Two Questions to Revolutionize Your MLM Compensation Plan
What does it mean for an MLM compensation plan to be a success? Do you know the answer? Sadly, you can’t just look at whether your company is growing to know if you’re paying people correctly. Sometimes, excitement for your product or your company culture itself can cause your field to grow like wildfire whether you’re paying them effectively or not.
Your MLM compensation plan is your single biggest expenditure. You have to know if it’s working correctly.
It all comes down to where your compensation dollars are going.
Answer these two questions
Take a look at your plan payout data and ask yourself: What percentage is going to active salespeople? What percentage is going to inactive lottery winners and retirees?
The answers to these two questions will tell you almost everything you need to know. If the first percentage is high and the second percentage is low, you’re golden. If the opposite is true, your plan might be broken.
On the other hand, if your answers to these two questions didn’t tell you everything you need to know, then you have a different problem that we’ll address in a different article. (By the way, if this is the case, you’re not alone. In our experience, it’s not common for management to have this information.)
One of the things we’ve learned through our 20 years of research and analysis is the difficulty in identifying people who are creating value. It’s easy to identify the top 5%. It’s easy to identify the bottom 20%. But to understand what’s really going on with the intermediary 75%, you have to tease out the right datapoints and that can be quite a challenge.
Break your MLM compensation payout into categories
Let’s divide your compensation dollars up into three buckets:
- Well spent. Money spent on growth.
- Spent on maintenance. Money spent on people who have “made it.”
- Wasted. Money spent on people who aren’t building the company at all.
Who fits into each of these categories?
Active salespeople drive the growth of your company. MLM compensation spent on these people is money well spent.
People who’ve “made it” are people who hit their rank qualification requirement then went down to the maintenance requirement. They’re contributing to your company but they’re no longer creating growth.
The people who do nothing (or not enough) for your company’s bottom line are lottery winners and retirees. Let’s take a moment to clarify what we mean by lottery winners and retirees.
You need to stop paying lottery winners
What is a lottery winner? A lottery winner is someone who never worked much for the business but happened to sponsor one person and somewhere in that person’s organization somebody took off. So, it may look like they have created lots of growth for the company when they didn’t do the work themselves.
If you’re paying any lottery winners, that money is a total waste.
You need to cut MLM compensation pay to retirees
Who are retirees? Retirees built a downline substantial enough to earn a decent commission on “autopilot” and then stopped working the business. They are no longer actively creating growth. Once people reach a certain level of affluence, they don’t want to work anymore. And it makes sense they want to kick back—they worked hard to get to the top. This is why I say you need to cut their pay, not stop paying them entirely.
You need to replace the people who are going into retirement with hard workers who are going to keep growing your company. To do that, you need to scale back pay to people who have retired so that you can afford to pay the hard-working people coming in to replace them.
You don’t need to stop paying them, but you do need to limit the percentage of your total commission dollars you’re funneling to them.
You probably need to cut spending on maintenance
If you’re spending too much on people who have slowed down their business building efforts, the direct consequence is that you’re spending too little on the people who are growing. People might accept being underpaid for a while, but not forever. Which brings me to my final point.
There’s a serious problem in the industry:
Year after year the same handful of “top distributors” walk across the stage at any given company’s annual convention. If this is you—if the distributors you’re honoring as the ‘top’ of your company never change—you have a problem.
All my years, I would see that I had one client growing and one client stagnating. And then I’d see that people were leaving the stagnating client for the growing client. They were leaving because they could tell that they weren’t going to be able to advance at the company that wasn’t growing—they were never going to get out of the balcony onto the stage.
How do you fix this kind of problem? By changing the metrics you look at when you analyze your MLM compensation plan payout. Don’t look at who’s earning the most. Look at who’s growing the most.
It’s simple. Not easy. But simple.
Need help making sense of your data and finding the right metrics to keep your company growing?
Reach out to my consulting company MLMCC. We bring the knowledge to help you create a compensation plan that pays the right people and the analytic ability to show you it’s working.
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