MLM Training Understanding MLM Stair-Step Compensation Plans

MLM Training: Understanding MLM Stair-Step compensation plans, is important, if you desire to be a student of the Network Marketing profession.

The Stair-Step
Chairman 99.7%
Senior Vice President 74%
National Marketing Director 63%
Division Leader 47%
Sales Leader 35%
Associate 25% * Purely for illustration purposes only, not actual

The Stair-Step compensation plan is one of the purest types of compensation plans and accepted by the FTC as a viable compensation models. It is one of the easiest plans for new distributors to understand. Every step is a promotion usually based on achieving a certain volume and each promotion or rank gives you a larger cut.

In stair-step plans, to ensure a distributor’s group commits to a certain volume every month, it gives a particular rank a guaranteed income. Demotion in this case means that you must either maintain a certain volume every month (quarter or fiscal year) in order to maintain your rank. For example, Paige achieves a sales volume of $200,000 in her entire sales organization (for a specific time-frame) and that promotes her from Associate to Senior Vice President. Now on her personal sales she will earn 74% of the price (wholesale or Retail price), and will earn the different between each lower rank from the sales of her team.

In Stair-Step compensation plans used by service companies like Primerica, there is no personal MV required (although group volume can come from personal production.) Everything’s based on meeting specific monthly or quarterly team volume benchmarks.

Stair-step plans are one of the oldest and longest plans around. The advantage of climbing the stairs gives major incentives for distributors to work harder and fight for the target. The larger your group the more you override even up to infinity levels as long as your downline is of a lower rank than you.

There is also a fair system involved. Let’s say if your downline works harder than you and produces larger volume, they can actually have a rank higher than you and that is when breakaway in certain plans come into play.

There can be disadvantages however. Once a downline reaches a certain rank (lets say you need 3 directly sponsored leaders doing $5K to qualify as a champion), one of them becomes a leader while you focus on making the remaining 2 groups to become leaders, the first leader might be neglected in the process.

Another potential situation you must watch, is if the downline is too deep in the organization (lets say your downline’s downline all the way down 10 generations), some distributors may neglect helping them because the monetary incentive is too small.

Troy’s Truth: The Law of Averages show, if you work with downline members even out of your payline (10 generations deep), eventually some of them will move up into your pay level and could very well reach your frontline.

For a deeper understanding of all MLM compensation plans, I suggest picking up a copy of “MLM Compensation Plans” written by Rod Cook aka, the MLM Watchdog.

Never Give Up,

Troy Dooly

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4 thoughts on “MLM Training Understanding MLM Stair-Step Compensation Plans”

  1. Art,

    I want to personally thank you for taking time to comment in our community.

    For those of you who do not know Art, then you need to go check him out. I personally call him the "Grand Father of MLM" His wisdom is priceless.

    Never Give Up,

    Troy

  2. Art,

    WOW! First let me say “thank you.” I know how busy you are putting the final touches on your new book, leading your team, and investing time with family.

    This is a true privilege to have you stop by and share your insight.

    For those of you who may not know of Art. He is the real deal. When it comes to Servant Leadership, he doesn’t just talk about it, he lives it daily!

    Art, what you shared enhances completely what one small post could not get out.

    Again thank you!

    Let me know when your book is available, I want to get a copy, and share with others the ability to get there own copy!!!

    Never Give Up,

    Troy

    p.s. send me a private email I want to get you on our Radio schedule… TroyDooly@MLMHelpDesk.com

  3. Troy,

    Being a 40 year veteran of MLM Network Marketing and spending 20 years now writing a book about this amazing form of business (which is coming out 2010)… you can imagine I’ve learned a few things about comp plans.

    A little bit of history for you here if that’s okay. However, I am going to be very brief (as best I can).

    contrary to popular belief… the original “break-away” compensation plans were NOT developed to be legally compliant as a primary consideration. These plans just happened to be compliant simply and quite specifically because of the actual way in which business was conducted 50-100 years or more ago. Of the many thousands of companies that have come and gone… the oldest MLM/Direct Sales companies still in business today are Watkins (est1868), Fuller Brush (est1906), and Wachters (est1932). JR Watkins actually founded the DSA (Direct Selling Association). We can learn from the history of these companies.

    Okay… let’s go back to a time when the transportation and shipping methods we take for granted today like UPS and FedEx (and others) simply did not exist. Before the modern-day shipping/delivery companies came along… most products or shipments came by train or trucks which only handled large bulk orders and took weeks to get delivered. Parcel Post was around but it might take 4-8 weeks to get a product to someone’s door.

    So… to deal with this and other challenges that I won’t get into here… what these pioneering MLM/Direct Sales companies did… is they set-up small home-based or small office-based “direct” warehousing distributors. These “direct” distributors would purchase in large bulk quantities directly from the company and stock product in their houses, garage, or office to distribute to their non-direct distributors and customers. Non-direct distributors would get samples from their “direct” distributor, go out and develop a regular customer base or route, take orders, go back the “direct” distributor to fill the orders, then go back out to deliver the product to the customer, collect payment, and report/remit back the “direct” distributor.

    The non-direct distributor earned a retail profit and the “direct” distributor earned the difference between the wholesale non-direct distributor price and the sliding scale volume discount the “direct” distributor received from the company. But more importantly… the customer got face-to-face service, and delivery of a product the next day or worst-case… the following week when non-direct distributor made the rounds of their route.

    The large volume requirements of most “breakaway” plans were geared more toward making sure there was enough product “on-hand” locally to service the customer base in a specific geographical area… in a timely manner… than for any other reason.

    Now here is where it gets interesting. Non-direct distributors (or agents as most of them were called) were NOT allowed to recruit or sponsor other non-direct distributors. If they wanted to build a business beyond developing a small local customer base by sponsoring other non-direct distributors into the business… they had to meet the minimum qualifications to become a “direct” distributor themselves. When these non-direct distributors met the qualifications… they “broke-away” from the “direct” distributor that sponsored them and became “direct” themselves.

    Because of high shipping costs and long delivery times… MLM/Direct Sales companies got innovative and designed compensation plans to “fit” the needs of their customers and be competitive. And we must realize… these older direct-sales companies were ALL about selling a quality product at an excellent price… to an end consumer. People actually wanted to buy these products, needed them, and ordered them over-and-over again… not only because the products were great and priced right… but because they got personal service… AND MORE IMPORTANTLY… quick delivery.

    Of course things have changed over the years and these older companies have had to modify their compensation plans and distribution methods. Some have changed radically… others have changed slightly.

    As to understanding compensation plans… most people will never understand a compensation plan no matter how simple it is. Most top leaders and top money earners in almost all MLM/Direct Sales companies did not understand their company’s plan when they started and in many cases still don’t understand their company’s plan even as a leader. If you can develop a customer base, sponsor distributors… essentially building a “network”… this network of customers and distributors will earn you an income in ANY compensation plan. Let’s say our uncle who passes away leaves us his $30,000 a month income from a network marketing company.

    Do we really care how the compensation plan works? Furthermore… although I am very critical of compensation plans due to my engineering and IT background… if we… as leaders place too much emphasis on compensation plans… and we build our networks on the pros and cons of our company’s plan versus another company’s plans… our networks will crumble because everyone joined the group for the wrong reason (comp plan)… and they will leave for that very same reason.

    I’ve gone on way too much here Troy. But thanks for this post and I hope my comments are helpful.

    Art Meakin

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