17 December 2008

Why You MUST Understand Compensation Plans

Taken on it's own (that is, separate from how it is presented and the motivations of the presenter) the compensation of a company is crucial to understand and necessary to your decision making process about joining that company. Yes, people are making money with every different plan under the sun. And people are also failing miserably with the same.

The difference between the efficacy of compensation plans to fairly compensate distributors at every level of the plan cannot be summed up in simple terms such as, "How many people does in take to make $10K per month?" That's a great question to ask, but the answer depends on how many are active, how many are purchasing the minimum AS, how many are purchasing more, how many have dropped out. By all means, use that question as one part of your research, but go further.

The best compensation plans are those that focus on retention. It is far better to recruit 100 people and have 65-75 of them still be with you 1-2 years later, than it is to have to recruit 250 to have 65-75 still with you after that same amount of time. The industry standard it 65%-75% attrition. The reason for this is that many compensation plans are not designed to reward the average person looking to break even on their auto ship and make a few hundred to a thousand or so extra dollars per month, part time. So you need to seriously look for a compensation plan that makes it easy to cover your monthly costs and makes it easy for your down line to cover their monthly costs. With that alone, you create retention. People are using a product they love, for free. Add to that the ability to make some extra income and you are there.

Then there are the people who are more serious about the business. Their goal may be $2k per month up to $5K. Understand what it will take in your plan for them to achieve that goal. Those people and the first group will make up the majority of your organization. You'd do well to have a comp plan that supports them and creates retention. The very serious business builders who are looking for $10k per month and more will be a minority in your organization.These are the full-timers, the people who embrace network marketing as their career. These people have the drive and focus to do well in most compensation, as long as they can motivate and retain their down-line..which leads us back to the majority--those who are looking for a reasonable part time income. Remember, retention is what allow long-term residual income to happen.

So...understanding a compensation plan is crucial. Knowing how many active enrollees let you break even on your auto ship is crucial. Knowing what it takes to reach the upper levels of the plan is crucial. Don't take anyone's word for it. Get out your calculator and run the numbers yourself. If that scares you, it good to start now and get used to doing it.

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