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 WAHM > Direct Sales Articles  > Understanding the Compensation Plan

Understanding the Compensation Plan

When choosing a direct sales company, one benefit you may be comparing across companies is sales commission and bonuses.

It's not always a simply matter of comparing percentages. Sarah Eiden explains the basics of the different types of compensation plans.

Network Marketing: Understanding the Compensation Plan
by Sarah Eiden

The range of network marketing and direct sales business options is huge. From candles, beef jerky, vitamins, healthy juices, & beauty; there is something for most every interest.

When choosing a network marketing company, often the focus is on ‘what is your passion’? your interest?

I propose there is yet another thing to consider in choosing a home based business. You must know and understand, the company’s compensation plan. All network marketing companies are not built the same.

There are a few ‘key formulas’ that network marketing companies use for developing their residual income plan. The summary below simply shows a ‘baseline’ of that type of plan. The variations even within these plans is what makes each company model unique.

- Stairstep Plan. In this option, there is some sort of a stairstep model. The distributor goes up the stairs per say as she reaches new levels of sales&/or team building status. Each level may have a different commission structure and there may be different group or individual sales requirements. Companies vary in terms of the percentage and bonus’ earned at each level.

- Matrix Plan. This type of plan involves the openness to build a network of distributors at varying levels. Typically a distributor adds people to their first line, then the first line adds people to their line. This creates a 2nd line for the first distributor. An open matrix plan does not limit the number of people in each line. The number a lines and the commission earned for each member below a distributor varies with each company.

Here is an example of a simple matrix plan.

- Forced Matrix Plan. This typically involves some sort of limit on the number of people in a group. When this happens, new distributors are put into the downline structure underneath another distributor who did not initially sponsor them.

This can build teamwork or it may promote some lax business practices, while ‘others do the work’.

This type of plan rewards the long term network marketer, but at the same time, there is a continuous building process needed to replace people in the first line who may not be productive or who have quit.

- Binary plan. This plan focus’ on a distributor with only two legs in her organization. Commissions are paid when one of the two legs meets a certain sales volume. Depending on the company, sometimes a distributor is paid on the ‘weakest’ leg. There can be other variables and twists as well, so if you are getting involved in a binary plan, be sure to ask for a clear explanation and ask what the group sales level requirements are.

When you are considering a network marketing company, be sure to understand their residual income compensation plan. Some can get quite complicated with the requirements. Be sure to ask what the requirements for each level are.

-Do you understand it?
-Is it simple?
-Can you explain it to others?

Take Caution:
1) If you don’t understand it, how are you going to know what you should be earning.
2) If you can’t explain it, how are you going to train the members of your downline team.
3) If it is not simple, be forewarned, it may deter people from joining your organization.

Build your network marketing business from the start by having a strong understanding of the foundation for your company’s payment plan.

Another tip: Be sure to join a company that allows you to retail your products. Some companies are more of a buyers club, like Sam’s Club or Costco, only with a monthly commitment to purchase. Others do not allow others to purchase your products without becoming a member themselves. To make the most money, you will want to be able to sell your products, not just the business opportunity.

Happy Networking!

Sarah Eiden is a wife, mom, and candle business owner. As a Scent-sations Mia Bella Team Leader she is showing people across North America how to build their own successful soy veg candle business.

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