Science Behind the Pay Plan - Page 5
In reviewing 40 years of network marketing history, we find that the majority of successful programs are focused on the products and service. Amway, Shaklee, NuSkin, and HerbaLife each have more than a million distributors and each have very poor pay plans, yet they maintain the greatest number of active distributors. More recent "success stories," such as New Vision, Mannatech, and Morinda, are product focused programs. Each of these three companies have exceeded all records for quick growth, enrolling more than one-half million distributors within three years from being founded. Cell Tech and Life Plus, which were around awhile before they "exploded," grew from 30,000 to 500,000 distributors in three years after finding a popular flagship product and an effective marketing strategy. Both of these companies are product and service focused. All of these programs have pay plans that are considered to be in the low to moderate-paying category. As you can see, the dynamics of growth are complex. The more you understand about these dynamics the better you can develop strategy and select the program that will best fulfill your goals. I am not promoting a poor pay plan, but I am using these examples to bring a sense of relativity to our perspectives.
A benefit to programs with pay plans in this category, is that they attract individuals who seem to have a broader perspective of network marketing and will stay in a program long enough to give it a chance to succeed. They generally do not have exaggerated expectations and know they have to learn how to work a program to be successful. This type of networker is more likely to include product users in their recruiting efforts and interact more with their downline, resulting in a more solid foundation. Even with poor pay plans, these nine programs have produced more incomes and higher incomes than the "sum total" of all the other hundreds of programs in the industry. Amway alone has produced 2200 millionaires. I agree that if they would have had more lucrative pay plans there would have been even more successful "grassroots" distributors but, from these examples we can learn principles that can effect our futures.
These principles must be taken into consideration when selecting a program. Pay plans do not attract the masses but are important once the individual is involved. First, you must be able to attract the right type of prospects to your opportunity and then be able to retain the distributors once they have joined your program. Pay plans are not the only factor that is involved in retention. The majority of companies in the industry represent two extremes in compensation philosophies. The traditionally structured programs place the majority of commissions outside the reach of the part-time distributor. The company and the more aggressive networker benefit most from this imbalance. The other extreme is the "hyper compressed" pay plans. Our company represents a middle ground between these two extremes.
Let's take a closer look at these compensation strategies and learn from them. The traditional 5-10% paid five or six levels deep created a situation where it required 10-20 distributors in each marketer's business to break even on qualifying purchases. Each new distributor that enrolled faced the same challenge. Therefore, as the organization grew, the problem intensified. The result was more attrition at the "grassroots" level. In spite of the flaws in the pay plans, these companies have produced a great amount of compensation. Because of certain other compensation factors outside of the pay plan, these programs survived and are viable in today's markets. The company retained enough product users and passive part-timers to support a number of successful serious networkers. These traditional companies have been able to survive and thrive because they were product and service focused and were built on a tier structure. The networkers with low skill levels, but with higher ambition, suffered in these programs. This is the segment that suffered more attrition. Programs with more balance are finding more distributors at the beginning levels earning more income.
A reaction to this imbalance is the compressed compensation pay plan. In a compressed pay plan, the company places a greater percentage of the commissions within reach of the majority of its members. Theoretically, this encourages a higher rate of retention. In order to understand the dynamics of these philosophies, I invite you to read my synopsis, "Cold Facts Exposed." Typically, the compressed pay plan will pay out, 30-50% (after adjustments for BV) within the first two levels. Traditional programs pay out a total of 10-20% within the first two levels. Additional pay up front allows the part-time marketer to earn more with fewer people in his downline. The inexperienced marketer will have more difficulty sponsoring other distributors and developing a customer base. The first level is the least important level because you should have fewer people on your first level than on your second and third levels. With the assistance of your first level distributors, you should have more marketers on your second level. Occasionally, inexperienced networkers will desire more immediate income on their first level, but this is not wise. Whenever you place more commissions on any particular level it must come from another level. It is best for the marketer to have the commissions placed on the levels that are most likely to have more members, but still within reach of the part-timer.
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