I've Found something on net that I Think I have to Share With You.
This article is the answer to my question : " what drives me to join a network marketing company most ?
here is the brief answer and I feel more than Just enlightened........
One of the most important aspects to consider in a company is its compensation plan
— the set of rules that dictates how distributors earn commissions, overrides,
bonuses, and other compensation.
A Little History
After decades of classic door to door direct selling by the Fuller
Brush Man, multilevel sales plans rose to popularity in the 1950s and 1960s (Amway, Mary
Kay, and Shaklee), which allowed distributors to earn money not only on their own direct
sales, but also to earn override commissions on the sales of the salespeople they
recruited, the sales of the salespeople recruited by their recruits, and so on down the
line. In the early programs — before the advance of computer technology — it was
difficult for a company to manage all the downline information and payouts. So they
usually allowed only "direct distributors" to buy directly from the company.
These people would then sell products to the distributors in their downlines, collecting
payment from them, and paying them their commissions, bonuses, and overrides.
Today, thanks to affordable, powerful computers, as well as efficient
delivery systems such as UPS and Federal Express, there is no longer a need for direct
distributors to act as go-betweens. The new companies and most of the older
ones now allow all distributors to purchase directly from the company.
Go for the Goals
When choosing a company to join, the most important factor is not the
type of compensation plan, but whether that plan is achieving important goals for
distributors. Alfred White, senior management consultant at San Diego-based Hamilton
LaRonde & Associates, Inc. recommends evaluating each company you are considering
against the following characteristics of a good compensation plan:
- Is it easy to enter into the opportunity? You should only have to buy a modestly priced
sales kit.
- Are you rewarded primarily for direct sales, rather than for override commissions?
- Are you rewarded for personally sponsoring others?
- Are you rewarded for recruiting multiple levels?
- Is the focus on selling products to the end consumer, rather than to your downline?
- Are you rewarded for training and supporting your downline?
- Are you rewarded for high personal volume?
- Are you rewarded for high group volume?
- Are you rewarded for maintaining a monthly volume?
- Does the plan provide for recognition?
- Does the plan offer nonmonetary rewards and incentives, such as trips or cars?
- Is the plan's monthly maintenance requirement reasonable - not so high that you can
never achieve it, and thus never receive compensation?
Conversely, here are some compensation plan characteristics that should
send you running in the opposite direction:
- A plan that does nothing to discourage deadweight distributors and nonproducers.
- A plan that encourages inventory loading or large investments in products.
- A plan that emphasizes gimmicks rather than product sales.
Four Major Types of Plans
There are many different varieties of compensation plans out there.
They often have exotic names. But they tend to be variations on four major types of
plans….
The Unilevel Plan
In this plan, recruits do not advance to positions above basic
distributors, regardless of their performance. According to White, the principal advantage
of the unilevel plan is that it’s easy for companies to administer and for
distributors to explain to potential recruits.
Its chief disadvantage is its lack of flexibility in achieving some of
the goals mentioned earlier. In addition, unilevel plans are limited in depth of levels of
payment which inhibits deep sales organizations. Instead, front line width occurs which
may cause sponsors to be "thin" in support. Over time, most companies that start
with unilevel plans adapt them to look more like a stairstep breakaway plan.
The Stairstep Breakaway Plan
This is the oldest and most common type of network marketing
compensation plan. After meeting certain performance criteria, a distributor advances in
rank and "breaks away" from his or her original sponsorship line. The original
sponsor receives a percentage override on the sales of the entire breakaway organization.
In a way, a stairstep breakaway plan is a unilevel plan with the flexibility to motivate
distributors to perform and advance.
Its chief advantage, says White, is that it has a good track record, is
easy to modify, is accepted by regulatory agencies, and is driven by volume and
performance.
The primary disadvantage of this plan is that it is sometimes so
complicated that it’s difficult to explain to new recruits. Another disadvantage is
that if the company does not monitor its distributors, they tend to get involved in
inventory loading. And sometimes, there is an unreasonably high ongoing monthly personal
purchase volume requirement.
Nevertheless, the stairstep breakaway plan remains the most
tried-and-true type of plan out there today — and the most likely to survive in the
decades to come.
The Matrix Plan
This plan looks like a grid in which a distributor is limited to a
certain number of recruits at each level. For example, in a 3-by-5 matrix, each level down
to five can have only three downline distributors.
This type of plan is sometimes considered to be more gimmicky than
others. Why? Because due to the width limitations, new recruits may find themselves placed
underneath upline distributors who did not directly recruit them. In a three-wide matrix,
for instance, the fourth distributor you personally sponsor would be placed under one of
the first three distributors you personally sponsored (your first-level distributors).
This automatic filling of spots in the matrix can be attractive to
novice distributors if they sign on with strong leaders who help fill their grids. Also,
it works well in companies where most of the products are used by the distributors, rather
than sold to outside consumers.
Matrix plans have been subjected to attacks by regulatory agencies
because they sometimes look like "a game." By and large, they have not had a
successful record in the industry, and they foster nonproducers, which makes the upline
distributors resentful. Nevertheless, several major companies operate matrix plans. Only
time will tell whether these plans are here to stay.
Binary Plan
The binary plan is the newest on the scene. In a binary plan, a
distributor is allowed to occupy one or more "business centers," each limited to
two downline legs. Compensation is paid on group volume of the downline legs rather than a
percentage of sales of multiple levels of distributors. In other words, payment is volume
driven rather than level driven. Sales volume must be balanced in the two legs to be
eligible for commissions, which are paid at designated points when target levels of group
sales are achieved. The distributor may occupy multiple positions and may re-enter or loop
below other two leg matrices in which he or she has been active. There is no depth limit
on payment but each matrix has a finite amount that can be paid out, thus necessitating
involvement in multiple two leg matrices. Payment in binaries is often on a weekly basis.
Proponents of binaries cite several advantages. First, they like the
weekly payout. Since it is a series of two leg matrices, it is simple to explain. Group
cooperation is promoted because payout is on group volume and requires balancing of volume
in each leg to be eligible for payout. Some call it more democratic because of the
limitation on payout in each matrix, the unlimited depth of payout, and the allowance of
looping or re-entry.
On the other hand, the binary is the most controversial of plans. The
binary had its unfortunate origins in the early 1990s in fraudulent gold coin programs,
and its use later for other questionable products did not help. Those subsequent products
were generally high-ticket one-time purchases such as consumer service or travel
memberships, travel certificates or overpriced prepaid phone cards. By the end of the
1990s, and after many legal challenges, the binary was not in great favor, and only
companies like USANA, that had applied the concept to consumables, seemed to be around.
Critics charged that the implementation of binary plans brought on
legal and business problems. Companies and distributors tended to promote the plan rather
than the product, creating accusations of a "money game." Often plans had a
one-time sale requirement which created a something-for-nothing atmosphere and appearance
of payment for headhunting recruitment. The multiple business center approach was often
presented as a "purchase of a business center," an "investment," or a
"front-load" of product. The ability to stack personal business centers also
created the possibility of front-loading. The required balancing of sales volume between
legs meant that hard work might yield no payoff and income would be forfeited, because
personal production did not count if balanced sales volume did not occur. Finally, the
multiple re-entry or looping created a "game-like" atmosphere in which an
individual could end up in the downline of someone he or she had sponsored. For the
distributor looking long term at a distributorship that might be sold, this
"looping" also made it virtually impossible to place a value on a
distributorship because no continuous downline genealogy could exist.
Last But Not Least
Here are some final yet important aspects of a compensation plan to
check out:
Overall Payout
How much of the sales dollar does the compensation plan pay out to its
distributors? Most plans pay between 35 and 45 percent of the company’s wholesale
purchase volume, and about 30 percent of suggested retail volume. Look for a plan that
divides the pie in your favor, without going overboard. A plan that is overly
"generous" to its distributors can run itself into financial ruin. And
that’s bad for everyone.
Orphan Commissions
When distributors fail to qualify to earn the commissions or bonuses on
their purchase volume in a given month (usually because they fall short of the minimum
purchase qualifying amount), the commissions they would otherwise have earned are called
"orphan" commissions. Avoid plans in which orphan commissions return to the
company. A plan should be structured in a way that orphan commissions "roll up"
to the next qualifying distributor that month, rather than return to the company. This
approach is also called "compression." Orphan commissions from terminated
distributors should be handled the same way.
Lock-In
Look for a plan that has the lock-in feature; that is, when you reach a
certain level, you "lock in" and cannot be demoted because of a temporary drop
in monthly performance.
Other Perks
The compensation plans of most companies offer at least some perks for
top performance above and beyond commissions and bonuses. These come in many forms:
company cars, health insurance, free training, lead and co-op advertising programs. A few
publicly traded companies even offer stock or stock options.
No matter what other advantages a plan might have, always ask this
pivotal question: "Does it emphasize getting products or services into the hands of
consumers; or does it emphasize making money by finding new recruits? If it falls into the
latter category, run away — fast. In the end, says White, it’s the product
— not the compensation plan — that drives success.
(thanks to Jeffrey A. Babener, the principal attorney in the
Portland, Oregon law firm of Babener & Associates, represents many of the leading
direct selling companies in the United States and abroad)
kindest regards
nyoman suadnyana
