Key Operating Indicators
for
Direct Selling Businesses

by
Jay Leisner
President, Sylvina Consulting

Large businesses are masters at measuring. Properly designed measurements help management teams to make strategic decisions using information rather than intuition.

The larger the business, the more likely measurements are being taken on a regular basis. Regardless of size, all businesses should be measuring themselves regularly over time.

Having spent 20 years working with more than 250 direct selling companies, I have observed that while there are similarities, each company measures itself differently. The number of measurements and the sophistication of its measurement increases as a company grows.

Some companies use a single consolidated report listing their most important measurements, while others use a bevy of reports. Many publish a standardized set of measurements numbers companywide, while some produce different reports specifically for each high level manager.

For most direct selling businesses, the commission period is a calendar month and the calendar month is also a common measure of time for key operating indicators.

What do the best companies measure?

The best companies measure EVERYTHING.

I recommend that measurements are performed and compared by “class” other groupings. A class is a group of sales representatives who joined the company in the same month and year. Other group measurements can be based upon geography, demographics, training and/or lineage.

Here are some examples of the key operating indicators that direct selling companies measure on a regular basis for analysis of trends over time and between groups of representatives:

Recruiting
• Total number of people who have signed representative applications
• Total number of people who have recruited at least 1 representative
• Total number of people recruited by the recruiters
• Percentage of sales force who are recruiters
• Average number of recruits per recruiter
• Separately, the total number of people who have recruited 1, 2, 3, etc.
• Percentage of recruiters who have recruited 1, 2, 3, etc.
• Average number of months needed for a person to recruit her first person, second person, etc.

Activity
• Number of sales representatives on the books during a period
• Total sales for the period
• Number of orders for the period
• Number of reps within who have placed an order, by order type, this period
• Average order size by order type
• Average sales per rep by order type
• Percentage active
• Representative activity lag, the average number of elapsed months since representatives placed their most recent previous orders

Sales to Representatives
• Number of sales representatives who joined, by “class”
• For each class, the sum of the first 6 months, 12 months, or lifetime sales from the respective sales representatives
• Average value of sales from each representative

Retention
• Number of sales reps who joined in each “class” or group
• Percentage of sales reps that were active within 1 month, 2 months, 3 months, etc. of their application date
• Average lifetime in months
• Percentage of terminated representatives who rejoin
• Percentage of inactive representatives who become active again

Sales to Customers
• Average purchase amount per customer
• Average number of items purchased per customer
• Average number of orders placed by a customer
• Customer activity lag, the average number of elapsed months since customers placed their most recent previous order
• Average time lag between customers first and second, second and third, etc. orders
Compensation
• Percentage of representatives at each title who promote to the next highest title
• Average and range of number of months elapsed for promotion to each title from the previous title
• Average and range of earnings per title per period
• Compensation as a percentage of sales by period
• Compensation by bonus type as a percentage of sales by period

While the information measured and the consistency of measurement are both critical components for all direct selling businesses, the interpretation of the data and the decisions that are made from it are equally important.

Understanding Cause and Effect

If a company finds that representatives who pursue a special training program have higher than average production, recruitment and retention… does this mean that the training produced the results or that the representatives who were most interested in or qualified for the income opportunity elected to undergo the training?

Without a control group, the cause and the effect are open to subjective interpretation, which means the conclusion may not be dependable.

Trends

If a company’s monthly sales are increasing and the number of active representatives is growing, does this mean everything is going well?

Not necessarily. Look at the trends of all of your key operating indicators.

If the retention measurements are headed in the wrong direction at the same time, trouble is already here but the bubbles from rapid growth may be hiding the trouble.

When recruiting slows, the downward trend in retention will take precedence. Sales will “suddenly” appear to reverse directions.

Some might say, “If we only knew…”, but the data was already there. Either the relevant report wasn’t produced or it wasn’t viewed.

Meaning in Numbers

Compare your numbers not only to your history, but also to others.

Is your company firing well on all cylinders? How can you tell?

By working with a direct selling expert, you can get help not only in designing your key operating indicators, but also in reviewing them for comparison with industry values and trends.

Key operating indicators can have multiple uses.

When companies ask us to review their businesses to recommend changes to grow the company faster, we ask for statistical information to analyze the performance of the compensation plan. The information requested consists in part of key operating indicator data.

We have seen that many companies do not measure and report key operating indicators. With good key operating indicators, a company can learn of the challenges sooner in its compensation plan and other business processes. With earlier notice, a company can respond to overcome challenges faster.

Contests and Key Operating Indicators

While most companies do not change their compensation plans specifically to generate short-term bursts of business, they design contests and incentives for this purpose.

How do you know if a contest or incentive is successful?

You know by measuring the results. And how do you measure the results?
The results should be measured by comparing key operating indicators over time.

Conclusion

Direct selling companies operate much like other businesses. They want to attract and retain sales representatives and customers and for sales to increase consistently over time.

With a broad set of key operating indicators, a direct selling company has the tools to measure its business.

To pull it all together, the company also needs the discipline to generate the indicators on a periodic basis and to obtain help when needed to design or review its key operating indicators.

-----------

Jay Leisner is the president of Sylvina Consulting (www.sylvina.com). Sylvina provides business development and technology consulting services to all direct selling companies, from startups at the concept stage to large multinational firms. As of December 2005, Sylvina Consulting has assisted more than 150 companies.

For a complimentary 30-minute consultation or to request information on launching and growing a direct selling company, visit www.sylvina.com or contact Sylvina Consulting directly at 503.244.8787.