Glossary

Binary: A multilevel marketing compensation plan which allows distributors to have just two front-line distributors. If a distributor sponsors more than two distributors, additional people are placed on levels below the sponsoring distributor's frontline. This is known as "spillover" and is a very attractive feature to new distributors since they only need to sponsor two distributors to participate in the compensation plan. The “con” of this plan is that distributors must "balance" their two downline legs in order to receive commissions. Doing this typically requires that the number of sales from one downline leg constitute no more than a specified percentage of the distributor's total sales.

Forced Matrix: This compensation plan is similar to a unilevel plan except there is a limited number of members who may be placed on the first level. Members beyond the maximum number of first level positions allowed are automatically placed into other downline positions at the next lower level. Matrix plans often have a maximum width and depth and are called as such (ex. 3x12 or 5x10). The most attractive part of forced matrix plans is that members will receive “spill over” of new members into their matrix from members above them.

Hybrid: a compensation plan which uses elements of more than one type of compensation plan.

Multi-level Marketing (MLM): is a marketing strategy designed to promote their product through distributors, offering multiple levels of compensation.

Pyramid Schemes: are fraudulent schemes, disguising as an MLM strategy. The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme, and commissions are based only on the number of new individuals one introduces into the scheme.

The Federal trade Commission (FTC) has set guidelines that help consumers discern legitimate plans from illegal ones. The difference between MLM and pyramid schemes under these guidelines are as follows:

•Sales of actual product or services to consumers, MLM offers products whereas Pyramid schemes do not.

•Commissions are paid on sale of products and not on enrolments; MLM has a hierarchical commission set up on the sales of products, whereas pyramid schemes are based solely on new enrolments.

•Company buys back inventory from participants at the time of termination, pyramid schemes do not have any inventory.

Stairstep Breakaway: Characterized as having representatives who are responsible for both personal and group sales volumes, the volume is created by recruiting as well as by retailing product. Various rebates may be paid to group leaders, which can be any representative with one or more downline distributors. Once the predefined volumes are reached, a representative moves up a commission level. This movement continues until the representative's sales volume reaches the top commission level and a "breaks away" occurs from their upline. From then on, the new group is no longer considered part of his upline's group and the multi-level compensation plan component ends, however, the original upline usually continues to be compensated through override commissions.

Unilevel: This is considered the simplest of compensation plans. It allows a person to sponsor one line of distributors which is called a "frontline." Each distributor the person sponsors will be on that sponsor's frontline. There are no width limitations so there is no limit to the amount of people one can sponsor into their frontline.