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Compressed Pay Plans After reading most of my site you may be thinking; "This guy Totally Hates MLM." Well, that isn't "totally" true. I don't know if I was in it too long than to ever be fully objective but I still believe in MLM. Or maybe I should be more specific; I still believe that if done correctly MLM can be an effective way to market a product that can provide a fair opportunity for the part time associate to build a few hundred dollar a month income and the full time associate with "a real paycheck" and the occasional superstar with "gangster money". One of the fatal flaws with the MLM business model is that there is no consideration given to market penetration or size of the "sales" force. Most often MLM is a thinly veiled "Pyramid Scheme" with an over priced product that would sit in the warehouse without a massive organization of consumer/distributors. The faulty business model get perpetuated primarily through the lure of big money. The "Lure" is the traditional compensation plan with it's $50k a month pay out potentials. The potential really is there in MLM to make these kinds of huge checks. At least in teh short term. A friend mine in Southern CA built four different MLM opportunities up to the $20K+ per month bonus check level. Four separate times he built a monster check in 120 days or less. Four different times he lost it all as the companies bit the dust. However, most people in MLM are not like me, nor are they like my friend who was a sponsoring machine. Most people in MLM are part time or what I would call "hobby MLMers". Traditional compensation plans screw the part time distributor. They do this by placing the bulk of the available commissions well out of their reach. A part time distributor has almost no chance of ever making it. When confronted on the unfairness of placing 80% of the available commissions in leadership bonuses the Master Dream Weavers will say that it is necessary to attract the high powered MLM Pros, that with out these high profile leaders the company could not survive in the marketplace. Bullshit. The old "conventional wisdom" of burying most of the available commissions deep in the pay plan actually doesn't work for the heavy hitter either. Hell, it doesn't even work for most companies. Remember in half a century of MLM a company only has a 1 in 300 chance of lasting 5 years and grossing over $10 million in yearly sales! Again the MLM emperor has no clothes, the only way it works is if you are in the business of starting MLM after MLM and getting all of the sign up checks from the ever hopeful part time MLMers. So, the traditional MLM compensation plans; Don't Work for the part timer (most of whom never make $100 a year at MLM), Don't Work for the heavy hitter (who can build big check after big check only to watch company after company fold), and they Don't Work for the companies that actually want to sell their products and stay in business (because of the flaw of having more sales people in an area than a given product, no matter how good it is, can support). Is there any hope? I believe so. Enter The Compressed Pay Plan. In short, a compressed pay plan does two things:
Lets consider what paying 80% of the available commissions out on the first few levels can mean for our Part Time Distributor, Our Heavy Hitter, and by no means least, Our Company: For The Part Time MLM... Over 90% of the people in MLM are Part Time so for over 90% of the MLMers out there a compressed pay plan means that they (not some distant Dream Weaver) will be reaping most of the benefit for building a modest sales organization that is moving a few thousand dollars of products a month. Even the consumer/distributor, or the hobby MLMer benefits from this. Statistics show that if a distributor is making at least 20% back in commissions on what they are spending on products that they really love, THEY WILL NEVER LEAVE. Even if they never see a positive cash flow in their business, these "hobby MLMers" are quite happy with their hobby check. In some compressed pay plans the hobby MLMer can see a check of 20-50% with just a few hundred dollars of group volume and the part time MLMer can see a $500+/mo check with only a few thousand dollars of group volume. All other considerations aside, the compressed pay plan can potentially deliver results for the part time distributor that far surpass any traditional MLM compensation plan that buries the bulk of the pay out deep in the plan in leadership bonuses. For The Heavy Hitter... Well, most of the Heavy Hitters I know can't stand these plans. That may actually be one of the greatest benefits of these plans ;) They complain that they are loosing "the stupid masses" to these plans and that they can't get them back. Translation; end of the Dream Weaver's free lunch. Besides being petty, I believe this line of thinking is very shortsighted. While it is true that there is only a fraction of the leadership money available in compressed pay plans as there is in traditional MLM pay plans there is a factor that more than makes up for it. This factor is "Retention" Retention is a term used in MLM to keep track of the number of people who are still active in an organization after a year, two years, three years, etc. Retention rates tend to run from 10-15% for most companies. This means that if you spent your time and your treasure to build an organization of 100 people, you could reasonable expect to have 10 -15 people still involved in one way or another after a years time. For those of you who have never built a large organization, this one factor is very costly. Other factors effect retention like the price/quality or the products equation. The higher the quality of the products and the lower the price, yep you guessed it, the higher the retention. But even with awesome products that "everybody needs" you will rarely go above a 20% retention rate. The reason for this is simple. Most people who get involved in MLM are not buying the products for the sake of the products, they are buying tnto a dream that a Dream Weaver has spun for them. They get all excited about their "opportunity of a life time" and in 6 to 9 months they have such a negative cash flow from their MLM business that they just throw up their hands in disgust and disappear back into the woodwork or they join the next "opportunity of a life time". Either way they are not in your income stream anymore. The best I have ever done in traditional MLM is a 24.9% retention rate after 4 years and then it started to go down and is at about 17% now. Retention in compressed pay plans is stellar by comparison. I have seen companies with just over 70% retention rates!! Higher retention rates will always profit over higher yield on lower rates. Every MLMer I know quotes from "think and Grow Rich" by Napoleon Hill. Hill wrote that Dale Carnegie once said "I would rather have 1% of the efforts of 100 men than 100% of the efforts of one man". Well do the math! For example lets say I am at the top of my MLM pay plan. I get most of my money from leadership bonuses (traditional MLM comp plans again pay 80% of available compensations to top earners). I have a group of 10,000 and for simplicity lets assume I make $10 per active distributor in leadership pay. After one year I will have an active organization of 1,000 (figuring a 10% retention rate) so I will make $10K a month. Not bad. Now, same numbers in a compressed plan that only pays 20% in leadership. I would only be making $2.50 on each active distributor (80% divided by 20%=25%). But wait, I now have a 50+% retention rate. So, that makes 5,000 active distributors after a year @ $2.50 each = $12.5K a month. If I had a 60 or 70% retention rate it would even be better. I am sure that I don't need to map out the math to demonstrate how it is cheaper to build a group when 50%= of the people stick around. The Heavy Hitter can make plenty of money in a compressed pay plan AND they don't have to screw the Part Timer to do it. For Our Company... Well this should be obvious. Retention rates also affect the company, but of even more importance is having the majority of people who get involved in your product/opportunity/company happy rather than feeling taken advantage of at teh end of the year. The 90% of the distributor who are penalized under traditional MLM comp plans are at the very least potential satisfied customers for a company with a compressed pay plan. And Guess What??? If the company keeps customers happy & keeps making a profit, they keep sending out commission checks to the Part Time Distributors and the Heavy Hitters.
On the Point of Market Saturation... I predict that the compressed pay plan will help here too. With the Dream of Easy Money shifted to the reality of having to operate a sales/service organization most people will opt out of the perceived "work" aspect of the equation. Most people don't want to sell. Compressed plans put the bulk of the money up front in the selling trenches where most people don't want to be. The thing doesn't work if people just join. With a few other safe guards like; No sign Up bonuses, Free Preferred Customer status (wholesale buying privileges) and lowered prices to more legitimately compete with other distribution channels, I believe MLM can be transformed.
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