So, You Wish to Limit the Payout Generations?

When Avon listed the reasons that had caused its withdrawal from the U.S. Direct Selling Association, it stressed the facts that Avon had;

1) Limited earnings to three generations,

2) Not promised commissions on infinite sales.

Avon’s aim in doing so was to differentiate itself from all other direct selling companies that pay commissions to infinite depth. This was an attempt to imply they were all pyramid schemes in essence, but Avon was not.

I will not further comment on this. To me, claiming that payouts to infinite depths leads to illegitimate practices does not make much sense. I will rather focus on this topic from a business point of view: Whether it is more beneficial to pay commissions up to a certain depth or to infinity.

We see some of the entrepreneurs, especially if they have not had any experience in direct selling, choose to limit depth. The idea behind this is to be able to place a cap on the company’s bonus payout, thinking that the expenditures would go out of control otherwise.

This approach does not take into three very important facts, though:

1) Limiting the depth of generations puts a cap not only on the company’s total bonus payout, but also on the direct sellers’ earnings. And this second one is really dangerous!

2) There are very efficiently working tools at hand, that can control company’s total bonus payout. And they do work very well!

3) Limiting depth means the compensation plan will not be able to attract and then, to create strong field leaders from within. Companies need such leaders to be able to delegate field management, and grow. When there is noone on the field to delegate this task, inevitably the company will have to fill this gap by its own staff (i.e. via regional managers, area managers etc.).

So, I wouldn’t put a limit on payout generations. Would you?

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