All commissions that take the downline into account are there for only one reason - to identify, reward and retain leadership. The average network is very large and there is no way the company can deal directly with everyone. The leadership is there to motivate, train and grow the network, while the company focuses on growing, training and motivating the leadership.
There are numerous commission mechanisms for rewarding leadership. One of the most obvious and widely adopted is the level-based commission.
What are levels?
We will start with a network member called Mary. She is on level 0 in relation to herself. If Mary recruits Joan, then Joan is on level 1 in relation to Mary. It therefore follows that anyone Mary directly recruits will be on her level 1. If Joan recruits Adam, then he will be on Level 2 in relation to Mary but level 1 in relation to Joan. The process will continue infinitely deep.
When looking at a structure, we traditionally look down. Mary recruited Joan who recruited Adam. When paying commission, however, we look up and a percentage of the sale price is paid up the line depending on the relative level on which the sale took place. Let’s say we decide to pay 10% on 3 levels. If Adam makes a $100 purchase, Joan will receive level 1 commission of 10% and Mary will receive level 2 commission of 10%. The commission will continue to be paid out until the level 3 commission is allocated and then the process stops. In this example it does not matter how deep Adam is in the network, the commissions will flow up 3 levels and stop.
Structure, Rank, and Status
To ensure that you don’t pay commission indiscriminately, you need rules that determine what your member is required to do to qualify for, or unlock, specific levels. This is normally done using structure and status. Typical rules would be:
Requirement 1: Personally recruit 2 active members
Reward: Get promoted to a new rank and earn x% on level 1
Requirement 2: Help your 2 recruits to each recruit 2 active members
Reward: Get promoted to a higher rank and earn x% on level 1 and y% on level 2
These rules can be configured to unlock numerous levels and assign the corresponding ranks.
This has two key benefits. The first is that you do not pay people on levels for which they do not qualify. This retained commission becomes part of breakage. If you structure your rules correctly, you should have breakage of approximately 50%. The result is that you can promise twice as much as you pay. The second benefit is that you are easily able to identify potential leaders by their rank.
The level-based commission is one of the mechanisms, but it is not the most sophisticated one. It is therefore not wise to commit too much of your available commission to level-based commission while neglecting all the other commission mechanisms that could help drive behavior.