A successful compensation plan drives the behaviors that make your sales force successful and helps to create sustainable growth for your business. While there are many factors that determine your business success, everybody knows that your compensation plan is one of the big ones. But there are many factors that can help or hinder your compensation plan. One of the big ones is your enrollment kit – the “business in a box” that all of your new recruits purchase when they sign up.
Guiding Principle: Align your business kit strategy with your compensation plan strategy so they work together in harmony.
Best Practice #1: If your people lead with product and follow with the opportunity, you are probably a customer driven business model. Your sales force hunts for customers to sell products to and they earn a commission or profit making it worth their time. We call this a “retail biased” business model. Your products will have a market acceptable retail price that customers are willing to spend for your products once they hear your unique selling proposition (USP). In this approach it is vital to avoid customers signing up as distributors only to get the distributor price discount. Doing so robs your distributors of their commission or profit they would otherwise earn. Instead of a 25% to 50% retail commission / profit, your distributors earn a much smaller commission on the purchases of their new enrollee who is actually their customer. The dollar-per-hour proposition for the sponsor drops like a rock from $25 or higher down to less than minimum wage. Next month they’ll find other things to do with their time. Bad for them. Bad for you. Last one out turn off the lights! When you charge a high enough price for your enrollment kit it will act as a filter so customers stay customers and people who want to earn money buy the kit to start a business. Usually this means a business kit price of $79 to $199. The higher the kit price the fewer the customers that enroll for a discount.
Best Practice #2: If your business is a “self-consumption” model where everybody who uses the product should sign up as a distributor, then your business enrollment kit should be low, often $29 or less. In this model your recruits don’t earn a retail profit or commission. They only earn on the purchases of their personal recruits and downline so the barrier to entry must be very low. To be competitive, however, you must design your compensation plan to provide a sufficient dollar-per-hour proposition to your people so it makes it worth it for them to enroll new customers as distributors. In the USA and similar markets this requires a minimum of $25 per hour for their time. Some companies pay a very high commission on the first order of a new recruit to make this happen.
Best Practice #3: Optional product kits are sometimes offered to new enrollees to give them sufficient product to sell to customers or personally use for a while. Legally you can pay a reasonable commission on these optional kits (never on a required kit to avoid violating pyramid laws). The commissions earned by the sponsor on selling a kit to a new customer or recruit can be sufficient to make it worth their time (dollar-per-hour of $25 or more). Warning: if your business depends heavily on a monthly Autoship model, selling a product kit to a new customer or recruit can greatly reduce the repeat sales for the following month and/or greatly undermine your Autoship retention rate when they don’t need any product for a while. Nobody stays on Autoship with a closet full of product.
Best Practice #4: If you sell to customers do not include huge amounts of discounted product in your enrollment kit. This defeats the entire purpose of a higher cost enrollment kit. A jewelry company, for example, should not offer $300 worth of jewelry in a $100 enrollment kit for new recruits (the kit would also contain business materials which is why the cost of the kit can be $100). Customers would buy the enrollment kit solely for the discounted value and learn that your products really aren’t worth the retail asking price anyway. The seller now becomes the sponsor and earns little or nothing on the sale instead of a full personal commission or profit. Bad news. High and/or regular discounts will destroy the perceived value of your products.
1) Determine what type of direct selling business model you want to be – customer biased or self-consumption.
2) Determine the price of your enrollment kit based on your business model. A higher price is necessary to keep customers from enrolling as distributors just to get the discount.
3) Be careful when offering discounted product kits that it doesn’t load up the garage to a point where they won’t buy any more product for a long time – especially if you have an Autoship business model.
4) Don’t harm the perceived value of your products by including a high value of products for a greatly reduced price in your enrollment kit.
By Dan Jensen, October, 2014