The “New Breed” compensation plans?
January 6th, 2010 | 
Author: 
In recent years we’ve seen more and more “hybrid” compensation plans appearing on the MLM scene… usually with the pitch that “we’ve taken the best of every plan and combined them all to create the highest-paying plan in the history of network marketing”, etc etc etc.
Then the imitators all jump on the bandwagon to try to capitalize on the “buzz”.
(In case you haven’t put 2 + 2 together to make 4 yet — not the 22 that the promoters typically claim — “buzz” is usually synonymous with “hype” and “spin”. It should trigger very loud warning bells any time you see or hear it used.)
Let me show you a different insight:
This was the same basic argument used by Dr Frankenstein when he created his so-called super-being. He took the best bits of different cadavers, then zapped the hybrid corpse with electricity to re-animate it, with disastrous results for everyone concerned. (It turned against its creator and killed him.)
Note that all the bits and pieces were taken from bodies that were already dead. That’s very relevant in MLM pay plans, too.
So why do these imitators choose the “hybrid” route?
As usual, they’re sellers, not marketers. They’re opportunists, not true entrepreneurs and innovators.
There’s often fierce competition between local auto dealers to donate new vehicles to local secondary schools for driving classes. The reason is simple: long research, over more than 50 years, has shown that a significant number of people buy the same model car that they learned to drive in.
If you visit MLM forums and just listen generally to people discussing MLM compensation plans, it’s interesting to note how people favor different types of MLM compensation plans. More often than not, if you ask them the right questions, you’ll quickly discover that they tend to prefer the same type of plan used by their first MLM program!
That is, until they find that it doesn’t work as well as they were led to believe. But whatever plan they prefer tends to be the one they feel most familiar and confortable with.
So… if you were an opportunist wanting to start a new MLM company, what kind of plan do you think might appeal to the widest number of people? One that they can ALL promote as “the best ever”?
Of course! One that grafts together the “best” bits of all those other plans!
NOT because it works any better. (Frankenstein’s monster didn’t work all that well, either, remember?)
It’s because it appeals to more people than specific types of compensation plans!
And since most people in MLM have little or no ability to analyze or evaluate compensation plans, it’s “safer” to give them what they’re used to, no matter what that may be!
The Bottom Line: Compensation plans are the single most reliable manifestation of any MLM company’s REAL motives and attitude toward its outsourced sales force — its distributors. If you want to know a company’s real intentions, look at its preferred compensation plan. The higher the breakage to the company it delivers, and the more spin that gullible people will swallow about it, the more the company’s owners love it.
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Tags: 20 Responses to “The “New Breed” compensation plans?”
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Hi John
Interesting — wondering if you have inside knowledge of the concerned company’s thought processes or making an intelligent assessment.
It’s interesting that you suggest people have a keen interest in their company’s compensation plan in depth. I had formed the impression that its a big turn off, so long as the application strategy is simple and the income is demonstrably there.
I guess I stopped presenting our compensation plan years ago (eyes — including mine — just glaze over) focusing instead on typical earnings.
Eric
PS – I was not suggesting that the compensation plan is not important, just that I’m not sure its a good selling point.
Hi Eric
I wasn’t referring to a specific company. More to the current trend in hybrid plans (they tend to be much the same in underlying strategy).
I agree: explaining most compensation plans is a HUGE turn-off, especially for people with little or no business experience. Too often the people doing the explaining found it a turn-off, too — and never did get to real grips with the fundamentals.
So yes… they focus instead on the POTENTIAL of the plan, not the REALITY of the ACTUAL payout, and accept as “typical” the incomes of a few high-flying leaders — the less-than-0.1% of distributors who are the EXCEPTIONS to the rule!
(And they wonder why the FTC stepped in with its usual ham-fisted Big Stick to try to put a stop to this kind of nonsense.)
What bemuses me is that this is all supposed to be a BUSINESS opportunity, not a BUYING opportunity — but that’s exactly what it usually is: people who haven’t a clue about running a business making an INVESTMENT decision on the same basis as they’d buy a new sound system or new clothes, then wonder why they fail to succeed at making a profit, or get skun alive by predatory companies and upline teams.
I always make sure I explain the compensation plan right up front: the notion that someone would invest in a business (albeit very low cost) WITHOUT wanting to know exactly how they’ll earn a profit or income (depending on the realities involved), or how much they’re likely to earn, simply makes no sense to me.
But apart from any sense of altruism and integrity, my real motivation is to sort the sheep from the goats. Anyone who shows boredom with these kinds of ESSENTIAL details demonstrates clearly that they’re sheep. And sheep end up being shorn! (Or, when they become desperate, they fall for the trap of trying to shear other sheep.)
Not in my team, thanks. One of the reasons I’ve had such a high sponsoring success rate is due to this approach. I disqualify up to 70% before I even present the plan. I want the cream of the crop in my downline, not the cream of the cr*p!
While the compensation plan may not be a good selling point for the vast majority of MLM opportunities, with the right plan it becomes the #1 selling point. Especially to experienced network marketers fed up with the majority of breakage-heavy plans.
Hi John
I accept what you say here with a but.
There are explanations and explanations – I don’t feel that listing the details of a plan in depth is a great idea for most people. Our plan runs to goodness knows how many pages – you can’t do it – give the plan to be studied if there is a demand for sure.
But the realistic potential – practical ways to structure etc are more appropriate. RE potential I (and the company) quote national averages and ranges for the various rankings (including representative team/business sizes) this together with the total percentage commissions paid – is probably a good way to address the situation. Certainly not just giving the earnings of the high flyers.
You suggest the need to understand the guts of the compensation plan – I suggest that this is only needed for certain personality types vis the
Analysts
I very much doubt there is this need or desire for the
Controllers
Supporters or
Promoters.
I guess horses for courses.
Eric
Hi John and Eric,
Don’t you think that the biggest problem is the fact that most people who join a team to build a mlm distributor’s business, don’t understand the Compensation plan of their MLM Company and the Policies and Procedures, (which are in essence our contract with the MLM Company).
If you don’t understand these important topics you don’t know if the compensation plan suits your personality or not.
And you can’t know what kind of behaviour this drives.
I don’t understand why when prospecting new recruits, people are not told that the Industry has his insights info/ basics (I prefer to call them secrets) one need to learn and know, to have a chance to succeed in Network Marketing.
When you are knowledgeable you can make your own decision base on evaluation you made yourself instead of depending solely on the opinion of the recruiter.
Wouldn’t that be better for every party involved including the Industry’s image?
To become a doctor, a lawyer or other professional you have to study for years and get your degrees to be able to earn the kind of income a Network Marketer is told they can make. Why not tell people that they need to invest their time and learn and become knowledgeable on the Industry?
Deana
Hi Deana
Good to hear from you. Can I suggest that when discussing “prospects” there is only so much information you can give them – only some of them will want to know about the nitty gritty of the compensation plan – their priorities will be elsewhere, there are other more important issues at stake, provided the compensation plan is half way decent – it is after all a package.
Certainly they can have the chance to learn the details and about the industry – over time – if they join you.
But at the start they are taking expert advice, not attempting to come up to speed to be able to evaluate all facets of the business you are offering. If fact expecting them to do so – is likely to deter most and is also likely to create delays if they think they have to learn all the stuff one acquires over the years. Its good to KISS
Having said that the expert is you (or your upline, who you repect) – they are accepting your “expert” evaluation of the business you are offering – as they say “they buy you first” which is the separation between Network Marketing and normal business.
This is a major responsibility – they are entrusting you with their future.
My thought – Eric
Hi Deana and Eric
I hear what you’re saying, Eric, but with that kind of approach you’ll always be pandering to the wrong people… employees, consumers and imitators.
They’re hard work. Like trying to push water uphill with a fork.
Network marketing is about being in BUSINESS. If it’s presented as anything less than that, then that’s what it will end up being. My own view is simple: if they’re not interested in finding out how much they can be paid and how they can achieve that — if they’re content to just TRUST the people approaching them — then they’ll become easy prey to unscrupulous operators and you only delay the inevitable by trying to turn them into entrepreneurs, marketers and innovators.
What I’m reading here are classic arguments put forward by companies who really don’t want their pay plans put under any kind of serious scrutiny or analysis. Instead, they push the products and the company and the super-stars in the field… anything to keep attention from being focused on the one thing that has very little to recommend it: a very mediocre or poor-paying compensation plan.
You’re right, of course, about buying the business on trust by “buying” the sponsor being the separation between MLM and normal business — but not, I suspect, in the way you intend.
John
Hi John
It has been commented that two things are on peoples mind when they are presented with a NW business
A. how much could I earn and
B. could I do it?
Respectfully I would suggest that while the compensation plan may revel much of the intentions etc of the company – it would take an “expert” to make that assessment – even then I doubt that it would readily estimate potential earnings – I suspect that some form of computer modeling would be required to convert the compensation plan into various income under various scenarios. The question is why bother is there are some real life statistics which show what is being achieved – maybe most companies are not prepared to publish?
Considering the compensation plan does nothing to answer the other question.
I quite intentionally suggested the difference between NM and traditional business – not because NW should not be practiced as a business – but because of the vastly different entry point costs and risk factors the knowledge state of people entering the sectors is generally quite different. AS Robert Kiyosaki – says when he recommends NM – he does so because of the training (on the job) NW provides – not because its an ideal business for the experienced.
Which returns to my point that people accept recommendations – and that carries a big responsibility – to offer only a viable business and to provide the training – which I would suggest is not how to understand the compensation plan but to build a business on it. One cannot do that with a mediocre compensation plan and no proven track record.
Eric
John Counsel says:
2010-01-0 at 16:05:23
Hi Eric,
The compensation plan constitutes the foundations of your business, such as it is. If they’re on rock, they stand a much better chance than if they’re built on sand or, too often, quicksand.
It doesn’t matter how good the plans look, or the credentials of the architect or builder, if the foundations are flawed or weak, the best built construction will still succumb when put under any kind of strain.
My contention is this: if you’re going to build a business, you’d better be very, very sure of the durability and solidity of the underlying foundations and the ground that they’re built on. Taking the word of an “expert” housing salesman is pretty darned high risk.
John
Hey Eric, I really understand what you’re saying and I do agree with you.
I know it; that’s the reality.
But the numbers as we know them in MLM are reality too. Wouldn’t it be great to help change these numbers?
I have to admit that I love my life, where learning new things regarding our Industry is concerned and learning new skills. I’m so grateful that I have the time available to invest in this learning and personal development, but I joined the Industry expecting to generate some income and residual income along the way too. That is what I still have not been able to do as I planned.
I’m also grateful to have a partner who supports me and believes in me. I don’t have the words to tell you what a blessing that is.
But I’ve learned so much the last few years and I feel that I’ve lost all the stress I had going on after I lost my job and I was trying to get an other job.
Now that I’ve learned to “let go” of that and I focus on learning to be an entrepreneur in this Industry, which I have chosen to be in, I sleep well and I do feel very happy and energized the whole day.(To be honest, also because of the great products I market as a distributor.) Now it’s time to generate some income.
My answer to you got too long. I’ve written much of my frustration, about this topic.
I feel my answer will be too long on John’s blog.
I decided I can make a blog post for my own blog about this topic I wanted to write you about.
I think we, who know more, (of what we need to know) than most distributors in MLM, we owe it to ourselves and to the Industry to change the numbers we know have to change. I do plan to do just that myself too.
Don’t you think that more than 0,1% of distributors ought to be able to become successful and reach the POTENTIAL most MLM plans offer?
I think this has to change. Period!
Deana
Hi John,
Sorry, I typed my answer in a document and pasted it here. Only to noticed then, that you too have posted a comment. I didn’t react on your comment, but I agree with you.
We have to target people ywho already believe in MLM and teach them what we all NEED TO KNOW to have a chance to succeed in this MLM business we suppose to be running.
If people want to know about the industry , we need to present the whole thing, not only the nice potential, if people don’t have a chance to reach that, because they lack the knowledge needed and the skills needed to succeed.
In Dutch we have a saying and it goes like this: “Only the sun comes up for nothing”.
We all know that there are work-, specific knowledge- and time investments and financial investments to start a business, why do people expect MLM BUSINESS to be different?
Deana
Hi John, Deana
What a fascinating topic. I was going to post something a little different – maybe a second post.
I have no difficulty in accepting the need for there to be a viable compensation plan in place – this is the engine which drives the financial side of your business – agreed. What I am questioning is the ability or even expectation that a novice to MLM could be expected to analyze and compare compensation plans, in any meaningful way. Maybe I’m just setting up a straw man here.
I may be miss representing my view by talking about “expert” assessment of a or all compensation plans – maybe I should have instead referred to independent third part analysts – or the like.
If I may suggest an analogy – if you go to buy a car – you could become a mechanic and be able to assess the technical specifications design details etc (if you are a mechanic – way to go) but it may be more practical to take advice- Wheels magazine – Auto Club mechanical inspection etc.
After all a car (or compensation plan) is the vehicle to get you from A to B. The important issues being that you have not bought a lemon and the car can get you where you want to go – but more importantly that you are trained and equipped to drive it. After all to most people a car (or computer) is just a black box – whichthey use to achieve the results they want.
Eric
OK
Now back to the post I was going to do -
I thought it appropriate to suggest a sense of proportion be applied. To post an interesting quote
“all generalizations are wrong” something interesting to parse
I would like to touch on two themes
1. not all people join MLM businesses with the same aim, particularly, they don’t all look for a full time career and 6 figure income. Some just want to cover the costs of their services/products or earn some pin money – just make their lives a bit easier – maybe you should cut them some slack.
2. the compensation plan is clearly not the only (or even the most important) feature of a prospective business. The quality and value of the service/product comes in as does the Company stability and viability, the additional bonuses(incentives) available, additional services provided by the company – also the support and training etc – there are a range of issues involved – but I suggest that few people sit down and check through a range of options logically. They do what mostly happens pick something they like then rationalize their decision later.
Just how I see it
Eric
Looking through Google for the term for the subconscious filtering the mind does when charged with “intention” I came across this though
Malcolm Gladwell, author of the bestselling _The Tipping Point_ explores the extraordinarily perceptive and deceptive power of the sub- conscious mind. Gladwell’s major claim is that decisions made very quickly can be every bit as good as a decision made cautiously and deliberately. What we are actually doing is what Gladwell calls ‘thin-slicing’. When we leap to a decision or have a hunch our unconscious is sifting through the situation in front of us looking for a pattern, throwing out the irrelevant information and zeroing in on what really matters. Our unconscious mind is so good at this that it often delivers a better answer than more deliberate and protracted ways of thinking. Much of this is utterly mysterious but some of the most astonishing and useful examples of thin-slicing can be learned.
Seemed to be along the lines I was suggesting that decisions (made impulsively) and later rationalized can be better (or as good as) ones resulting from careful analysis.
Never did find the term for when the mind starts to see items which are now a focus of interest (like seeing lots of red cars after just buying one.
You may wonder where I’m going but I will get back to it – for Dena.
Hi John,
A pastor friend of mine recently joined a network marketing company with binary compensation plan. He is among the first recruits. The company is in fact helping him while he hasn’t earned yet. He may actually earn some money. But at what cost?
The product is not really unique as similar products are being sold through distributors and drug stores.
I read some of your posts on binaries. I will ask him to read them too.
Thanks John.
Jose
Hi John,
I tried to explain to my friend who just joined a network marketing company with binary compensation plan that it is a borderline scam.
He doesn’t think so. He said, and I heard this line before a couple of times, “It’s just like buying a product and you have a business too”.
Sounds logical, isn’t it? Would like to hear what you say.
Thanks John.
Jose
Hi Jose
I’m not clear about whether you’re referring to MLM in general, his company in particular, or binary plans when you refer to “a borderline scam”.
That saying about “buying a product and having a business too” has been used by many MLM companies. It’s risky because of the mindset it tends to create — that all you do is consume the product and introduce others who only consume the product.
That is NOT a true BUSINESS model. It’s just another income stream and tax authorities in most countries will disallow any business tax deductions claimed for it.
In Australia, the Australian Tax Office has issued specific guidelines about what is and is not viewed as a business in network marketing. IN a nutshell, you have to reach a certain earnings threshold and have other specified aspects of a real business in place before you can claim business tax deductions and concessions.
(I presented a series of seminars on this and related topics in the 1990s which was attended by two “incognito” ATO officers. They approached me after the Sydney session, introduced themselves as the leaders of a special ATO task force on MLM, and confirmed that everything I had presented was accurate and reliable, even though many leaders were in denial and pooh-pooing what I’d said and written in my magazine column on the subject. The ATO guidelines were issued the following year.)
John
Hi John,
“I’m not clear about whether you’re referring to MLM in general, his company in particular, or binary plans when you refer to “a borderline scam”.”
You’ve just taught me a lesson in clear writing there LOL.
I think his company with binary compensation is a “borderline scam”. (By the way, he appeals to emotions by saying how kind the owners are. He met with one of the owners for more than one hour.)
Thanks for sharing your insights on the line “buying a product and having a business too”.
You said – “It’s risky because of the mindset it tends to create — that all you do is consume the product and introduce others who only consume the product.”
Am sorry for my friend. He has been doing network marketing for at least four years now and it seems there hasn’t been a shift of mindset from consumer to entrepreneur yet. And that’s the way he attracts other wishful thinkers.
Jose
very interesting discussion. can you discribed breakage in a compensation plan?
include some examples would help too.
thanks
Hi Xyooj,
If you go to http://realnetworkmarketing.com/?p=57 you’ll find a detailed article on breakage and why it’s the #1 threat to your MLM income prospects.
You’ll find other articles on compensation plans under the “Free Reports & Articles” tab at the top of the page.
John