Compensation Plan Conversion: Direct Sales to MLM Compensation Planning
by Michael L. Sheffield
As a direct sales company executive, you know that your present and future success relies on unique products and services, a solid marketing concept and compensation plan which offers the serious minded distributor a significant financial opportunity. (This article is one in a series by MLM compensation plan consultant Michael L. Sheffield on this and related topics.)
Also, it is critical to provide the part timer and “consumer/distributor” an easy way to stay involved based on their own specific levels of interest. Add to this a competent management team and motivated professional sales leaders, and you have a textbook formula for success.
But these things alone will not sustain your present market position if your business model is at the end of its life cycle. Competition for your distributors’ attention is fierce. Creative new start-up companies are packaging their business opportunity to turn your distributors’ heads.
A Paradigm Shift in Direct Selling
If you have never felt the sting of a key distributor exodus, the following words may signal a dream-saving early alarm. My continued research into this ever-evolving industry has made me aware of a “paradigm shift” in progress in direct selling methods, the compensation plan, communication and support. The direct selling industry is changing, and changing rapidly. In years past, the direct sales single level compensation plan structure ruled. According to Neil Offen, president of the Direct Selling Association (DSA), single-level direct selling companies accounted for 75 percent of the organization’s membership in 1990 with 25 percent being Multi-Level.
Now, 77.3 percent of DSA members are structured as Multi-Level Marketing (MLM), verifying a new age of marketing has arrived, commanding the long awaited accompanying respect. In the same way the Internet has altered communication and traditional business thinking forever, Multi-Level Marketing has infected the direct selling world with such a powerful energy that even many of the oldest and most conservative direct selling companies are taking notice. What is more interesting is the concern of those businesses representing the established pioneers of MLM.
They too are feeling the pressure as new age MLM companies demonstrate growth unparalleled by previous standards. Unlike the Internet’s effect on business, which seemed to come at us like an unexpected tidal wave, MLM is a known methodology traced back nearly 50 years.
Although considered a fringe concept by the established direct selling community, MLM has flourished, spreading its tentacles and silently implanting itself while creating a growing army of mostly part-time independent contractors.
Soon, MLM accounted for billions of dollars of product sales. While many direct selling company executives ignored the MLM revolution, regarding it as a distant cousin not to be taken seriously — companies like Nu Skin, HerbalLife, A.L. Williams, Melaleuca and Excel Telecommunications powered their way to sales growth unparalleled by any previous traditional or direct selling standard.
Consider Every Factor
As a direct selling corporate executive hoping to build a strong and geometrically growing organization to help your distributors meet their financial goals, understanding the compensation plan (and the MLM computer software that runs them) of the growing number of MLM companies could become a full time job in itself.
Stair Step. Unilevel. Matrix. Binary. Australian. It’s enough to drive even the most experienced corporate executives mad. I’ve debated theory for hours on how the compensation plan is like a piece of art with every twist and turn, every level and qualifier, every bonus pool or discount incentive carrying a specific action and positive reaction from the distributor base. The New Age compensation plan is no longer “pure” MLM, but can be better categorized as a hybrid system which attempts to be all things to all people. A little more discount here, another level in depth there, infinity bonuses, compression, roll-up, pass-through bonuses. We need an MLM dictionary just to decipher the written explanations of the plans. If you are considering making a “Decision to Transition” from your present compensation structure to an MLM model, please take note!
Radical change may be necessary, but don’t jump on the first fad compensation plan that rings your chimes. Your corporate and product mission, along with your distributor culture, must be considered.
Adopting a plan that maintains your long established principles while incorporating current trends should be your goal. Today’s plans must address the following:.
- Cost of new distributor entry sales kit should be modest, making it easy to get started.
- Early payout of initial commissions and bonuses. Some are paid weekly or bi-weekly.
- A good plan’s commissions are balanced between the beginning MLMer who is just trying it on for size, the committed part-time business builder who is building an organization through multiple levels, and the totally committed leader who can benefit from bonuses on a large organization of the first two. (The appropriate MLM computer software is of extreme importance in tracking and administering distributor’s checks.)
- Distributor monthly maintenance qualifications to receive downline organization bonuses should be reasonable and achievable for the consistent part-timer as well as the dedicated and committed full-time participant.
- Program should incorporate autoship ordering programs with a bonus volume relationship to monthly distributor qualifications.
- Plan should mandate minimum distributor personal retail sales while rewarding for building an organization in depth.
- A “Plus” plan. This means that there are no sponsor disincentives created by lost or reduced centers of profit as the downline advances which encourages leaders to suppress downline advancement. All earned bonus levels are in addition to those previously earned, never in place of them.
- Distributor advancement award titles should be permanent once received, but distributor bonuses should be “Paid-as” the position for which they actually qualify during the pay period.
- Compression of levels or generations should occur to properly reward performers through maximum depth of income stream.
- The plan should be “capitalistic” in its design to reward the business builders who contribute regularly to the company growth. Beware of plans that are “socialistic” in design dividing available profits among many and encouraging a something-for-nothing philosophy.
If you are a traditional direct sales company considering transitioning to MLM, or an established MLM just trying to play catch-up in the evolving marketplace, a competitive compensation plan tied to today’s technology is only part of the equation for maintaining and growing your market position. You will be competing for your distributors’ time, not just their product sales or consumption loyalty. Show them how to leverage their time while geometrically growing their income and you will put your company in the winner’s circle.