How Much of That Hit the Right Target?
Commissions are the single largest expense network marketing companies pay. 41% of all revenue is earmarked to pay commissions in this $114 billion industry. That’s a lot of cash! Is it accomplishing what it’s supposed to, though? Are companies getting the biggest bang for their buck? It’s something they should definitely be asking themselves.
The bottom line is a direct selling company’s commission dollars must be targeted to incentivize the right distributor behaviors. This distinguishes the champions from those just getting by.
The Compensation Plan Drives Representative Behavior
A compensation plan’s ability to influence representative behavior is huge. A well designed plan will motivate the sales force to work harder and achieve specific tasks. Representatives will experience the power of the plan propelling them forward on their path to success. The company will make more money.
So, direct selling companies must ensure that their compensation plans encourage and compensate the activities they want their representatives to perform. The right mix of commission components is critical. The wrong mix can literally derail a company! However, getting it right is not an easy task because compensation plans have become incredibly complex.
Why are MLM compensation plans so important? Because if a company thoughtlessly
throws a plan together without considering all the ramifications affecting payout and
distributor behavior, it may find itself with a wildly successful company whose very
success puts it right out of business! Or, it could end up with a hollow plan–lots of
representatives but few sales. Such disasters have happened more than once in this industry.
InfoTrax Systems CEO
Understanding Multi-Level Commissions
& Their Role in a Successful Company
Commission Intelligence Is Essential
Too many direct sellers have implemented compensation strategies on a gut feeling. Unpredictable results, in this case, should come as no surprise!
A solid compensation plan headed for success must be grounded in facts and figures–commission principles, analysis, modeling, and comparisons–commission intelligence. This “intelligence” becomes the vehicle for analyzing, designing, optimizing, and executing a sound compensation plan that creates ultimate value for a company’s organizations and representatives. It empowers network marketing companies to turn data into profitable decisions, and in turn, target commission dollars to incentivize specific distributor behaviors. The end result is simply a powerhouse compensation plan–the vehicle for network marketing success.
Common Scenarios Requiring Expert Commission Intelligence
Do any of these sound familiar?
• How do we build an MLM compensation plan? A plan should be based on the specific, unique characteristics and needs of the company, i.e., what’s transpiring with each bonus type, earnings by rank, earnings as a percent of volume, etc. Proven industry best practices must also be applied to the plan. It should not be selected with a “flavor of the month” approach!
• What’s wrong with our MLM compensation plan? Where are we bleeding? The company knows something is wrong with the plan but doesn’t know what it is. The compensation plan being off just a small percentage can be the difference between success and failure. Data showing a breakdown of compensation plan performance and evaluation of who is being paid and what behaviors are being rewarded is essential for identifying hurdles and holes in a compensation plan.
• How will our MLM compensation plan pay? Everyone argues about what an MLM compensation plan is going to do. Commission intelligence based on the facts and figures ends the argument. It reveals if the compensation plan is “incentivizing” the field by rewarding the right representatives for the right performance. Commission analysis identifies the representatives who are making the most money and making the company the most money. There’s no more guessing. Data is turned into revenue and company growth.
• How do we fix our compensation plan? The company knows something is wrong with its compensation plan but doesn’t know how to fix it. For example, representatives don’t like the compensation plan and are leaving. Commission analysis identifies specific problems with a plan and commission intelligence grounded in MLM industry best practices and experience offers the solutions.
• What will happen if we change our compensation plan? It is essential to model and test proposed changes to a plan before actually making them. You avoid any unpleasant, costly surprises.
• How does our plan compare with others? Companies benefit from looking at data comparing their companies with others in the industry. For example, it’s important to model your existing compensation plan based on your competitors’ compensation rules.
With 41% of all direct sales dollars being paid in commissions and incentives, commissions should be a network marketing company’s #1 focus. A company should ground its compensation plan in facts and figures–commission intelligence–not on a hunch! Commission intelligence produces the data that constitutes a solid foundation for developing a strategy that generates more revenue and growth. Tapping into commission intelligence enables companies to avoid potential pitfalls and implement a compensation plan minus any surprises.