Daren Falter is a good friend and one of the most knowledgeable person I know on compensation plans. He is a well respected consultant, company owner, and sits on several Direct Selling Boards, for both companies and distributors. I have included more about Daren below.
As one of the most prominent authors and consultants for the network marketing industry, Daren delivers a wealth of MLM knowledge and experience. Based on his twenty-year career in network marketing, ten as a top consultant, Daren understands the needs of both new and established MLM companies.
MLM Training: Understanding MLM compensation plans is critical in the success of any MLM distributor. You may not fully understand each component, but you must understand the basics.
This is the first of a series of articles I will be doing on MLM Compensation plans. This first post is on some basics. In the next few articles we will cover several of the company specific plans. MLM plans like; XanGo’s Unilevel compansation plan. MonaVie’s Hybird Binary compensation plan. Pre-Launch company Yoli, and their new Hybird compensation plan, and how it differs form MonaVie. We;ll look at the Primerica and Pre-Paid Legal compensation plans, and a few of the other new and unusual MLM compensation plans.
MLM Compensation Plan Basics. (excerpts from my upcoming release “The MLM Chronicles – Book I)
The marketing and compensation plan of a MLM company, is more important than having the pefect product. Over the last 27 years, I have seen companies with great products fail in 36 months, while companies with average products last for decades because they had great marketing and compensation plans.
All successful marketing plans are built around great compensation plans. As you research which compensation plan is best for you and your team, you should keep in mind, they all have their own advantages and disadvantages. Each company has their own matrix of margins for their products and overhead; however, there are a few things you should know.
The key principle to remember in margin comparison is, if the company pays the distributor too low (less than 25%, of the wholesale price) you might not survive. If the margin is exorbitantly high (over 63% of the wholesale price), you might earn a lot, but the company will not last long term, their margins will be to tight to earn a profit.
Basic MLM Compensation Plans
The Stairstep 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.
Troy’s Truth: The Law of Averages show that if you work with downline members even out of your payline (10 generations deep) that eventually some of them will move up into your pay level and could very well reach your frontline.
The Unilevel compensation plan is simply “a specific number of levels” which the company guarantees you will be paid based on predetermined criteria. Usually there is no promotion or rank involved (unless it is a hybrid plan which we will talk about below.) You make money by getting a certain override off of the group volume, and usually there is a requirement of monthly personal volume to qualify for a check past your first level.
The Binary compensation plan is by far my least favorite and one of the hardest for a new distributor to grasp and maximize for full income. It usually has 2 “legs” also known as “Business centers” and you have a volume requirement to get paid on each leg. There is what is called “balancing” in the Binary…you must balance the volume from both A and B business centers to make sure you maximize your commissions. In the illustration above, the A group is the strong leg (or the power leg) while the B group is called the weak leg (or the profit leg). A has more people than B (assume they all produce the same volume per person). B needs to find 2 more people in order for U to ‘balance’ hence maximizing U’s income.
The Breakaway compensation plan has been said to have become somewhat unpopular in the world of fancy Hybird plans, as you could lose the business you build, once it gets to a certain level of success, and it “breaks away” to no longer be a part of what you get paid on. It usually appears in Stairstep compensation plans.
The matrix compensation plan, sometimes called a FORCED MATRIX is like a pre-order tree and also does not rank as one of my favorite compensation plans. A computer driven plan puts new distributors into your group, and they go in to the next available slot. Most Matrix compensation plans are seen as “3 by 9” or “5 by 25” matrix. the Matrix does work well in the early stages, if there are a lot of people who are recruited and WORKING TOGETHER TO FILL THE MATRIX. When you recruit someone, the computer searches down for the next open slot, and positions them there. There are some plans that allow you to override the commission of those that you personally sponsor even though they are not positioned directly under you within the tree.
The Aussie Two-Up compensation plan, is a compensation plan that is very unique, and is hated by the FTC and IRS. Over the last few years the IRS & FTC have gone after companies founders and top distributors and put them into federal prison because they do not see this as a compensation plan, they see it as a scheme. Concept “HYIPs” typically use this type of plan. Basically, the two people you recruit are ‘given’ to your upline sponsor and the rest of the recruits are yours.
A hybrid compensation plan, is a combination of any of the above features. An example would be a Stairstep/Breakaway or a Matrix with Unilevel benefits (ensuring that those who actually WORK to fill the tree gets paid more), or an Australian Two Up with Stairstep advancement (to offset the disadvantages of distributors being too deep in an organization) Many companies are combining the advantages of many plans to help distributors maximize their income.
Troy’s Truth: Regardless of how good any plan may sound, NONE OF THESE PLANS WILL MAKE YOU MONEY IF YOU DON’T SPONSOR ANYONE AND DEVELOP THEM.
Never Give Up,
I was ready to put this issue to rest, until I ran across a new post, talking about why Weekenders closed their doors.
The post was written by a wonderful Canadian trainer, motivator and former Weekender Rep., Sheila Wray Gregoire. I truly enjoyed her post, yet, found parts of it to be based on opinion and not on facts (which she does clarify by stating her conclusion came from the comments on her original blog post.)
In Sheila’s post she states there are three reasons Weekenders closed their doors.
1. Home Parties are obsolete
2. It was too expensive to be a consultant
3. In home party businesses, you make money by selling to other consultants, not to customers.
I want to look at #1 & #3 since #2 is completely subjective.
First it should be made clear that the Clothing, personal care and accessories side of our profession as grown in the last five years from 27% to making up 33.7% of the profession, while every other sector except services has fallen in size.
Second, and more importantly 66.9% of ALL sales are STILL made in the home. So to say home parties are obsolete and this is why Weekenders closed their door is based completely on opinion and not on the factial statistics of our profession.
Third, Party Plan/Group Selling makes up the second highest form of selling (28.9%) next to One-On-One selling (which makes up 67.1%.)
These three statistics are a clear indicator that Weekenders did not go bankrupt because they used a Party Plan business model.
Now let’s take a look at #3 “You make money by selling to other consultants.” Although this can be true of direct selling companies in the health and nutrition sector of our profession, with the home business plan model the distributors make their most money selling to the end user.
I can verify this statement by reviewing such public companies as Tupperware and Avon. Or by reviewing the number submitted by such great privately held companies like Mary Kay, Discovery Toys and Pampered Chef. When you review their attrition of distributors verse their retention of customers we see the majority of income is made selling to the end user.
One statistic that did come into play is the fact Weekenders waited years to change their focus from Professional Baby Boomer ladies and increase their focus to include Generation X & Y.
Shaklee made this change back in 2002 and has enjoyed continual growth all through the new century. We can also see other great companies who started targeting these two demagraphic groups such as Avon, AmWay, Mary Kay, Jockey Person To Person and many others.
Generation Y alone is 75 million strong. Had Weekenders increased their focus sooner there is a real possibility they would still be doing business as a network marketing company.