Whenever a direct selling company or a referral marketing company is considering changing its compensation plan, there are reasons that this is happening. Either there are problems that need to be fixed, goals that need to be met, or both.
Does Your Compensation Plan Have Problems?
As compensation plan consultants, we can learn about a direct selling company’s problems with their compensation plan by asking them to prepare a list of them. Interestingly, in our experience, we have found that half of the items on these lists are either not problems, or the issues aren’t factually correct.
Watch our compensation plan video to learn more.
Compensation Plans
Compensation plans should be designed to motivate specific behaviors of independent sales representatives and their retail customers. These behaviors are:
- Personally purchasing your products or services
- Selling to customers (non-participants of the income opportunity)
- Introducing the income opportunity to others (sponsoring/recruiting)
- Building a team
- Training, supporting, and nurturing others
- Becoming a leader
- Personally developing leaders
- Helping other leaders to develop leaders
- Meeting or exceeding minimum activity requirements
- Being promoted to a higher title or rank
- Meeting or exceeding title maintenance requirements
- Staying active and engaged in the business (retention)
Does your plan address them all well?
Compensation Plan Design
Sylvina Consulting designs compensation plans for both new and existing home party plan and network marketing (MLM) companies. We also work closely with MLM software companies on your behalf to implement and audit your compensation plan programming.
We create field documents, PowerPoint presentations, and video scripts for plans we design, or for compensation plans designed by others.
For New Companies
With companies new to direct selling, our approach starts with education. We discuss with you the differences among the various types of compensation plans including unilevels, unigens, stair-step breakaways, matrices, binaries, and hybrids. We also explain the pros and cons of each type of plan.
At the same time, we gather information from you regarding your products, your cost of goods, and the preliminary budget as a percentage of sales for total field compensation. All of this information is important so that we can design a compensation plan that meets your goals and priorities.
For Established Companies
If you have an established business and you’re seeking help to amend or rewrite your compensation plan, we take the time to talk with you and listen as you share with us the challenges of the current plan and your goals. Next, we review the requested statistical information to identify any additional areas in your plan in need of attention.
Once the preliminary tasks have been addressed, we move quickly into designing the components of your compensation plan.
Compensation Plan Evaluation
If you have a compensation plan already but need guidance to ensure it is in good shape, we can also help you.
For Established Companies
We offer a results-oriented review of your current or proposed plan, with recommendations included for changes to align the plan with your margins, products/services, and desired sales force behaviors.
Before you announce your new compensation plan, obtain the council of the compensation plan experts at Sylvina Consulting.
For New Companies
If you’ve designed your own compensation plan, but you’re not sure if it will produce the desired results, we can evaluate your proposed plan and provide you with professional advice in the areas in which the plan should be amended.
Ask Yourself These Seven Questions:
Compensation plans should be designed to motivate and reward specific behaviors.
To find out how your compensation plan is doing, answer “yes” or “no” to each of the following questions:
1. Personal Consumption
Do your independent representatives personally use or consume your products?
2. Sales to Retail Customers
Is the percentage of total company sales to non-participants in the income opportunity increasing?
3. Retention
Is your rate of retention of representatives above average for companies like yours, or if not, is it on the rise?
4. Recruiting/Sponsoring
Are you seeing increases in the percentages of representatives who have recruited at least one person and the percentages of representatives who have recruited at least two people?
5. Supporting Others
Is your compensation plan driving a team-building culture?
6. Becoming a Leader
Do you have an effective Leadership Training Program for all ranks of field leadership?
7. Developing Leaders
Are there sufficient financial rewards and recognition for developing leaders?
How Did You Do?
If you answered “no” to any questions, you have some work to do.
The first step is to measure the performance of your compensation plan over periods of time in each of the key areas so that you can see clearly what is working for you and the areas in need of positive change.
Are the performance results of your sales force in line with industry averages? Better yet, is your company “beating” industry averages?
Once you’ve identified your targets of opportunity, you can proceed to the next step… adjusting your compensation plan to achieve optimum results.
Be sure to include a transition plan to introduce the plan changes to your field and to minimize the effects on individual representative compensation.
When you encourage and reward properly each of the key behaviors, the success of your representatives will propel your company forward.
Sylvina Consulting can help you to evaluate the performance of your compensation plan and, if needed, design changes to encourage higher rates of activity, retail sales, retention, rates of recruiting, and leadership.
Compensation Plan Changes: Winners And Losers
If you are thinking about changing your direct selling company’s compensation plan you need to know about the inevitability of winners and losers. Winners are the people who are going to earn more as a result of your changes. Losers are those who will earn less.
Why Have Losers?
Whenever a compensation plan is changed, unless you are only increasing compensation, there will always be some people who will earn less under the new plan than under the old plan.
While you may have identified the reasons for your compensation plan change and the goals to be met as a result of the changes, add to your list the following goals you may have missed:
- Minimize the number of losers.
- Minimize the amount of loss.
Why Minimize Losers?
How would you feel if your boss cut your pay? Would you be as motivated to work harder than before? Most of us would not be.
By adjusting the rules of the new compensation plan and comparing the income of each representative under the old plan and the proposed new plan, you will be able to see quantitatively how many losers there are and how much loss they will be experiencing.
While we can accept there will be some losers, it is unacceptable to not worry about them or skip the analysis work to minimize the extent of the loss.
About Compensation Plan Transitions
Compensation plans are important. They motivate and reward specific behaviors. But what if your compensation plan isn’t doing well enough? How do you transition from one compensation plan to another?
The short answer is “carefully” but you need to know more than a one-word answer. In this post, you’ll learn what matters most and what you can do to minimize the negative effects of the change.
Winners and Losers
Unless you plan to pay out more in your new compensation plan, there will be winners and losers when you implement your new plan. Winners will earn more, while losers will earn less. Everyone likes to learn more money, but few of us accept pay cuts without complaint.
In advance of implementing or even announcing a new compensation plan, you will need to know not just who will be the winners and who will be the losers with your new plan, but also the magnitude of gain or loss.
With this knowledge, you can make good decisions on not only how you will present the new compensation plan, but also how you will transition to it and how you will respond proactively to the losers.
Transparency
Whether you change your compensation plan a bit or implement a completely new one, you will have your reasons. Ultimately, your goal is probably to increase the growth rate for your company or perhaps improve your profitability. To achieve your corporate goals, your sales force will need to produce more and therefore earn more.
So, compensation plan changes should be presented with a focus on what is best for the field because this is important for everyone, your company included. Be sure to explain the purpose of each of your compensation plan’s bonuses so that your sales force will understand your intentions and their rewards.
Introduction
You definitely don’t want your compensation plan to be labeled by your field as “bad news.” So, how do you prevent this situation?
The first step is to share your new compensation plan with your top leaders. They will feel valued when you show it to them first. When you ask them how they feel about the plan, they will tell you and sometimes this information will help you in explaining the plan to others.
The second group of representatives with whom you should share the upcoming compensation plan is the rest of your leaders. Only after you’ve done this should you release the details to everyone else.
Damage Control
One of the goals of your new compensation plan should be for your most productive representatives to experience higher incomes and to do so as quickly as possible after the effective date of your new plan.
However, it’s important to realize in the short term after announcing or implementing your new compensation plan, you may see drops in sales and recruitment. This is normal because, in response to change, some independent representatives will decide not to place their next order, wait before selling to others, delay recruiting others, or quit.
To counter this possibility, it’s wise to consider starting a contest, introducing new products, offering customer incentives, and other measures to motivate sales and recruiting at the same time the new compensation plan goes live.
Your Transition Plan
Transitioning to a new or improved compensation plan can be a risky endeavor. Like a heart transplant, it’s important to keep the patient alive both during and after the procedure.
Compensation Plan Expense
At no cost to you, find out if your compensation plan is in good shape, or if it needs to be improved. Ask the experts at Sylvina Consulting.
It’s Your Largest Expense
As a network marketing or party plan direct selling company, your largest business expense is or will be field compensation. It’s larger than employee salaries, rent, monthly MLM software hosting fees, and all other overhead combined. Always remember that.
You can’t afford to pay for the wrong behaviors while not rewarding or skimping on the right ones. However you pay, it’s important to spend your money wisely.
What Is A Compensation Plan Review?
A compensation plan review is an assessment of a compensation plan’s strengths and weaknesses, performed by direct selling compensation plan expert Jay Leisner.
Jay has advised network marketing and party plan direct selling companies for 30 years. More than just a plan expert, Jay mentors Sylvina clients in all areas of their businesses. Before offering advice or solutions, he asks important questions to understand each client’s specific concerns and goals and he listens to the answers.
Jay will read your entire plan document with a focus on both legal requirements and the 12 key behaviors. He will tell you his concerns and recommend solutions to improve your plan.
Don’t leave your future to chance. Ask the expert; then decide what you’ll do next.
Conclusion
Any time a direct selling company embarks on a project to amend or replace its compensation plan, there is an opportunity to drive the business forward faster. As with all the best opportunities, there are risks associated with them.
Understanding the compensation plan transition process is key to a successful implementation.
Communicating your compensation plan changes to your MLM software company is equally important.
Ask the experts at Sylvina Consulting for a compensation plan review.
Jay Leisner, the President of Sylvina Consulting, is a top compensation plan and direct selling expert, a trusted adviser to new and established network marketing and party plan companies. For more than 30 years, Jay has enjoyed assessing and improving network marketing, party plan and referral marketing companies across the globe.
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