A network marketing compensation plan can be compared to a symphony orchestra with several instrumental groups. The woodwinds, brass, percussion, and strings each play a role in creating beautiful music, but only if they are in perfect harmony together. Imagine the awful sound if the brass began to play Beethoven’s 5th while the woodwinds played a piece from Chopin. To make beautiful music, all the instrumental groups must play a well composed music score in perfect harmony.
The well designed compensation plan is like a beautiful music score with all of its components working together in perfect harmony creating the maximum opportunity for success for every consultant who wishes to build a long-term business. Whether the consultant seeks a fun way to earn a few hundred dollars each month in only a few hours each week, or has career aspirations to earn a six-figure full-time income, the compensation plan must be crafted to help them achieve their dreams.
Ten principles are at the foundation of a great plan. Be sure that your plan design does everything possible to make each one a reality. Here are the principles, with some of the training from the LaunchSmart™ Tools added to help create a perspective for understanding the principles:
Principle #1 – Growth comes mostly from retention
The cost of losing one active consultant can be measured in hundreds, if not thousands, of dollars over time. Not only do we lose the sales they would have generated, but also the sales from the recruits they would have recruited, and the recruits they would have recruited, etc.
In early 2004, our firm received a call from a company that said they had recruited 34,000 distributors in the prior calendar year. Upon examining their year-end performance, they realized that they had a net growth of only 900 distributors as a result of the year’s efforts. 900! They contacted our firm for assistance in changing the attrition trend at their company.
With very little thought, it will occur to you that they would have been far better off to have recruited 3,400 (instead of 34,000) and kept 50% of them, which would give them 1,700 net growth, nearly double what they had from 34,000 new distributors! In the end, it matters little how many we recruit. What really matters is how many we keep. What benefit does recruiting bring if we lose them as quickly as they join?
Principle #2 – Each new recruit is precious and deserves all the help their upline sponsors can give them
Principle #3 – We are in the people-building business.
Principle #4 – Time is our top competitor
Principle #5 – What one person receives without working, another person works for without receiving
Principle #6 – The dream is real
Principle #7 – People will go to where the money and rewards flow, no matter what we train them to do
Principle #8 – Rather than do the work of 10 people, I’d rather get 10 people to do the work
Principle #9 – To develop successful leaders, first develop successful managers
Principle #10 – Leaders must be rewarded for leading by example
MLM Compensation Plan Design Checklist & Key Considerations for Party Plan
- Do we understand the compensation plan fundamentals and 5 Key Behaviors?
- Will we design our own plan or work with a design team?
- Analyze product margins, compensation margins and projected sales
- Analyze target market (leaders, builders / managers, consumers)
- Determine the dollar-per-hour proposition for a party plan company
- Develop compensation plan concept based on target market
- What is the dollar-per-hour proposition for MLM model?
- Determine how much you can afford to pay in commissions
- Does the plan reward leadership and is it supported by training for MLM distributors and party plan consultants who aspire to top leadership positions and pay?
- Determine percentage payouts
- Determine promotions budget
- Draft compensation plan
- Marketing elements
- Programming specifications and details
- Legal review and approval of compensation plan
- Final edits and copy writing
- If Party Plan
- Define in-home experience
- Design hostess rewards program
- Develop consultant compensation & incentives
- Awards, Incentives and Recognition and Incentives (AIR)
- Develop AIR strategies
- Identify key field behaviors and productivity outputs
- Define awards calendar for all recognition
- Determine pre-launch recruiting awards and special incentives
- Define promotions and contests
- Create first-year promotions and contests calendar
- Determine budgets for all AIR, promotions and contests