| There are basically five types of distributors, all with different needs. These differing needs dictate the need for a somewhat complex marketing and communications strategy on the part of most network marketing companies. One of the most fascinating aspects of network marketing is that companies don't have only one type of relationship with their distributors. Distributors are their consumers, sales forces, and sales management, just to name a few. InfoTrax once conducted a research project showing that distributors often assume all of those roles during a single consumer service phone call to the company. Luckily, the complexity of dealing with the five types of distributors is, to a large extent, confined to marketing, communications, contests, and incentives. Commissions, by and large, deal entirely with activities for which companies want to create permanent compensation: selling product, and managing the people who sell product. Once companies determine the total amount available for commissions, they need to decide how much is going to be paid to the person(s) involved in selling the product and how much is going to be paid to the people involved in sales management. Let's start with sales management. Over the last few years, more and more commission revenue has moved to the sales management side. In fact, in some companies, it's hard to see that any money is set aside for the salesperson. In this area, we asked the same question about overall commission percentage of the sales leaders that we asked the salespeople: "What percentage should be paid for the sales leadership?" Some of them say, "Most or all of it." However, if you're trying to recruit people only to sell product and none of the commission amount is set aside for them, how many salespeople are you going to recruit? The answer is, obviously, none. The sales leader earns more when he has people selling more product, but no one wants to be sponsored to sell product for nothing. What is a reasonable split between sales commissions and sales management commissions? As far as I know, no one has done extensive research, but over the last twenty years, the successful companies seem to break it down like this: 
Again, these are rough averages, which don't take into account the retail profit of network marketing companies. Also, there are many exceptions, and some plans do not lend themselves to being broken down in this fashion. I discuss these issues in the section on commission plans. |
