MLM
Industry Trends
by
Michael Brosnan
Achievement Quest Consulting
Part 3
Compensation Trends
It has been said that compensation is really just behavioral science 101. There are many variations of compensation plan and one plan definitely does not fit all companies. When determining the compensation plan that works best for your company you must first decide on the type of behavior your would like to reward and how much of a reward you would like to offer for the levels of activity achieved. Once you have done so then you must determine if it is possible to sustain the level of payout based upon the margins that you can achieve in your product or service. There are fairly reliable formulas that work for determining total payout and the target margins needed within your products to justify your compensation structure.
When you are structuring your compensation plan you should lean toward the conservative side. You always want to give yourself room to improve your plan over time as people perform at higher levels. If you don’t give away the farm up front then when the time comes that your true leaders start to emerge you can enhance your plan giving your true performers something more to strive for. The opposite reasoning is that you don’t want to find out in the future that you can’t afford a more generous compensation plan and that you have to reduce your payout some time in the future. Compensation plan changes are viewed as good only when you are adding more features or reward to them.
There are three standard compensation structures that have stood the test of time. The most common and longstanding is the Uni-Level plan. Next would be a variation of the Uni-Level plan call a Stair-Step Breakaway plan and finally the Binary Plan has been popularized in the last ten years or so. Lately the trend in compensation plans is to take one of these standard plans and create what is called a Hybrid plan.
Whatever the plan it is most important to reward individuals based upon two things. First, from a regulatory standpoint, is to reward for product sold or product volume generated within ones organization. The next, connected to the first, is to reward based upon performance. All to often in the less professional/regulated days of network marketing individual distributors were paid, and paid well, for recruiting efforts and or for simply being in the right place at the right time. In today’s climate it is better to reward enormously only for enormous performance.
Listed below are some of the special features that can add extra incentive and rewards to you’re a compensation plan.
Sponsorship Bonus
This bonus, when properly applied, can reward your reps for their effort in growing a strong group of additional reps. A portion of any initial start-up or first few months volume of the new distributor can be targeted for bonus purposes for the sponsoring rep. This can be done without concern of financial or legal concerns if first the margin verses payout is correctly positioned and from a legal standpoint the start-up kit includes demonstrable value as a product or service. Including a start-up inventory of product in the kit is advisable.
A sponsorship bonus is a way of creating front-loaded or immediate compensation for even the newest reps. This will provide an additional stream of income to the rep that is derived from desirable activities that are very encouraged by the company. This bonus should be between 10 to 20% of the kit price.
Infinity Bonus
While earning override commissions on each level within the existing compensation plan is the primary reward structure for incenting performance, the opportunity to earn on unlimited depth through an Infinity Bonus can truly be a path toward creating substantial wealth for the super achieving rep. An Infinity Bonus allows reps to earn an additional percent or two on as many levels deep as a rep can grow there organization beyond the standard payout levels. This is a bonus usually reserved only for reps that achieve a set of stringent qualifications beyond the highest standard rank.
Infinity bonus can best be defined as “an extraordinary reward for extraordinary effort.” This is the big carrot that will attract and motivate individuals with the willingness and ability to be your biggest and best leaders.
Infinity bonuses can be more easily justified than just about any other special feature or add-on to a compensation plan. The one or two percent on infinity levels will be paid to very few organizations and can generally be drawn out from the smallest breakage reserves.
Roll-Up
or Compression
One of several important features to include within the compensation plan
is a roll-up or compression feature. This feature allows individual reps
to qualify on a strong leg that may have some dead or inactive reps between
them and all of the activity within the leg.
The easiest way to explain this feature is that if Ann was to sponsor Jan and then Jan sponsors Sue, then Sue grows a strong group under her and on any given month Jan does not qualify, Sue would roll-up to Ann’s front line.
This is an important feature of a good compensation plan because there will always be a certain amount of inactivity on any given month or even a certain amount of permeate attrition within each group. Without this feature individual reps will become so discouraged by this inherent inactivity and how it prevents them from one, qualifying and two, earning on the depth of their strong groups that they will quit growing their business or just simply quit.
Depth is very important to growing a strong group or network; this feature encourages sales leaders to work deep in their organizations and also gives them the opportunity to advance and earn based upon working deep.
Leader Builder or Leadership Bonus
This is a feature where you reward reps for bringing in and or developing additional leaders. This can be accomplished in as simple a way as adding an extra percent or a fixed bonus amount every time someone one they sponsored advances in rank.
Other more aggressive ways to incent leader building within organizations would be to have each rep identify their core leader team of maybe 5 or so reps within their first three levels (based on software capabilities) that they recognize as leader potential. The rep then would be expected to focus their mentoring efforts, with accountability tracking requirements, toward these potential leaders. As an incentive for this focused mentoring program, additional percentages or fixed bonuses can be paid out on some portion of that reps increased production.
Another possibility is to offer a one time separate matching check to the rep that mentors another rep in their group to a significant level of achievement. This incentive allows the upline or sponsoring rep to benefit proportionately to the success they help their downline rep to achieve.
Bonus pools and Incentives trips
As part of each compensation plan it is necessary to build in a margin for immediate and future incentives. A small amount of the funds from the usual 40% of revenues that would go toward compensation should be directed toward these types of incentives. This can be made up from “breakage” by identifying two to five percent from the existing distribution of the 40%. This is the variable percentage left in the plan on any given month; breakage is the difference between what the compensation plan’s potential payout is verses what the actual payout is. This difference or the breakage amount can be significant in the early years because it will take time for reps to start qualifying for deeper levels of the pay plan. A formula can be created and should be programmed within the compensation software to account for this “incentive reserve.”
Bonus Pool - One program that can work well as an enhancement to the compensation plan is a bonus pool. This can be an incentive for all top leaders and can be paid quarterly or annually. A portion of the two to five percent of breakage used for incentives can be identified for the bonus pool. Each top leader who meets a certain minimum qualification level can receive a share of this annual pool. The shares of each leader can vary based upon performance. The sharing of this pool is one of the best behavior modification features of a compensation plan. Aside from motivating increased performance it fosters a feeling of profit sharing or partnering with the company and an attitude of support and co-operation from cross-line leaders.
Rewarding these bonuses at an event is a great way to maximize the recognition for those achieving it and motivating those striving for those levels. Additional percentages can be derived from royalties and commissions that are paid directly to the company from out-sourced fulfillment services such as Literature fulfillment, Sales promotional fulfillment and Technology fulfillment.
Travel and or Gift Incentives - The opportunity for reps to earn additional incentives separate of their bonus check or cash rewards is powerful. Earning extra “perks” such as travel or other gifts like exclusive “earned only” jewelry is one of the biggest ways to encourage and motivate increased performance. This also serves as a tremendous recognition tool and recognition amongst your business minded reps is also extremely important. As with a bonus pool these incentives should be identified from breakage. Incentive or trip qualification, like any incentive, should always be based on stretching beyond current performance, never reward individuals for “being,” only reward them for “doing” more than they are already doing.
Regular on-going travel incentive programs and or occasional programs can be easily developed and easily managed. There are travel incentive companies and other out-source services that can assist in this process.
In conclusion a good compensation plan should be simple. A simple but generous plan will excite those people that what to make the extra effort to reap the rewards offered through sharing your products and opportunity.
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Bonus Section
International Expansion
Expanding your company globally is a very exciting proposition. Much of the growth of the entire network marketing industry has come from foreign markets over the last ten to fifteen years. There is much opportunity for a great company with great products to tap into these global markets to find new sales and leaders.
As enticing as it is and as many success stories as there are, international expansion is very challenging. For every company that has experienced success going abroad with their products and concept, there are ten times more that have failed miserably trying to.
The difference is timing, resources and preparation. Generally if you attempt to enter a market and fail your window of opportunity for that market has forever closed. There are preparatory strategies for entering a foreign market that can help you judge the potential and timing of entering the market. With the right preparatory strategies you can be laying the groundwork for a successful launch into the foreign market you are targeting for full launch.
The best advice for international expansion is to work locally and think globally. Build your company at home first, strengthen your distributor base and let the expansion to international markets grow naturally from the success your build in your own back yard. If you achieve success in your own market the opportunities for international expansion will come knocking at your door. Then all you need to do is judge your readiness and the potential of the international opportunity before you and prepare, prepare, prepare!
Conclusion
There are new companies starting up all the time within the network marketing industry. As you know many never get off the ground or last very long if they do. What sets the companies that survive apart from the rest of the companies that now occupy the MLM graveyard? It could be most of the companies that fail are companies that were in this business for the wrong reason, they have short term get in, get a buck and get out mentalities. The other reason is they simply cut so many corners, leaving out many of the critical elements necessary for success. You have to ask yourselves these questions. What is the core reason for launching this venture? And, Are we willing to do what it takes to be a “built to last” company.
Another common misconception is the opinion of what a successful launch is within the MLM industry. Generally the standard of some stellar company is used as a measuring stick. In recent years only a small handful of companies have gone from launch to hundreds of millions in sales per year in only a few short years. Though this is reality many companies set this level of success as their objective. The truth is it takes unbelievable resources and a lot good fortune to achieve “big boy” status in the first five years or so of a companies history.
A better way of viewing the levels of success you are desirous to obtain is to break that success in small pieces. By any standard, within any industry a new company that is doing five to ten million in sales per year with around twenty to twenty five percent in profit within their first few years should be looked at as a great accomplishment. Once you achieve this, then structure your next level of success objectives.
Finally, it is important to have big aspirations and plans for your venture because certainly within the MLM industry anything is achievable but remember the best way to eat an elephant is on bite at a time.
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About
the Author:
Michael Brosnan is the founder of Achievement Quest Consulting (AQC) which is an MLM/Start-up consulting firm with 6 years of operation and over 25 clients to date. AQC has developed and executed content and strategy for existing and mainly start-up MLM companies in the areas of compensation, marketing, training, corporate messaging and image; budgeting and projections, project coordination, product development and recruiting strategies, policy and procedures, forms and applications, just to name some of the services provided.
E-Mail: mikeb@max.com