A well-designed compensation plan is vital for a direct selling company’s success. There is no doubt about it. The direct selling industry (at least in general) has learned this lesson so far. It has been proven so many times that it is impossible to sustain a successful direct sales business without a well-functioning compensation plan.
To many, a compensation plan seems like a complicated series of calculations. Here, most of the blame should go to some of the “plan designers” who advocate “the more complicated the better”. However, the basic principles for having a good, solid compensation plan are quite simple:
Not a Starting Point
When setting up a direct selling business, “the plan” should never be the starting point. I have seen over and over again where an entrepreneur develops a plan then, looks for the products to sell, and tries to build the whole business around that plan. It should never be forgotten that a compensation plan is just a tool (albeit a very important one) to move the products to end users.
Part of the Overall Strategy
A compensation plan is a strategic element of a direct sales business. Being such, it has to be in harmony with all the other elements. The target market, product portfolio, intended characteristics of the field force, chosen tone of communication, to name a few… All these have to be considered together with the plan.
Rewarding All Key Behaviors
A direct sales company expects various behaviors from its sales force. Some well-known examples are: Consultant acquisition, personal selling, organizing online and offline sales parties, training, coaching… The compensation plan has to make sure each desired behavior is rewarded in full accordance with its importance. It is just as crucial not to reward any unwanted direct seller behaviors.
Easy to Understand – Easy to Explain
Sale force is motivated, directed and incentivized by the compensation plan. There is no proven direct correlation between the complexity of a plan and the earning potential it provides. So, there is no point in having an unnecessarily complex plan that only discourages newcomers. In this sense, the best plan is the one that a newcomer easily sees oneself excelling at.
Unlimited Opportunity for the Direct Seller
Restricting the earnings potential can easily be accomplished by limiting the “depth” of the plan. This will though, mean the compensation plan will not be able to attract strong field leaders from outside or to create them within. Unless the idea is to have a sales force consisting mainly of part-timers and of those who are not that ambitious, it is not advisable to do this.
Limited Expense for the Company
By looking at a public direct sales company’s income statement, one can quickly see how a significant expense item is sale commissions. While providing unlimited income opportunities to an individual direct seller, there should always be a cap on this expenditure as a percentage of company revenues. Believe me, it is not that difficult to achieve these two simultaneously.
Compliance
Last but not least, a compensation plan has to comply with the regulations, period! Numerous brilliant business ideas and successful launches have shortly become history, simply because this aspect is deliberately or unintentionally ignored. It is true that there may be some differences in this from country to country, but universally accepted principles are pretty straightforward.
These are the most important features as far as I am concerned. Do you want to add any others?
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Hakki Ozmorali is the Founder of WDS Consultancy, a management consulting and online publishing firm in Canada, specialized in providing services to direct selling firms. WDS Consultancy is a Supplier Member of the Canada DSA. It is the publisher of The World of Direct Selling, global industry’s leading weekly online publication since 2010. Hakki is an experienced professional with a strong background in direct sales. His work experiences in direct selling include Country and Regional Manager roles at various multinationals. You can contact Hakki here.
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Simon Bradley says
I would add that for a company to be global, the compensation plan should be both compliant in all regions, and consistent. I have seen some plans where different regions earned different amounts based on local rules. This makes it harder to build a global business.
Hakki Ozmorali says
So true, Simon! I appreciate your input.