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How to pick the right compensation plan

How to pick and work within a company to maximize your earnings

How to choose a compensation plan
Article by: Mitch Stowell
Kenny Rawlins
August 10, 2015

When you’re new to direct selling, it can be difficult to understand and navigate compensation plans. If you’re on the ground, selling product, you need simple answers—not a bunch of complicated math—and luckily there are shortcuts you can take. It is possible to learn enough to maximize your payout without jumping into the compensation deep end. So let’s take a moment to step back and look at compensation from the perspective of the new distributor. Specifically let’s address these questions:

  • How do I pick the right compensation plan?
  • What’s the right way to build my business?
  • What should I avoid when building my business?
  • How do I build something that will actually grow on top of itself? Thrive?

The answers might surprise you in their simplicity. When it comes right down to it, the most important thing for you to do to maximize your earnings is being mindful—choosing products you believe in, paying attention to your build strategy, and getting to know the people you work with.

Product comes first

If you’re joining a company for the compensation plan, you are probably making a mistake. First and foremost you should join a company that has products you love and a culture you believe in. It doesn’t matter what kind of compensation plan a company has. If you love the product you can figure out how to work whatever compensation plan comes with it. There are two reasons for this.

First, without quality products that you believe in, your involvement in the business will be meaningless for you and probably short-lived. If the product actually isn’t worth buying, your customers will lose interest and your downline distributors will stop selling.

Second, there is no magic compensation plan. There are 3 major types of compensation plans in the industry today—unilevel, binary, and breakaway—you can succeed in any of them if you work them right, and you can fail in any of them if you work them incorrectly. A binary compensation plan is not guaranteed to pay you more than a unilevel or breakaway plan. If a company recruits you with the promise that their compensation plan is the best compensation plan, they’re lying. If, first and foremost, the company is selling its compensation plan—that is, if the compensation plan is given more attention than the product—then the physical product is nothing but a smoke screen.

Build strategy

All compensation plans have different pros and cons, so the key to growing your income isn’t finding the perfect compensation plan. Instead, identify what activities the compensation plan rewards and then tailor your behavior to get the rewards. Around the industry, we call this build strategy. Using the correct build strategy, in basic terms, is knowing where to place people and why. Knowing and implementing the correct build strategy for the specific compensation plan makes a big difference. With all modern compensation plans, building on autopilot rather than matching your build to the compensation plan means earning about 5% when you could be earning about 15% on your group volume—that’s losing two thirds of your possible profits. Building your downline without a strategy is more like gambling than doing business.

Understanding compensation plan theory can take a lot of time. There are so many commission types, ways to design them, ways to use them, ways to combine them. But you don’t need to understand everything to be a successful distributor. All you need to know is the correct build strategy, and you can find that out from anyone who’s succeeding at your company.

Talk to your sponsor. Ask them “What do I need to do? What build strategy will ensure that I make the most money in this compensation plan?” If your sponsor doesn’t know, then keep looking. Find people who have been successful. If your goal is to be a sales person who makes $300-500 a month, find somebody who’s already doing that. Just like with anything else: find the smartest kid in class and ask him how he does it.

Distributor and customer types

As you tailor your behavior to maximize your rewards, it’s important to learn about the types of individuals who join and buy from direct sales companies. Each type behaves differently and brings different value to your team. Learning how to identify them as you sell and recruit makes it possible for you to place and use them effectively.

It’s also worthwhile to take the time to identify what kind of distributor you are. The way you build your business will vary depending on your goals. If you mean to be a sales leader you need to operate as a sales leader, not a sales person.

Here’s a rough description of the customer and distributor types. Note that the first two types listed here are customers, and in the current legal climate should not be signed up as distributors.

Consumer. A consumer joins the company for the sole purpose of purchasing product.

Social enrollers. A social enroller loves the product and the company and loves to share with others, but isn’t interested in building a business.

Sales person. A sales person can earn a few hundred dollars a month. As a sales person you’ll first and foremost need to go out and find customers, and to maximize the benefits of those customers who are social enrollers.

Sales leader. A sales leader can earn a few thousand dollars a month or more. As a sales leader you’ll need to recruit sales people and support them as they build their businesses.

Dream builder. A dream builder provides the leadership, passion, and excitement for the company. There are only a handful of dream builders in a company.

If you think of this as a business—if your involvement in the company is more than just social, if you intend to make money—then you’re either a sales person, a sales leader, or a dream builder. If you’re a dream builder, then you’re not a beginner, and this article is not for you. If you’re still here, you’re either a sales person or a sales leader.

If you’re still not sure which of these two types you are, you’re probably a sales person. Get good at that. If or when you become a sales leader, the goal shifts from selling to helping others sell. Knowing, first hand, how to make sales will always be worthwhile.

Understanding what type of distributor you mean to be will help you tailor your behavior to reach your desired reward. But there’s an important flipside to this line of thinking. As a sales person or sales leader, you’re going to want to maximize the value that you get out of anyone you sell to or recruit. Identifying which type of distributor you’re talking to will help you know where to place them and how to use them.

There’s this troublesome idea that many people carry around in this industry: Everyone I recruit is going to recruit others. It’s just not true, many of them are customers who won’t recruit others, and that’s great. You need customers. In fact, having customers is crucial!

Furthermore, it’s okay, and beneficial to work with a social enroller—someone who likes promoting and sharing the product, but doesn’t want the responsibility of “making the sale” or supporting the customers they recruit. Some people simply want to refer people and move on. Many of them don’t even want to refer people it’s just something they do by nature. It’s their personality. It’s in their DNA.

This isn’t a problem. It’s a boon to your business. A social enroller who gives you three or four leads is great. Bring these people in, and use their skill set effectively.

Conclusion

There is no magic compensation plan, but all compensation plans require you to follow their rules and incentives in order to be successful. The best compensation plans give you flexibility on how you build. But there will always be some rules that you must follow to be successful. Identify the build strategy, and you’re on your way.

 

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MLM Comp Plans, MLM 101, All Articles

Kenny Rawlins

Kenny Rawlins has been fortunate enough to have been around the network marketing industry his entire life and has experienced its power...

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