Science Behind the Pay Plan - Page 2
The purpose of this expository is to share general information on the dynamics of compensation and specific information on the potential of the company program to produce compensation. I believe that the company pay plan is in the top 5% of pay plans in the industry and is potentially the number one compensation producing opportunity in the industry. In order to capture the full potential of this opportunity, there are certain dynamics you must be aware of that affect the ability of the program to produce compensation for a broad base of its members.
In order to determine the potential of a program to produce income you must understand the difference between a compensation plan and a pay plan. A "paper" pay plan is primarily a schedule through which commissions and bonuses are theoretically paid. A compensation program includes all factors that produce actual compensation. There are several factors that are important to a program's potential to produce income that are not included in a pay plan. For example, a "hot" product or a toll-free hotline may make it easier for distributors to enroll a greater number of prospects. These factors would be considered compensation factors but not pay plan factors. You cannot determine the real potential of a program to generate income without understanding the concepts and principles upon which the industry is founded. Your understanding of these fundamental principles will affect the criteria by which you select a program and judge its potential. These factors determine which features will affect actual compensation. Also, your marketing philosophy will affect your marketing strategy as well as influence your stamina, which is vital to long-term success.
A pillar to success in network marketing is the geometric growth factor. Understanding the principles that relate to geometric growth will assist you in selecting a viable program and structuring your organization for long-term success. Because of the geometric growth factor, it is important to attract a combination of the right types of networkers into your organization and place them correctly. This principle is called tier structuring. I will expound on this principle later in this synopsis. One of these tiers consists of the end product users. There must be individuals who are primarily interested in using the product, who are not interested in earning income through the product. Without tier structuring, your program or organization is destined to fail in spite of how brilliant you may be.
In order to understand this principle explicitly, consider the following example: If you follow the geometric growth of a 500,000 member organization, you will find that approximately 390,000 of these total distributors will be on the bottom level (see illustration A). In traditionally structured programs, it requires at least 10-15 individuals purchasing product (equal to the qualifying dollar amount) in order for one distributor to break even on their personal qualifying purchase and get into profit. In the highest paying programs it will still require at least 4-6 purchasers. With either of these extreme approaches, there will always be from 75-90% of all distributors not breaking even on personal qualifying purchases or earning a profit. It is vital to your success to understand this principle. Failure to address this issue has been a major reason that a number of leaders in the industry have not been able to maintain a consistent degree of success. They are always in a rebuilding mode.
The difference between the number of distributors earning a profit in the best paying program and the worst paying program is only about 15-20%. At best, only 25% of your distributors will be earning a profit or breaking even on their qualifying product purchases. What are the other 75% going to do? If they are networkers involved to make a profit, they will drop out. You cannot escape this ratio. This dynamic is a foundational principle built into the very concept of network marketing. There has to be end users who are not earning an income. The program that you are involved with has to be able to attract non-income earners. In illustration A, in order for the 390,000 distributors to break even or earn a profit, they will have to find from 1½ million to 4 million new purchasers. Can you imagine what the requirements for the next level will be? A program will begin to unwind from the bottom up when they reach this theoretical threshold illustrated above. Actually, this principle affects the unwinding process very early in the building process. If you never understand anything else, it is vital to your success that you comprehend this principle. In order for one person to break even or make a profit, there must be 4-6 people who do not! Write this down on paper. Work through the figure over and over again, until you capture a vision of what I am sharing with you. This factor must be considered when selecting a program.
The unwinding process can begin before an organization reaches this size. Small organizations of only a few hundred or a few thousand can experience the unwinding process as they build. There are many factors that affect the growth and stability of an organization. These forces are affecting the growth process from the beginning stages. Only when a majority of these factors work in unison, can an organization experience solid growth that will last. Many times what creates explosive growth initially will be the very factor that creates excessive attrition later. Certain strategies attract certain types of individuals. The type of individuals your program attracts will, in part, determine the long-term attrition and retention rates. It is not a matter of "good" or "bad" people. It is a matter of certain "mindsets" that respond to certain factors in a program. The features that stand out in a program or that you primarily promote will attract networkers who value those particular features. Each distributor's paradigm toward network marketing is shaped by their personal experiences, skill level, work habits, expectations, personality traits, and their perspectives that have been influenced by the information they have been exposed to. This paradigm will affect their performance and determine their value to your success. In emphasizing the wrong features, or selecting a program that has misplaced priorities, you may attract an imbalance of a particular type of networker who will predispose your organization to failure or a high attrition rate.