PLANS--are likened to RECRUITING GAMES; the '2up' part of the name is what is at the heart of Aussie 2up pay plan. This refers to a structure where the first two people you recruit are "given" to your sponsor, all the rest of the people you recruit are yours. Each person you recruit will in turn give you the first two people they recruit, keeping the rest for themselves.
For every person brought into Aussie2up, by your first level downline, that joins from any of these people they immediately go up to you and you make the "bonus" off of them. BUT this only applies to the first two people that any of these people bring into the deal. Only the first two people move up to you. That's how it got the name '2up'. Two move up... to you.
Let's say you bring in five people into 2up and each of them bring in five. You only get the first two of each of these people's five that they brought into the deal. Essentially, you'd get ten of these 25 people moving up to your first level. Not only do you not get "bonus" from you initial five recruits, you lose 15 recruits from you second level as well.
Graphically, this does not create a matrix, but only something that resembles a first level downline. The downline keeps growing, as you recruit new people, and as they people you recruit give you their first two recruits.
HYBRID PLANS--Are compensation plans that are constructed using elements of more than one type of compensation plan.
Other incentives found with MLM payment plans:
Fast Start Bonus--it is used as an extra incentive to sponsor more people. The Fast Start Bonus is Typically a Lump sum payment of up to 100% of the First Months Membership for anyone you sponsor.
Sponsor Bonus--often used with a Forced Matrix; it is usually a Monthly Recurring Bonus and is paid each month on everyone you personally Sponsor.
Hopefully this bit of information is helpful if/when it comes time to evaluate offers that come your way. I know in my case it has prevented me from jumping the gun, and allowed me to look at offers in a better light.
Please note that a majority of the information posted came from the following articles MLM Compensation Plans by Scott Harris, www.mlm-thetruth.com --Various Types of Pyramid Schemes, 7 Different MLM Compensation Types Explained By Mike Makler.
Altho the idea behind this post is mine the the information belongs to others that have spent numerous months and years in researching the topic. I appologize for not doing a better job citing the works used.