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What To Look For In A Compensation Plan

One of the “go to” parts of a network marketing pitch is “we have the best compensation plan” First of all, if you are using this line, STOP! You have no idea about the intricacies of all comp plans from every company, so you have no idea if that is true. If you have heard this line, you might be wondering what makes a great comp plan and what to look for in a compensation plan. Here is an easy way to decide that for yourself.

Every company should have their compensation plan available for you to look over. If they do not, RUN! The legitimate companies have full disclosure of how the compensation plan works on their website, or you can ask the person that is talking to you about their business to get you a copy to look over. Most companies have many ways to get paid, and they lay them out in order of the ones that affect the new person the most. Almost always, you will see the retail commission one can expect from selling the products or services of that company. It then will go over every way to get paid, with different levels and percentages of revenue paid out. This can be very confusing to someone who has not looked over one of these, and it can all seem very powerful. But, there are two things to look out for when looking at a comp plan.

1- Just about every company uses a technique of using VOLUME to base their pay structure on. What they do is take a dollar and assign a volume amount to that dollar. So if you have a company that assigns .5 points to every dollar of revenue, if you sell $100 worth of product you will be paid on 50 points of volume. So a claim of paying out 25% on volume will produce a commission of $12.50. So the true commission is actually 12.5%. The person that is speaking with you about their company should know the amount of volume attached to each dollar in their comp plan. Some are better than others, so make sure you get the correct amount so you can gauge the true amount of income you can earn from the dollar amount that is spent. In just one example, the company with the definition below shows a group of their products that carry a volume of 184 points. However, the cost of their products is $378.50. See how this works?

 

2- Every company has a rank system. The more business that you and your team do, the higher up the ranks you can get to. This equals more money that you can earn. However, there is a dirty little secret that the companies use in order to cause something called “breakage” This happens when someone does enough volume to earn a higher rank, but because they have put in qualifiers for the team and that person does not have those qualifiers in their organization, the company does not have to pay that person at that rank. This could add up to thousands of dollars and that money goes right into the companies coffers. So what do I mean by having a qualifier?

Let’s look at this example. In order for someone to hit the rank of Senior Director, they must have at least 3 Senior Brand Partners on their team. They also must have at least 12,500 in volume but only 60% of that volume can come from one leg. So, if they do not have at least 3 Senior Brand Partners on their team, they will now be paid as a Director. Not only does that take away the 5% commission on one level, but in this particular company it means that this person would not qualify for their car bonus, forcing them to make the payment instead of the company.

3- The last thing to look at is what your monthly minimum will be to stay qualified with the company. You must do some kind of business in order to earn an income from your team, and if you have built up a good customer base that should be easy to achieve. However, for those that are just getting started, this commitment can mean more and more money that needs to be spent if you do not have any customers. In the first example, that company has a monthly minimum of 100 points in volume to stay qualified. That can come from personal orders, the products that you are using yourself, or from retail sales. If you are building your business and do not have any retail sales, then your personal volume must be used. Since they are about a 50% value for volume per dollar, you would be responsible for an order of about $200 just to stay qualified. That can add up quickly! So make sure you are aware of your monthly commitment before you get involved!

If you like what you have read, please leave a comment! I would love to hear your thoughts and how this might have helped you. Have some friends that should see this? Use the share buttons to get it out on social media!

To YOUR success!

Bill

PS, if you want to access my free resources that I use daily, take a look!

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