THE HYPE
* Finally…
* Just Launched…
* Massive Spillover…
* Hurry, This Minute…
* An Incredible System…
* For the First Time Ever…
* $xx,000.00… (Dollar Sign & Comma)
If you always do what you always did,
you will always get what you always got.
Enough said?
WHERE DO I WANT TO GO?
Before even considering joining any business opportunity, you need to know why you are doing so.
At a minimum, either the product or service should have a stand alone value and benefit to you.
Secondly, you should enroll with the full intent of promoting the opportunity and referring others. If not, become a retail customer and leave it at that.
There’s more to your due dilligence, you want stability, support from the company and your upline, a reasonable chance to succeed and most of all, you want to be paid.
To often, we are influenced by the flashy websites, the hype, the sizzle, the noise, the dollar signs with commas in the numbers, the fear of loss at not getting in RIGHT NOW.
If you are following a big recruiter from opp to opp, launch to launch, with credit card in hand, looking for perfect timing in the perfect company and a payday next Tuesday, it’s NOT going to happen.
Not for you, not for anyone. You might as well stick your arm in a woodchipper.
If you have learned lessons over and over with your wallet, you aren’t alone by any means.
COMPENSATION
Dollars and Sense
Dollars and Sense
Understanding compensation plans is critical not to your success, but to your CHANCE at success, in any business.
By not knowing how we will be compensated, we get into opportunities that quite frankly, we have no business joining, given our individual limits on time and resources and our inclination and ability to refer others.
In any business, there is a cost of the product or service and there is a price in the marketplace. Without going too deep, there are the fixed costs or overhead of the business, the actual cost per item and incrementally decreasing costs as volume increases. There is also the recovery of a company’s expense / investment in the initial rollout or launch.
A company sets a price based on averaging those costs against a hopefully increasing volume of sales and an acceptable margin of profit.
As network marketers, we earn on the elimination of the company’s marketing and distribution costs, getting the product directly to the consumer without the marketing & advertising and without each middleman taking a piece of the action.
Compensation may include several components: fast start or referral bonus, referral residual, base pay, group volume bonus, global pools, and depending on the product or service, a retail option. The distribution of moneys among these areas will determine where the leverage points are and who they favor.
A company promoting a total payout of 75% does not mean that you can individually earn up to 75% of you and your group’s total volume or production.
It only shows what the company might pay in a perfect world, and lacking a guaranteed payout percentage from the company (ie: distribution of breakage), the true amount will always be less. The percentage that associates can individually earn will usually be FAR less.
You may disagree with much of this, but that’s all it is, my own opinion.
THE BUY IN
In most companies, it’s common to have a sign up or enrollment fee. Pushing aside distributor kits, the incremental cost of one more replicated website and back office is negligible, as is any admin expense associated with it.
Usually, included in the buy in is the Fast Start or Referral Bonus paid to you for referring a new member. It’s important to understand what percentage of the enrollment fee is actually paid back out, as well as in dollar terms how much money the company has made by a new member joining. You can look at the company’s piece as their recovery of start up expenses.
What is the magnitude of the enrollment fee against the monthly cost or auto-ship? A large dollar buy in is a red flag to me, as is the company earning a significant dollar amount on the spread. For me, this signals a company realizing retention may be a problem from the get go and grabbing a quick dollar up front.
The Fast Start itself should tell you something. We are looking to be compensated for bringing new associates to an opportunity. But if I have brought someone to a healthy, stable and growing company, I will earn residually in the months ahead as that associate sees the same opportunity and duplicates my efforts.
Beware of big money referral bonuses for the very same reason, does it simply allow the big hitter to cash in up front on dragging a herd to this week’s “next big thing?”
In cases where there is a buy in, the base compensation should begin with the 1st month purchase or membership.
Where there is no buy in cost, but there is a fast start bonus paid, the base compensation will normally not begin until the 2nd month purchase. In this instance, if a new member enrolls January 2nd and falls into my downline genealogy, their volume in the base compensation begins with their 2nd month renewal, February 2nd. If the company pays commissions on the 10th of the month, it can be 70 days, or 10 weeks before I have earnings from the new member. Also note whether the percentage paid out on the fast start is less than the total comp in subsequent months.
Does your monthly auto-ship include a marketing system of any kind (splash / capture pages, responder, contact manager) or do you pay a separate fee for this?
BALANCE
A company decides they can payout $6 on a $10 product. That $6 must be spread through any base compensation, referral residual, volume bonus and any type of global or builder pools.
There can be 5 slices, 10 slices or 15, but it is still a $6 pie. How the company decides to allocate that $6 will show you the true leverage points in the pay plan.
Look at 2 areas, how the total payout is divided among the comp components (base, referral residual, volume bonus, global pools) AND within the base comp (upper, middle, lower tiers).
Ideally, the spread will give associates the chance to get into profit with a reasonable effort and at the same time reward those who are aggressively working the business.
This is a hard balance to achieve, and is dependent on the type of comp plan. First, look at how that $6 is allocated between the base compensation, referral or volume bonus volume and any global pools that may be in the plan. In any company, the vast majority of associates will sponsor very few new members.
If the base compensation does not allow this population to approach profitability in a reasonable period of time, growth and retention will be limited. The higher the percentage going to referral or global pools, the more the pay plan rewards those who sponsor big numbers. It is not that these people are rewarded, most companies’ growth is driven by the few, but that the mix of income streams unfairly favors them.
Within the base compensation, putting money on upper tiers, levels or generations affects income very little, putting money on lower levels magnifies earnings but is out of the reach of most associates for a considerable length of time.
PAYOUTS
How are commissions paid, at what cost and at what frequency?
Many companies will give you an option, while convenience and timing are considerations, you want your commissions paid without being eaten up by fees.
Checks by mail give you a “hold it in your hand” paper trail. This has a cost in time, printing and postage to the company and most pass along a per check fee to you. Other than the few days in getting to your mailbox, many find security in this.
Direct transfers to a bank account, if offered, cuts the fees a little and the receipt time by a couple days. You do want to have a detail commission statement available to you.
Debit card payouts are becoming popular, either through a specific provider or a company branded debit card. I’ve found this to be the most costly as fees go. You will pay an activation fee when you get the debit card. Most will charge a monthly maintenance fee if any balance is carried, often up to $4 or more. A load fee when you are paid, a transaction fee when you withdraw funds, along with an ATM transaction fee are common. During a given month, if you are paid once, make one withdrawal and leave a small balance on the card, the fees you pay to access your own money may easily exceed $10. Check to see if your company’s debit card has a bank transfer option (and the fee for it) so that you can draw down to $0 and avoid the monthly maintenance fee.
Online payment processors are the most popular, have a quicker access time, lower fees and ease of use. Online processors eliminate the international pay barriers, reduce currency exchange penalties, have minimal transactional fees and give you options in using your funds. Generally, you may use the processors debit card, have a checking or savings transfer option and use your balance in other online transactions. Many companies also have the convenience of auto-subscription set with a processor.
AlertPay, when available, is always my processor of choice. If you are unfamiliar with AlertPay, it is similar to PayPal but is MLM friendly. Account sign up is free, incoming funds are deposited as cash available, you may register 2 credit or debit cards. The fee for a transfer to checking or savings is just $.50. There are other options as well.
How long does the company hold your money? Do they have a set payout date for commissions and do they have a history of meeting payroll on that date?
This is an Illegal Pyramid Scheme
This is an Illegal Pyramid Scheme
QUALIFYING
What do I need to do in order to qualify for commissions? There are more compensation hybrids than Carter has liver pills. If I can’t grasp the basic compensation and qualifying in a few minutes, how can I expect to be able to explain it to a prospect?
Generally, you will need to sponsor at least 2 in a binary plan, at least 1 in a uni-level.
Matrix plans may require you to sponsor increasing numbers in order to “reach” down to qualify on lower levels. But many matrix programs will allow you to earn to some depth without qualifying, some require no sponsoring at all.
There are a couple ways to look at this. Matrix programs giving a “free ride” to some depth, will let you earn while you get some traction yourself -as long as SOMEONE in your line is working. Some feel this encourages people to sign up and sit, with little incentive to recruit. You can look at this as making it easier to sponsor people who may not be strong recruiters themselves. But it can also make it easier for these people themselves to sponsor others who are new to networking, have limited time, or just haven’t developed recruiting skills or a network of contacts.
You will be required to maintain an active membership or make a qualifying product purchase. Know whether you have to increase your monthly purchase as your group grows in order to remain qualified for maximum earnings.
UNI-LEVEL
This is the traditional compensation plan going back to the early years of network marketing and probably the easiest to understand in its pure form if you are new to network marketing.
It’s as simple as this, your business goes nowhere until you sponsor a new distributor.
Your direct referrals are your 1st generation downline. As you sponsor more associates, your business grows horizontally or across.
The people that your personals recruit are your 2nd generation, your business is growing vertically.
The people they recruit are your 3rd generation, further depth or vertical growth.
Affiliate programs typically will pay you 2, possibly 3 generations.
Network marketing companies with uni-level comp plans, may pay 3, 4 or many generations deep.
The leveraging of your earnings can be exponential through deeper generations.
Would I rather sponsor 25 people who do little or nothing and soon drop out or find and work with few who will do the very same?
BINARY
With any type of compensation plan, there will be people who are successful. There will be more people who are not.
Much of this depends my own focus, commitment and work ethic.
Much of it as well is the in the selling of hype, sizzle and urgency of action.
I have strong feelings about any type of binary plan, and there are hybrids galore.
If you are looking for anything positive about any type of binary, you won’t find it here. When looking at any opportunity, all I need to see is the word Binary. End of story, no exceptions.
There are 50 – 50 plans, 1/3 – 2/3, weak leg payouts, no flushing volume and more.
The selling point: You only have to build 1 leg. Your upline(s) will build your “power leg.” As they continue to recruit, those below you on your strong leg contribute as well. Half your business is built for you. This volume is banked, never flushing.
All you need to do is sponsor 1 on your left leg and 1 on your right leg. Then build out your inside leg, and be paid on both legs as you reach qualifying volume or rank.
Even if I can build my own inside leg, that becomes the power leg for everyone I sponsor, except the 1 which was placed on my strong leg.
The growth of my inside leg is this: Each person I sponsor and 1 person they each sponsor.
Each of my own personals now has to build their own inside leg with no help from me or anyone else upline from me. For everyone I sponsor who is able to do this, there will be 9 who cannot.
Like branches growing from the trunk of a tree, each succeeding junction is smaller and weaker.
The non-flushing volume in your strong leg -it is vapor, Monopoly money. Binary plans favor those at the top and throw an obscene amount of breakage back to the company.
Any opportunity with a holding tank or preferred placement option will further discriminate against your own group. By placing anyone I refer within someone’s inside leg, I have put them at a disadvantage from the get go. Upline from you, anyone new who can likely build will demand to be placed on their sponsor’s power leg.
My own experience is this, in the last binary I worked, I was able to maintain balance in both legs and keep the bankable volume to a minimum. In 9 months time, with a downline of several hundred people, less than 15% of them ever received a check. I don’t mean 15% were in profit, I mean 15% received a check of any kind. I was not earning income from the opportunity, I was earning income off the backs of people who perceived there was an opportunity.
MATRIX
The dirtiest word in promoting an opportunity is spillover and the notion that you will earn an income from it. Honestly, given the chance, would you stay on unemployment all your life?
Spillover creates spillover. Activity breeds activity. Participation nurtures participation.
If your decision is based on earning exclusively from other people’s efforts, why are you here at all? Grab a lunch pail and go back to a job.
For people who are new to this industry, have a limited following, little time and want to make a go at network marketing, matrix plans may well be the best opportunity for you initially.
How wide? How deep?
In their simplest form, matrices are 2 wide, 3 wide, 4 wide or more. Their depth can vary from a few levels to many, some even 10, 15 or 20 levels deep.
A matrix can be viewed as a box or container, and your downline organization resides inside its borders. As I enter an opportunity, looking downward from my own position are 2 spots direcly below me, or 3 or 4, depending on the matrix width. This is my 1st level, these are the first positions I will fill with my referrals.
Each of these people are looking at the same picture themselves, and their 1st level spots are my own 2nd level. This repeats progressively downward for everyone.
A new member will be placed into the 1st open postion in the uppermost level, following the line of sponsorship. An open spot on my own 2nd level can be filled by me, or by the person on my 1st level directly above that spot. The spot can also be filled by my own direct upline, their upline, and so on. So for any open position in a matrix, that spot can be filled by anyone in the single, direct line above that spot.
It should always fill the 1st open spot in the sponsoring member’s matrix. This is how, in a matrix program, you can benefit from not only your efforts, but from those directly above and below you. Beware again of holding tanks and preferred placement, if this option is present it is NOT a forced matrix.
It is important to understand the numeric progression of each level, depending on the matrix width, as well as the splitting of the pie, depending on the payout depth. The leveraging points for your potential income change drastically depending on the mix.
The downward growth of the matrix is simply a multiple of its width at each successive level.
A 2 wide matrix, beginning at your 1st level has 2, then 4, 8, 16, 32, 64 spots. Your 7th level would have 128, the total being 254.
A 3 wide matrix has 3 on your 1st level, then 9, 27, 81, 243, 729 and 2,187 on your 7th level, a total of 3,279.
Notice the difference in potential earning spots with the small change in width, 254 people and 3,279.
The total payout and its distribution on each level being the same results in a massive difference in what you might earn.
The advantage of the 2 wide is that activity is force downward sooner, the ugly spill effect is greater and it will take on average just 2 referrals per member to sustain growth in depth. But your income potential is very limited.
With a 3 wide matrix, it does require each member on average to sponsor 3 people to sustain vertical growth, but the potential for long term income is almost exponentially greater.
Downward growth is greatly inhibited in any matrix which is 4 or 5 wide. The progression puts an increasingly large number of spots on each level. Typically, these matrices do not pay as deep, so there is a higher payout on each level. But…
A 4 wide matrix has 16,384 on the 7th level and a total of 21,844 spots. Have you ever built even 10% of that number? I haven’t.
A 5 wide matrix has 78,125 on the 7th level and a total of 97,655 spots.
Even at the 4th level, the width is at 256 and 625 people. While this may make for tremendous dollar figures on a website, it is just not a realistic or sustainable venture. To have continued downward growth and retention requires an AVERAGE of 4 and 5 referrals per associate. That will just not happen. Even if I can sponsor dozens, there is no significant help I give beyond my own 2nd level. It does not matter how many big recruiters are stacked at the top of a 4 or 5 wide matrix, at some point in the vertical progression, growth will ALWAYS stop.
Rollup, once it starts IS a communicable disease.
Cutting the pie…
The distribution, or cutting of the pie is key. We may look at our genealogy from our own point downward, but understand the income potential is based on the rate of pay times number of people it applies to.
It does not matter (breakage & qualifying aside) to the company which level pays what, it is the total amount paid out on each spot. In a 2 x 7 or a 3 x 7, if there is $6 in the comp plan, then a total of $6 is paid on each spot and 7 people upline will have earnings from that spot.
Recognize the payout distribution, is it spread evenly (7 levels, $6 payout or 86 cents per spot) with no numeric leverage? (A new member on your 5th or 6th level having the same income value as a member on your 1st or 2nd.)
Or, is there a staggered payout, (for example, 25 cents on 1 and 2, $2 on 3 and 7, & 50 cents on 4, 5 and 6) and leveraged income on levels with a greater number of associates?
Your 1st level has either 2 or 3 people. It is a throw away, it doesn’t matter if you are paid 10 cents, a dollar or three dollars per spot. It is the difference between 20 or 30 cents and $6 or $9 in earnings.
A bump on the 2nd, 3rd or 4th level will bring the break even point closer, simply because the payout will apply to more spots in your downline.
A larger payout on the lower levels, 5, 6 or 7 will have huge influence on your earnings, WHEN you get there.
When the highest dollar payout is at the lowest level of the matrix, it only inflates the flashy “income” numbers on the website and jacks up fixed breakage.
For most people, at least in the short term, pay attention to levels 3 to 5 and the potential to earn in that range.
PROGRESSIVE CYCLERS, BOARDS, ONE TIME BUY INS
An illusion.
Often in a 1 time buy in, spillover and “follow me” is the typical sizzle. The dollar amount doesn’t matter, the spill doesn’t happen. The income doesn’t quite come about.
The easiest to look at is a 2 x 2. Two on your 1st level, four on your 2nd. Just 6 people and you cycle to the next matrix or board.
The next one may be another 2 x 2, maybe a 2 x3 or 2 x 4. It doesn’t matter.
Getting through the 1st one. It doesn’t matter if your direct upline sponsors 100 people. The maximum spill to you is exactly 2 people, your own frontline. You will never get spill from anyone other than your direct upline (not necessarily your own sponsor.) If you have sponsored those 2 positions yourself, your spill potential is ZERO. Your 2nd level can only be filled by you or your 2 frontline. Chances are better than even that they will do nothing.
Your reward for cycling? A free entry into the next matrix or even better… a free entry into the next matrix, which is another program you have no interest in either.
Your referrals always follow you? And what if you haven’t referred anyone? Even if you have, what if they haven’t yet sponsored? You will sit for weeks or months in the 2nd matrix.
You must realize the progressive difficulty in filling a 2nd, 3rd, 4th board or matrix. People don’t just follow you to the next, they have to have progressed though each of these themselves.
The width, the depth, the cost, the progression, the payout will not alter the outcome. These are a half step from a Ponzi. The exception, is the needle in the haystack.
A one time buy in of $15, $20, $30… for this to generate any significant income thru dozens of upline associates is like splitting the atom.
There were several progressive board opps during last summer and fall, tens of thousands jumped in for a one time $150, $200, $250 and a payoff of $10,000 or $15,000 or more.
Think back to being approached on these. It was always “My upline’s sponsor made $10K in 2 weeks,” never “I made $10K…”
How’s that stalled board working out for you now?
One time buy ins generate no recurring revenue into the compensation plan. Every dollar is sourced back to the original registration and nowhere else.
THE KITCHEN SINK
One ups, two ups, stair steps, break aways… there are a number of other models. Most of these are rarely found, look at them in depth before you even think about entering. Not only to understand them yourself, but to be able to explain them to your prospect before the leaves turn brown.
There are also bonus situations you want to understand. A matching matrix or group volume bonus on referrals is pretty straightforward, just be aware of the percentage match. Coded bonuses and coded matches can have nice leverage, but know where the coding starts for you.
Straightline models have appeared during the last year, but can take a couple forms. Usually, these are uni-levels with a bonus on straightline volume at qualifying ranks. They are rarely “the straightline, everyone after you is in your downline sizzle” that is flashed on the website. The math just doesn’t work out.
RESIDUAL INCOME
Doing something right the first time and being paid over and over for it.
JOB: I work this week and get paid next Friday. I work next week and get paid the following Friday. I work the week after and get paid… It doesn’t matter if I am paid a lot or a little, I have to do it again every time I want a pay check.
As long as you get there...
As long as you get there...
Residual income comes from the demand for a consumable product, service or resource that has a perceived value and benefit which people will continue to purchase and use month after month.
It is the progressive growth, over time, of this demand which builds and sustains that residual income.
I work in January and get paid for January. I work in February and get paid for January and February. I work in March and get paid for January, February and March.
You cannot extrapolate 5 or 10 no’s into the whole world doesn’t like it.
No is not a negative in showing your opportunity. No is just part of the funneling process. No is, more often than not, a decision made without investigation. No is neutral. Your world hasn’t changed, you will still have dinner tonight and the sun will come up in the morning.
If you put good information in front of enough people, sooner or later it will fall on good people. It will ALWAYS happen.
Even time takes time.
RETENTION
A detailed explanation:
* “Some don’t stay.” -Jim Rohn
It’s no more complicated than that.
RETAIL
Traditionally, with product based opportunities, retail sales have been a large part of growth, revenues and earnings.
There can be drawbacks to retailing, shipping (weight and distance) adds a cost and barriers to entry (international, customs regs, etc). Local retailing can become quite labor intensive depending on how you approach it.
Retail customers who continue to consume and re-order a physical product over time and perceive a tangible benefit from its use can be a source of referrals to you. Many may become interested in the business itself at some point. Those who do may end up being your strongest distributors. Their interest was initially product driven and their income expectations are secondary and more realistic.
BREAKAGE
Breakage is potential money in the compensation plan that isn’t paid out and retained as a profit to the company.
Breakage is not paid out simply because no one qualified to earn it.
The amount and overall percentage will change over time. But the overall percentage payout promoted by a company’s comp plan holds true only in a perfect world, where all associates qualify down the genealogy line. The actual payout percentage is often far less.
With sponsoring qualifications, the potential incomes to associates HAD they sponsored is breakage.
Breakage in global pools based on company revenues will be greatest at the beginning. Initially, few if any, will qualify for global pools. Unless these are set up as cumulative pools, it is all breakage to the company.
Volume pools with stepped ranks, if they are based on your group volume, not company volume will always have some breakage, people simply haven’t reached the rank stipulations to be paid.
In binary plans, the “banked volume” in every associate’s strong leg is potential breakage, and at the least, an operating cushion. Most of this will never be paid out to associates. The dollar amounts of breakage in binary plans will almost always be increasing.
At the upper generations of a uni-level there will always be some breakage. The growth in uni-levels in unlimited horizontally, so this can continue. But uni-levels typically payout at a smaller depth, keeping somewhat of a cap to it. You will rarely see it reaching the magnitude of binary plans.
In a matrix, breakage in the base comp is capped and measurable at the top end of the company geno and extends only to the exact depth of the payout (A 2 x 5 matrix will have breakage only to the 5th level of the company geno, a 3 x 7 only to the 7th level).
Breakage is not a conspiracy, it will always be present to some degree. It is rare, but some companies do set breakage aside and put it into bonus pools or do guarantee a minimum percentage payout of revenues.
Just be aware of the payout mix and how it is likely to affect your own ability to earn.
THE SWITCH
Hearing that a company is “enhancing” their compensation is like listening to congress enact a tax cut. WATCH YOUR WALLET.
From time to time, a company might see their compensation mix doesn’t give the desired result (growth and profit).
No company has it right from day one. There are always issues, there are always problems. How a company recognizes them and responds is as important as the issue itself.
If I see an opportunity, a concept, a product that I believe in, if I see a responsive management, if I see the big picture in terms of time, I will give it a year or more to get legs. I am not always quick out of the gate myself, so I should be willing to give a company the same consideration. I study and pay attention to many aspects to reach that confidence.
But when it comes to compensation, never think a change is made with you in mind.
To make adjustments in the base pay mix is one thing. Even tweaking volume pools can be acceptable. It doesn’t matter how big or small the change, someone will always be unhappy.
The bottom line in compensation changes should address the small marketer and retention, not the big builder. When this is the case, the builder will benefit more in the long term because of it.
Look at a few areas:
* Is the base qualifying tougher?
* Is the base break even point now closer?
* Is the initial bonus qualifying now farther away?
* Did the company give itself a raise?
A small hit to your own earnings is not important in the long run. If you are actively working the business, the impact that you should be concerned with is the new associate and how it affects the people you would recruit.
In fact, if you have a group of any significant size, a change that increases your earnings is likely to be at the expense of your downline. And this WILL cost you in the long run.
We build our downlines based on the compensation model presented. Almost any change has a detrimental effect to that. Never sit still for even a hint of genealogy manipulation by a company.
Any radical change in the payout mix, a swap out from a matrix to a uni-level, or to a binary should be a red flag to you.
If a company has had 2, 3 or 4 compensation models over a couple of years, how far away can the next one be?
A company with a history of compensation swaps, of launch after launch after launch, of failed product rollouts, of holding more of your money for a longer time is showing you just 2 things, desperation and gimmicks.
You’re better than that.
