Understanding a Stair-Step Compensation Plan
The Stair-Step Compensation plan is one of the original network marketing compensation plans developed and is still used by many large established companies today. With many similarities to the Unilevel Compensation plan, there are unique distinctions that give the Stair-Step Compensation plan advantages and disadvantages over other compensation plans.
How Does a Stair-Step Compensation Plan Work?
As mentioned, the Stair-Step Compensation plan has many similarities with the Unilevel Compensation plan. Members are allowed to sponsor an unlimited amount of frontline distributors/associates. Two major differences between the Stair-Step and Unilevel Compensation plans is the percentage in which members get paid, and the ability for portions of an organization to “break-away” from its upline.
As with all compensation plans, the pay scale is based on the product being moved and volume being generated in your organization. With the Stair-Step Compensation plan, the more volume that is in an organization the higher the percentage the member will be paid. As the volume continues to increase, so does the percentage of pay, essentially following stairs upward through the pay ranges.
An example of this would be as follows. You have enrolled 3 people and they have done $100 in volume. Based on those 3 people you might qualify for a 3% bonus. Now, say those same 3 people generate $300, you might qualify for a 6% bonus. The company would then pay you the difference in percentages between the 6% and 3%. The percentage “stair-steps” up as your volume increases, and as your volume increases so does the difference and thus the amount the company pays you.
As the term states, this is actually when a group “breaks-away” from the upline organization that they are apart of. While there are slight variations to what is required for a group to break away, the main qualifier for this event to happen is mainly the amount of volume that the group is generating.
While there are numerous benefits to breaking away from a distributor/associate’s upline, such as earning a higher commission rate, it can have serious implications for the group in which they just broke away. By breaking away the volume that the distributor/associate’s upline received is no longer paid to the upline at the same rate. For the upline is can be a substantial hit to their income.
Even though the group has broken away from their respective upline, the upline will still receive some commission on the volumes generated. This is usually taken care of in the form of override commission bonuses. Paid on each generation, or break away that occurs in one’s group. However, these bonuses are not equal to the commissions earned before the breakaway.
Advantages to Stair-Step Compensation Plans
History and a proven track record are on the side of the Stair-Step Compensation model. While some say that has no meaning, one has to look at what has been around for the longest time. If this form of compensation plan did not work, companies would have phased it out many years ago and transitioned into another compensation plan.
Disadvantages to Stair-Step Compensation Plans
As with the Unilevel Compensation plan, the unlimited amount of frontline distributors/associates does not cultivate a team-oriented environment. On top of this, if there is a ‘break-away” element in the compensation plan, it can cause a sudden and drastic change to an individual’s income.
It must be noted that while there are the obvious advantages for one to strive to generate enough volume to break away for their upline, this same thing can happen to individuals in your group that they will break away from you! The way to combat this is to ensure you have many generations or breakaways after you breakaway yourself so the number of generational bonuses you receive start to increase your long-term residual income.
If the Unilevel Compensation plan is one of the easiest to describe, the Stair-Step Compensation plan can be one of the most difficult. Understanding and describing the pay scale, then how the pay scale changes once you break away, then the generational bonuses can leave many prospects scratching their heads. Thus explaining this compensation plan can make it difficult during the recruiting process.
Stair-Step Compensation Plan Breakaway Stigmas
As this was the dominant compensation plan used when the Network Marketing industry was getting on its feet, certain practices left a black mark on the industry.
Some companies when establishing their compensation plans and pay scales set the Group Sales Volume (PGSV) levels unrealistically high. When distributors were not reaching the required PGSV levels to qualify for pay, bonuses and advancements, the companies encouraged distributors/associates to purchase additional products to boost their PGSV. Thus the term “Garage Qualified” was born.
People were left with thousands of dollars of products in their homes, and in some cases, this behaviour leads people to financial ruin as they could not sell or move the extra product they purchased.
Thankfully most companies have eliminated that behaviour from their organizations. If you should come across a company that is suggesting you follow that behaviour, it should be a warning that this may not be the best Network Marketing opportunity for you.
Who is the Stair-Step Compensation Plan Right For?
While many factors come into deciding as to what Network Marketing company to join, the Stair-Step Compensation plan has historically been more suited for the experienced Network Marketer. As there is no limit to the number of frontline distributors/associates that can be sponsored, this emphasizes one’s ability to recruit large numbers of people. For someone new to Network Marketing, this fact along with less teamwork than in a Binary or Matrix Compensation plan could make seeing one’s desired results more difficult.
*Examples in these materials are not to be interpreted as a promise or guarantee of earnings. Earning potential is entirely dependant on the person using the products, ideas, techniques and efforts put forth on Engineered Lifestyles. For our full earnings disclaimer click here.