Compensation Plans 101

A Compensation Plan is essentially your template for how much you have to work in order to receive the money you want. Not all plans will provide the same benefits, so if you have the option, it pays to shop around for one that will suit you. While it is important that you find a compensation plan that suits you, it is never the only factor when comparing network marketing companies. If you need more ideas or advice, don’t hesitate to contact me.

Traditional Compensation Plans

Salary / Wages

The most common form of compensation plan, is where you promise to do a specific task, and in return, you are remunerated with an agreed-upon amount of money. The agreement is, moreover, based on you personally performing the task (or tasks). There is a possibility of increased remuneration once you reach a certain level of experience, or once your performance exceeds expectations. However, in most cases, this increase is not automatic but will rather have to be negotiated, if and when you become eligible for such an increase. The main points to note about this type of plan, are:

• From the outset, you know what tasks need to be performed, and how much money you will be earning.
• Your expenses will be limited to travelling and tools, and in most cases these will be paid for by your employer.
• To be paid your salary or wage, there is no prerequisite that you purchase the products (or services) that your company produces.
• If you want more money, you will either have to renegotiate your agreement, or find a different employer.
• If you stop working, for any reason, you stop getting paid.

Network Marketing Plans

The network marketing industry is based on a different concept.You will get paid to some extent for the work that you personally do, but you will also get paid for work that other members of your group (or structure) do. As part of joining a network marketing company (or a Multi-Level Marketing company) it is understood that you agree to market (or advertise) the company opportunity. Your ability to market, and subsequently to build your group (or structure) will largely determine how well you get paid. Some general properties of a network marketing compensation plan are:

• There is no promise of any real remuneration at all – there is only potential income.
• There are two aspects to each plan – compensation from recruiting, and compensation from selling.
  • If you are not overly comfortable recruiting people, then you don’t want a compensation plan that is heavily focused on recruitment.
  • Likewise, if selling isn’t what you are good at, then you don’t want a compensation plan which is too focused on selling.
  • Note that if the compensation plan is all about recruiting and there are no real products, then you want to stay away, because plans like this are illegal, in every sense of the word.
• There may be a prerequisite for you to sell a certain number of products per month, if you want to get paid.
• If you want to earn more money, you can in most cases achieve this by working harder, and finding more people to join you.
• Some compensation plans are set up so even if you stop working, you keep receiving residual income.

Since there are as many different network marketing compensation plans as there are network marketing companies, the following table only includes the main plans. However, almost every network marketing compensation plan in existence today, is a derivation of one or more of the following plans.

Network Marketing Plan Types

Every compensation plan has advantages and disadvantages. More importantly, not all compensation plans will suit all people. Before joining a network marketing company, make sure you have a good look at their compensation plan. Make sure you understand what is required (and what your expenses will be) to start making money. A good rule of thumb is as follows:

1. Work out how much money you would like per month.
2. Multiply the average cost of auto-ship (the monthly product volume you are required to purchase to be able to partake of the compensation plan benefits) by the average percentage you will get for each distributor in your group.
3. Divide the answer from (1) by the answer from (2). This gives you the number of people you will need in your structure to make the money you want each month.

The compensation plan, as I mentioned earlier, is only one part of the puzzle in choosing the right network marketing company. For more information on compensation plans, and on the other parts of the “being successful in network marketing” puzzle, click here, or contact me.