Compensation Plan Basics
Many factors go into determining what is the best compensation plan. Of these factors, many of them are based on your experience and confidence levels with recruiting. Some compensation plans are more suited for those that are well established at recruiting, have experience in the Network Marketing industry and are working their business full time. While others are more suited to the individual who is new to Network Marketing, or who will be working their business part-time, or even those that are more suited to the “average-distributor”. That is the purpose of the information contained here . . . to help you decide what is best for you.
One of the most difficult parts about determining what the best compensation plan is taking other people’s opinions out of the equation. This is necessary for the simple fact that when you ask most Network Marketers what they consider to be the best compensation plan, the will almost 100% of the time tell you the compensation plan that their current company has is the best. If then ask them about any additional compensation plans, you will almost as certainly get a blank stare or if you are on the phone, dead air, as they only know the compensation plan they are in.
In this great industry of Network Marketing, all companies have to have a compensation plan, that’s given. They also have to have a compensation plan that is lucrative for both the company and the distributor/associates as both have to succeed for the company, and the distributors/associates to survive.
What is the Best Compensation Plan?
There are tens of thousands of companies in the Network Marketing industry with thousands of new companies starting every year. Along with these companies comes their compensation plans and also variations of compensation plans. To understand what the best compensation plan would require extensive research (which we know you are doing right now) plus the ability to see the numbers first hand from both a company and distributor/associate’s point of view.
It is that last point that makes it very difficult if not impossible to clearly state what the best compensation plan it. Most companies will not open their books to third parties, which means in many cases the only way to see what is best is from the first-hand experience. We by no way are saying that we need to join multiple Network Marketing companies to see what is best. No, we are simply saying that we cannot, nor can you, find something that is completely unbiased and at the same time tell you what the best compensation plan is.
Having said all that, what we will do though is provide you with information that will allow you to make an educated decision. A decision that is right for you, because at the end of all the hype, all the network marketing information, the bottom line is the best compensation plan is the one that you perform best in.
Starting the Best Compensation Plan for You
It cannot be stated enough times that this is all about you. You are the one that will have to work at your business, you are the one that will have to work with your upline, and yes you are the one that will have to take full responsibility for your Network Marketing business. This is important to understand because even the best compensation plan, with the best product in the best company will not do it for you. You still do have to work!
Also, you will need to understand what your skills and abilities are. Do not be worried if you do not have all the skills and abilities or if you are new to the Network Marketing industry. That is OK. Everyone has to start somewhere. The point is that you need to understand what your skill level is as certain compensation plans are more suited for experienced types of network marketers.
This doesn’t mean that you can’t work and succeed in a compensation plan that is suited to the more experienced. No that isn’t the case. It is a matter of understanding the road that you will have to take functioning and succeeding in the compensation plan and company you choose. Unsure of what to do or what you need? Find a mentor! They will be able to work with you to establish your action plan for your personal growth that will enable you to succeed in the Network Marketing industry!
7 Compensation Plan Factors to Consider
Up to this point we have not given you any valuable way to sift through all the various compensation plans in the Network Marketing industry. This page was written this way as we needed to make clear to you this is completely subjective. As you will see when looking at the various compensation plans, how you make money when you make money – some front-loaded some back-end loaded, and what you need to do to make the money all varies. But at the end of the day, if you are happy with what you are working with than that will make it the best compensation plan for you!
When you are looking at compensation plans there are 7 key factors that we feel are important for you to determine what is the best compensation plan for you. They are:
- Easy to understand and explain
- Will have a proven track record
- The Company will be financially transparent
- The compensation plan will be evenly weighted
- The compensation plan will be fair to all distributors/associates
- Compensation plan bonuses are evaluated carefully
- The compensation plan is practical for you
Easy to Understand and Explain
This should be the basic principle of any compensation plan, that it is easy to understand and therefore easy to explain. If you are looking at a new company and their compensation plan, even if you are new to the industry you should be able to quickly grasp and understand the compensation plan. Then with a little training, you will be able to easily explain it to new prospects.
If the compensation plan is difficult to understand for you when the time comes that you have to explain the compensation to your prospects they too may experience difficulty understanding it. The easier a compensation plan is to explain, the more confidence your prospects will have that they too will be able to explain it.
Proven Track Record
Hype is an area that will always be in the Network Marketing industry. Hype is great for building excitement, but that is about all it is good for. When looking at a compensation plan of your potential company you need to look at how long the company has been in business. Yes, some say the sooner you get in the more money you will make, but what they are forgetting to tell you is that also the riskiest time too.
Start-ups and “ground floor” opportunities do not have history to prove that their business model, complete with their compensation plan work. You can not verify that information that you are being told is accurate and truthful. On the other hand, companies that have been around past the 3-year mark will start to have the history and actual numbers that you can look at to see how well the business model works.
Remember, the newer the company the higher the risk you are taking. A balance is needed and only you understand what level of risk you are willing to take.
The Company is Financially Transparent
Being financially transparent is something that every network marketing company should be. Being financially transparent means that if asked for, the network marketing company will provide you with a break down of their compensation plan. This information would include items such as the percentage of gross income that is paid out to the distributors/associates, allocated towards research and development, spent in the manufacturing and distribution of products and last but least, the percentage of gross revenue that is profit.
If the network marketing company that you are looking at is publicly traded, you will be able to easily see this information as all publicly traded companies have to be financially transparent. Simply look at their annual statements. If however the company is not publicly traded, you will have to do some additional “homework” and contact the company directly. Be cautious of any company that is not willing to share this information with you.
Simply getting this information about your potential network marketing company is not all you need to do. You must now look at the bigger picture of what this information tells you. How well balanced is your potential network marketing company? For example, if the company is making a lot of money, but paying most of that out to the distributors/associates, making a very cheap product and not making any profits for the company, that is not a sustainable situation long term. So what is a sustainable solution?
From the reviews that we have conducted, most successful network marketing companies have a very good balance of what they return to the distributors/associates in the form of commissions. It is usually in the range of 35-40% commissions paid back to the distributors/associates.
One more very important thing that you will have to look for is research and development. What percentage of income is being directed to research and development of new products? This is important as you do not want to get involved with a network marketing company that is not staying current with customer’s needs and wants.
Research and development will ensure that new products are being introduced by your potential network marketing company that allows all of its distributors/associates to promote and sell relevant products. If no monies are being allocated to research and development, this again is not a sustainable solution long term.
Evenly Weighed Compensation Plan
How the compensation plan is weighted refers to how you make money. When looking at the compensation plan it should not be “front-end” heavy, meaning that you get the majority of your pay based on sponsoring/recruiting new distributors/associates. Working within a compensation plan such as this means to generate and maintain a substantial income and a residual income, you have to be a sponsoring / recruiting machine, and if you stop recruiting/sponsoring, so does your income! This makes it very difficult to leverage your efforts and to have a true passive income! Beware that there are still some cases even today that are so “front-end” heavy, they border on pyramid schemes.
What you want to look for is a compensation plan that has a proper balance. It rewards you for sponsoring/recruiting new distributors/associates, it rewards you for selling product but the main money comes in developing both leaders within your organization and developing a loyal customer base. You should be looking for ways to generate a passive income, and that comes from developing leaders and a customer base. If the compensation plan you are looking at has incentives to do this, it is a win-win situation. First for you when you get started as you will be the individual being trained and mentored, then once your team grows, you will be able to do the same with distributors/associates in your organization.
All Distributors Treated Equally
This is plain and simple. It should not matter where you are in the structure of the network marketing company’s total distributor/associate structure. Someone like yourself should have the same ability to make the income you want as someone who started 1 week, 1 year, or 5 years before you. Hard work should be rewarded and that should be what you are getting paid on, not the location you are in the genealogy tree.
If the compensation plan rewards you for the time in which you started and your placement in the genealogy tree, then everyone that starts after you, even those in your organization will have a more difficult time making the income they want. This is not sustainable long term.
Understand Compensation Plan Bonus Calculations
When dealing with bonuses, this is where you will need to be very cautious. For many companies in the Network Marketing industry, they will use lavish bonuses (i.e. cars, trips, large cash amounts) to entice new distributors/associates. It must be remembered though that to achieve these bonuses requires a certain level of business volume. The more lavish the bonus, the more volume your organization must do.
We are not saying that the bonuses being offered are not obtainable, we are simply saying that you have to be aware of what is required to achieve them, and be realistic about achieving them.
Furthermore, while the “prize” type of incentives are great, the best type is increased pay for a job well done. For instance, developing a certain amount of new leaders in a month, or the biggest increase in sales in a month is great as it has an immediate impact on your income, from achieving the bonus. It also will have long term benefits to your business because you developed people in your organization, who then, in turn, did the same in their organizations.
The Compensation Plan is Practical to You
The final item that you will have to consider is you. Based on the information that you have been provided about the compensation plan, do you feel that you will be able to achieve what is required for success? Granted you may be new to this industry, your first goal will be filling your frontline distributors.
This is usually the qualification that network marketing companies have to signify when you can start making money. For instance, with most binary compensation plans, you only need to personally sponsor/recruit 2 frontline distributors/associates before you can start to get paid through the compensation plan. That number is higher in a Matrix compensation plan, usually 4 – 6, where a Unilevel or Stair Step compensation plans are usually much higher numbers.
While your current skill level will change with the support you will receive from your upline, you have to also feel comfortable with what will be required when you first start. If you have experience and are a very capable sponsor/recruiter, then a Unilevel or Stair-step may be suited for you. However, if you are new and feel that your sponsoring / recruiting skills need to be improved, you may want to look at a Binary or Matrix compensation plan. This way you can improve those skills as you are growing as a leader.
While the compensation plan of a potential Network Marketing company plays a major role in understanding if the opportunity is right for you, it is not the only item to consider. The support that you will receive, the ability to professionally grow, the stainability of the company and product lines are items that need to be accounted for.
The right compensation plan with the right company can be your ticket to the residual income that you have been seeking. What that right fit varies for all of us. For you, we hope that this information has been beneficial to you in your investigation stage of looking at Network Marketing companies.
If you would like to personally speak with us, please feel free to fill out the form in our Contact Us section, and describe what it is that you would like to discuss. If you would like a one-on-one meeting, make sure to provide a telephone number and the best time to reach you.
*Examples in these materials are not to be interpreted as a promise or guarantee of earnings. Earning potential is entirely dependant on the person using the products, ideas, techniques and efforts put forth on Engineered Lifestyles. For our full earnings disclaimer click here.