How To Evaluate Payplans?

Many discussions on compensation plans revolve around subjective comparisons of binary plans and unilevel plans etc. where everyone pulls out their plan and argues that their plan is the biggest... sorry, best plan. They did that with their previous business, and they will probably continue to do that with their future businesses.

Let me share my personal subjective thoughts on compensation plans by giving you some questions to ask yourself when you decide to take a closer look at your compensation plan.

What does a person have to do in order to cover their monthly costs?
The one-off joining costs and one-off upgrade costs are not a problem. Once they are paid they are behind us. But the recurring monthly costs to retain an active staus in the program, they require closer attention.
When partners can cover their monthly costs, they will stay in the program. But for many, not succeeding in covering monthly costs will mean that they either step out of a program or switch to inactive by reducing their monthly costs to zero.

What does a person have to do in order to earn 300 euro per month?
300 euro (about $450) can make a huge difference for many families. And for me here lies the heart and soul of what network marketing should be all about. Not about earning huge amounts of money, but providing the average family with that little bit extra. Not about turning our backs on traditional business organisations as if they have no value, and someone with an employee mentality is a loser. What kind of nonsense is that? Life is yin and yang, where one side owes its existence to the existence of the other. Where would this world be if everyone was a network marketer... God forbid?! Where would we be as network marketers if there were no companies with research and development departments and production facilities to actually develop and produce the products that we sell... sorry, invite customers to take a look at? And where would our customers be if they didn't have a job?

How does the compensation plan balance the interests of the company, the small guy, the middle guy and the top guy?
Some plans are stacked up in favour of the company. They may state that 50% of the profit goes to the partners, but in reality maybe only 25% is earned by the partners, because some of the income elements are not claimed or qualified for.
Some plans are also stacked in favour of the top partners or the partners that get in early, as is the case with e.g. ALL binary systems. If you are in a binary system, ask yourself what you have to do to earn 300 euro per month.

How does the plan contribute to team gel?
Some plans include matching bonusses, where you as a sponsor or upline member are encouraged to support your active downline members by placing new members in their network.
Other plans introduce infinity bonuses, which once again encourage top earners to continue supporting their network in depth.
In a binary plan these downward placements are enforced, and others can be made voluntarily, as they have zero consequences for the upline member doing the placement, other than increasing their matching bonus earnings and the earnings of their network members.
And there are some outdated plans where in order to promote yourself you are encouraged/forced to start building a second, and a third or more business units. These plans basically tell you that if you want to earn more, you have to abandon your current business unit and start building a new one. There is nothing really wrong here, other than the fact that your earlier business units feel abandoned.

How does the plan encourage each person to get off their backside?
And in the answer to this question lies an important secret behind the long term success of a network organisation... the ability to "build to last", the ability to initiate and continue developing an enduring network.
I personally have an issue with matching bonuses, infinity bonuses, binary legs, spillover and placements of any kind.

For the hard working and entrepreneurial partner they are probably of little significance, but for the 97% that are not successful at network marketing they play an instrumental role from the very beginning. They create the expectation in the back of the partner's mind that somewhere along the way one can sit back and relax and leave it to the upline or downline to do the work. This is an unfortunate seed, because once it is sown it leads to the development of bad habits from the very beginning. At those critical decision moments that come along each day, it can mean the difference between contacting those 5 people on your list, or turning to the computer and logging in to see if you have received any spillover today or whether your downline members are duplicating whatever it is that they are supposed to be duplicating. And before you know it the day has passed, and tomorrow is a fresh day in which to re-enforce these bad habits that start small and finally overhelm the unfortunate business partner.

So give me a compensation plan that encourages the 97% to adopt and develop good habits from the start, rather than the seductive plans that focus on the big bucks and the top earners and the company and paint pictures of huge spillover and residual income.
Even if you state that the huge spillover and incomes should only be expected 3-5 years down the road, the mind has a habit (good or bad?) of focussing on that expectation and placing it into the present. This works fine for the 3% who are inspired and driven to roll up their sleeves and get on with the work at hand, step by step. But for the 97% it leads to day dreaming and counting the pennies we do not yet possess.

How simple and easy to understand is the payplan?
I have to ask this question, because I am good with numbers and still have difficulty fully understanding most payplans. Why do companies insist on developing payplans that require a lengthy online training or two before the partner can understand it?
So give me a simple but honest payplan that can be sketched out on a small piece of paper anyday.

For example, if commissions were 5%, 5%, 15%, 10%,10%, 10%, 15% per level over 7 levels then I could directly see how the company pays out up to 70% in commissions. I say "up to" because whenever dead or inactive positions appear in the network, proportionally less money goes to the partners and more goes to the company. And when the company rectifies this by applying the compensation to the first 7 "active" levels then I know that they are paying out 70% and not stuffing their pockets as a result of inactive positions.

And if I earned over 3 levels with 0 personally sponsored, and over 4 levels with 2 personally sponsored, over 5 levels with 3, over 6 levels with 4 and over 7 levels with 5, then I would know that I would be fully qualified for commissions over 7 levels with only 5 personally sponsored partners.

Keep things simple and transparent!
The back of the envelope payplan offers the kind of clear cut simplicity that I like, where everything is above board and there are no "catches" lingering in the shadows. And fortunately such programs exist, and one such program is launching on the first day of the new year, January 1st 2009. A European initiative. In fact a Dutch/Belgian initiative where for once the Dutch language will feature as one of four main languages alongside English, French and German, and the launch will take place in the UK, Belgium and the Netherlands. Germany will follow in Q2 2009. You will find more info on the "Our Nexx Bizz" page, which will go up some time over the next couple of days.

And believe it or not, no more credit cards! All payments in and out will be handled through SEPA. This means that everything can be done through our regular bank accounts. So bye bye to credit cards and debit cards and extortionate transaction fees. This is going to be a welcome first for all my Dutch and Belgian partners. Add to that the Dutch language on all website, documentation and product packaging from the start, together with full product registration in each country before launching in that country, especially Germany, then you know that we are building to last. Any company that succeeds with its product registrations in Germany has proven its viability to the rest of Europe. Many give the impression that they have succeeded, and suffer the consequences of frozen activities and assets shortly after. No wonder that all the American companies will deliver to us in Europe with the clause "for personal use only" because their products are unregistered. They are skating on thin ice and so are we as distributors, because if anyone is held liable, it will be the distributor!

Anyway this has started to wander away from payplans into another due dilligence area when evaluating companies and their businesses. Bye for now.

Iñaki Legorburu