DirectLine: Payment Plan
by: Jeffrey Babener
|You want to get into network marketing, but you're having difficulty choosing the
right company. Although there are many issues to research, including product quality,
management qualifications, purchase requirements and training programs, one key area to
look at is the compensation plan the company uses.
There are so many compensation plans out there, however, that comparing them can be bewildering unless you know some of the industry lingo and the important goals a compensation plan should achieve.
Multilevel sales plans arose in the 1950s and have since come to dominate the network marketing industry. In a multilevel sales plan, distributors not only earn money on their own direct sales, but also earn override commissions on the sales of their recruited salespeople, the sales of the salespeople recruited by their recruits, and so on down the line.
In the early multilevel programs, direct distributors were entitled to purchase directly from the company and supply their downline distributors with product. They might also be entrusted with paying commissions to their downline distributors. Most of these companies started when computer technology was not advanced and it was hard for them to manage all the downline information and payouts. Therefore, they had distributors take care of these tasks.
With advances in computer technology, the need for the direct distributor to act as a
go-between has disappeared. Most network marketing companies started in the past decade,
as well as some of the older ones, now allow all distributors to order directly from the
GOING FOR THE GOALS
When choosing a company, the most important factor is not the type of compensation plan, but whether that plan is achieving important goals for distributors. Alfred White, senior management consultant at San Diego-based Hamilton LaRonde & Associates Inc., recommends evaluating each company you are considering against the following characteristics of a good compensation plan:
Conversely, here are some things to watch out for when evaluating an opportunity.
PROS AND CONS
You may have heard of a variety of compensation plans, with names like binary plan, Australian plan and more. To some extent, however, they are all variations of three major types.
LAST, BUT NOT LEAST
So how much do plans pay out? Most plans pay between 35 and 45 percent of wholesale purchase volume and about 30 percent of suggested retail volume. Look for a plan that divides the pie in your favor.
A few other pointers: Avoid plans in which "orphan" commissions return to the company. In other words, if a distributor fails to qualify for earned commissions in a certain month, they should roll up to the next qualified distributor rather than return to the company. The same is true for a terminated distributor.
Look for a plan in which "lock in" occurs; that is, when you reach a certain level, you "lock in" and can't be demoted because of a temporary drop in monthly performance.
And don't forget to look for other perks that may be part of a good compensation plan - bonuses for top performers, company cars, health insurance, free training, lead and co-op advertising programs, and even, in a few publicly traded companies, stock or stock options.
No matter what the plan, always ask this question: Does the plan emphasize getting products or services to consumers, or does it emphasize making money by finding other recruits? If the latter, run away - fast. In the end, says White, it's the product, not the plan, that drives success.
|Jeffrey A. Babener
Babener & Associates
121 SW Morrison, Suite 1020
Portland, OR 97204
|Jeffrey A. Babener, the principal attorney in the
Portland, Oregon law firm of Babener & Associates, represents many of the leading
direct selling companies in the United States and abroad.
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