An Explanation of Affiliate Marketing Compensation Plans

While the vast majority of affiliate programs have compensation plans as straightforward as a flat commission on all referred sales, the occasional affiliate marketing program will seem like a twisting maze of conditions and requirements than leaves you scratching your head and wondering what terms like forced matrix, stairstep breakaway, and override commission really mean. Sometimes it's tempting to ignore the details of these complex compensation plans and trust that promoting your affiliate link as much as you can will make you rich. The truth is, though, that while it isn't impossible to earn a decent living without a complete understanding of how the money is coming in, a thorough understanding of the mechanics of your compensation plan will reveal where to direct your effort to realize the most profit for the time you invest in your online business.

Unilevel
A unilevel plan is one of the easiest compensation plans to understand. When you introduce a new affiliate to the program, they become your direct referral, or sub-affiliate. There is no limit to the number of sub-affiliates you can have. In addition to the commission you earn on your personal sales, some programs will pay you a (usually smaller) commission on the sales of your direct referrals, often called a second-level or second-tier commission. If your direct referrals also introduce new affiliates to the program and you earn a commission on their sales, a third-tier commission is being paid. Theoretically, there is no limit to the number of levels a compensation program could pay you on, but in practice most online affiliate programs only pay a commission on one or two tiers. This is largely to separate affiliate programs from the often-maligned multi-level marketing.

Forced Matrix
One of the biggest problems with unilevel plans is that anyone who becomes successful recruiting direct referrals will quickly have too many to communicate with regularly. Since regular interaction with your upline is a key to success for many affiliates, some program managers choose to implement a forced matrix program. In a forced matrix plan there is a set number of direct referrals you may have. If you continue to recruit new affiliates after you have reached that limit, they will "spillover" to become sub-affiliates of your direct referrals. Since you are restricted in how many direct referrals you may have, forced matrix programs generally pay on more tiers than unilevel plans.

One of the goals of a forced matrix is to create an environment in which every new affiliate has a mentor immediately above them with the time to offer training and guidance. This is partially successful, but can be disorienting for new affiliates who are recruited in to the program by someone who has earned their trust only to be handed over to another program member who may or may not maintain that same rapport. A forced matrix plan also produces freeloaders who wait for spillover affiliates and fail to do any recruiting of their own.

Payline/Powerline
Whether it's called a powerline, payline, or something entirely different, this plan is often made to sound far more complicated than it really is. Imagine a forced matrix where you are limited to only one direct referral. If you recruit a second sub-affiliate, she spills over beneath the first. A diagram of your downline will resemble a straight line. If there is a limit on how many levels down you earn a commission, you quickly run out of motivation to recruit new affiliates. The solution is usually to pay you a commission on all sales made by anyone in your downline for an infinite number of levels.

Breakaway
If you are participating in a payline program that pays a 10% commission, some quick calculations will quickly reveal that once the 10th affiliate is referred to the program and makes a sale, the company is paying out the entire price of the product or service in affiliate commissions. Since that business model will quickly destroy any company, payline programs that pay on infinite levels must have some sort of breakaway, sometimes called stairstep breakaway. When one of your sub-affiliates meets a certain criteria (usually personally recruiting some number of new affiliates) they break away from your line and start their own payline. When this happens, you no longer receive a commission on the activity of their direct referrals.

Override Commission
If that were the end of the story, there wouldn't be much incentive to mentor your sub-affiliates and teach them how to recruit people to the program. Therefore, breakaway plans almost always have an override commission. Whenever one of your referrals breaks away, you still receive a small commission on their activity. Usually breaking away also signifies a graduation on the part of your sub-affiliate to a point where they will require less guidance from you.

If none of these concepts sound like a perfect match for a compensation plan you know about, it's because most affiliate program managers customize these elements to create a unique compensation plan. Examining a compensation plan will provide clues about the objectives of the program manager and what direction they plan to take the affiliate program in the future.