In my career as a direct selling consultant, I have obviously received many questions on one of the main components of a business project: The Compensation Plan. Some of these aim at understanding what this is all about, while others’ intention is to achieve a good, competitive plan and sometimes, the most innovative one.
Here they are, together with my typical answers:
What if we just copy and implement Avon’s (or Amway’s, Herbalife’s etc) plan?
A compensation plan is a very important element of a company’s overall strategy. It impacts other aspects of the business, and its success also depends on those other aspects. While there are some successful examples to what you suggest, I would recommend designing a plan that really fits in your business strategy.
We plan to limit the depth. Can we just pay commissions to a few levels and stop there?
You might not want to do this as this means putting a limit to what a direct seller can earn as well. We should always keep in mind that one of the most attractive sides of being a direct seller is the unlimited income opportunity.
Our plan should encourage network marketers to work up to a point where they will not need to work anymore. In other words, can we have them retire with us?
I would recommend not doing this. Such a plan ends up with people who earn so much even if they do not do anything. This does not set good examples for the newcomers.
How about not enforcing any personal sales to qualify for commissions from downline?
Personal sales is crucial in direct selling. To have the direct sellers stay familiar with company’s products and act as role models to new recruits, I would set a minimum amount of personal, measurable activity.
Would it be possible to pay bonuses in products but not cash?
Yes, it is possible. But think which one is more motivating, free products or cash? Motivation is a crucial factor in field force success.
Can we limit the total commissions payout at 10 or 12%?
There will be a cap on how much will be paid, as a percentage of company’s sales. The level that cap should be set at depends on several factors, your other costs and what your competition is doing being on top of the list. But 10-12% is not a competitive payout, for sure.
We wish to have a compensation plan that has not been used by any of the competitors so we can have an edge there. Can we do that?
If you look at the evolution of direct selling, you will see that various types of plans have been introduced. Some have lived up to the expectations so they survived, but some others faded together with the companies that had introduced them. Being prudent and cautious always pay back here.
What about designing the plan so that we pay higher commissions for higher personal sales? Would this encourage personal sales?
Yes, it would. It would at the same time bring you a sales force that emphasizes personal sales and ignores recruiting and team building. If you plan to structure your business in this direction, then you will need to compensate the lack of field leadership with salaried sales managers.
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