MLM Compensation Plans - And Last But Not Least!
Here are some final yet important aspects of a compensation plan to check out:
How much of the sales dollar does the compensation plan pay out to its distributors? Most plans pay between 35
and 45 percent of the company’s wholesale purchase volume, and about 30 percent of suggested retail volume.
Look for a plan that divides the pie in your favor, without going overboard. A plan that is overly "generous" to its
distributors can run itself into financial ruin. And that’s bad for everyone.
When distributors fail to qualify to earn the commissions or bonuses on their purchase volume in a given month
(usually because they fall short of the minimum purchase qualifying amount), the commissions they would otherwise
have earned are called "orphan" commissions. Avoid plans in which orphan commissions return to the company. A
plan should be structured in a way that orphan commissions "roll up" to the next qualifying distributor that month,
rather than return to the company. This approach is also called "compression." Orphan commissions from
terminated distributors should be handled the same way.
Look for a plan that has the lock-in feature; that is, when you reach a certain level, you "lock in" and cannot be
demoted because of a temporary drop in monthly performance.
The compensation plans of most companies offer at least some perks for top performance above and beyond
commissions and bonuses. These come in many forms: company cars, health insurance, free training, lead and co-
op advertising programs. A few publicly traded companies even offer stock or stock options.
No matter what other advantages a plan might have, always ask this pivotal question: "Does it emphasize getting
products or services into the hands of consumers; or does it emphasize making money by finding new recruits? If it
falls into the latter category, run away — fast. In the end, says White, it’s the product — not the compensation plan
— that drives success.
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