By Nancy Tobler and Mark Rawlins, MLM-CC
Is your compensation plan working correctly? What does it even mean for a compensation plan to succeed? We worked to answer these questions in our last post for ByDesign. Today we want to answer a question that companies must do correctly to succeed – payout the correct percentages.
When we want answers, we go to the data. Over the years, we’ve seen hundreds of compensation plan payouts. In our experience, company owners often lack the analytics necessary to discern if their compensation plans are doing what they’re supposed to. These three problem areas are critical to track as you build and maintain your compensation plan.
Your payout is too large (or too small) a percentage of your sales volume
This is especially a problem in binaries. They run away from you. They pay all the way to the bottom of the tree, and they carry volume over from one pay period to the next. Thus they can end up paying out so much that they’ll bankrupt you.
There are creative ways that companies work around this problem. Binary companies will often cap total payout for a given pay period to a set dollar amount or percent of sales volume. In companies with other compensation plan types, you’ll see other mathematic gymnastics happening to make it look like they’re paying more than 40% when they aren’t. But you need to get really honest with your company, put the creative math aside, and check what percentage you’re really paying. It had better be 40%.
Over the hundreds of companies, we have worked with over the years, the amount of wholesale dollars paid in commissions and incentives is between 35 to 45%. If you pay too little, then you are not competitive with other direct selling companies. If you pay too much, then you’re not profitable.
You have too many bonuses
If you have too many bonuses, nobody knows exactly which behavior is driving their earnings. If nobody knows what exactly they’re doing right, they can’t keep doing it!
If you have a company that does both a breakaway and a binary, which behavior do you want me to do? Do you want me to build a binary? A binary is looking at get new people, get new people, get new people, get new people. That’s what binary rewards. On the other hand, unilevel and stairstep breakaway reward keeping customers. The breakaway is about keeping customers. In a breakaway, you want to build group volume and work as a team.
If you have a binary bonus and a breakaway bonus, you’re asking your distributors to work at cross purposes.
Another way to think about this problem is to ask yourself, how does a distributor ever know where their money came from? What behavior led to their earnings? And how does the distributor identify what behaviors the company wants? Simple, harmonious bonuses make it easy for distributors to know what you want them to do.
You aren’t paying hyper-enrollers enough money
Over hundreds of compensation analyses, we found that distributors who enroll 10 or more bring in 40 percent of the distributors and customers in your company. They directly sponsor 40 percent of your company. You should be paying these people a lot. They brought in a lot of people and their compensation should reflect the gratitude you feel. However, you must find a way to reward them appropriately for their work without taking pay away from the salespeople they enroll. You must get salespeople to $300 a month. And if you’re getting salespeople to $300 a month, people will stick with you, then these distributors who enrolled those salespeople will make more money anyway.
There’s a delicate balance. There’s a fine line you have to walk. You must pay people who are bringing in 10 or more because they are bringing in the bulk of people. You have to pay them. Do you have to pay them 80%? No.
Over time, we have found consistent problems for commissions. Tracking your data can help you see where the weak spots are. Paying too much overall, having too many bonuses and not paying hyper-enrollers enough are three of those problems.