In this post, I’ll share with you some of the wisdom I’ve learned in my 30 years of improving direct selling companies.
One of the guiding principles of multilevel compensation is to keep within your compensation plan as large a portion of product sales as possible. More money for your representatives equals higher retention and higher profits for your company.
Another important principle is to provide your new representatives with the products and sales tools they need to be successful at the lowest possible price, but not at a loss to your company.
If you told me that these two principles are at odds with each other, I would confirm that you’re right.
About Deeply Discounted Products
Many direct selling companies sell starter kits to new representatives with a selection of products included at a significant discount. This practice has three purposes. It lets the new rep experience as many products as possible. It gives the rep a variety of products that can be sampled by prospective customers and recruits and it provides a good value for the money paid.
To join your company, in the USA you can require the purchase of a starter kit as long as the kit isn’t commissionable. If a starter kit is commissionable, that is OK as long as the kit purchase is optional.
When a product(s) is sold at a deeply discounted price – whether in starter kits, new seasonal product introductions, or any other product sale where upline compensation is not paid – the result is a good deal for the purchasing rep and an equally bad deal for that rep’s upline.
Endeavor to keep these good/bad deals as few as possible. For example, while you may choose to make your starter kits non-commissionable because they contain heavily discounted products, you don’t need to make the same decision for seasonal product introductions or other new product special deals. You can provide these items at a good price, but still pay upline compensation upon them.
Paying In Products
The best fast start programs for party plan companies award free products to new representatives who achieve time-based personal sales targets while compensating one or more levels of their upline sponsors with cash.
You might also consider paying other types of compensation in product credit rather than money. On the surface, this seems like it could be a sweet deal for your company because your cost for issuing the product credit is much less than paying cash, while to your representatives the value of the free product is much more than your cost for it.
Some companies use free products or product credit as core rewards in their incentive programs and contests because the rewards are thought to have a greater value to the winning representatives, while the costs to the company of these types of awards are economically attractive.
If you are awarding copious amounts of free products to your top-performing representatives, you are simultaneously penalizing their upline sponsors.
Remember, whenever you pay independent representatives in product instead of money, you deprive the upline of money they would otherwise earn if that product was purchased rather than earned.
So, what should you do? Follow the guiding principles.
Minimize the amount of free product you award to your representatives. Aim to have the retail value of the free product your company rewards to reps comprise no more than 5% of the retail value of all of your product sales. Don’t perform this calculation only once. Do it every few months, so that you’ll know if you’re using product too much as compensation.