Most compensation plans are a hybrid of different compensation structures and elements. Now that we have looked at some of the compensation elements and compensation plans in the previous posts, let's build a plan together.
When it comes to a compensation plan, each one is different and each one is heavily dependent on the following:
1. Product type
2. Option for recurring billing
3. Available profit margin
4. Desired activity
5. Competitive environment
For the sake of simplicity and clarity, I will make a few assumptions in this example compensation plan:
The Product
We are selling an imaginary physical product called Supajuice. It is an amazing product that makes you feel and look 10 years younger. The manufactured cost is $1. We are wholesaling it for $6 and the retail price is $7. I know this is a costly drink but you will feel the results within 24 hours of drinking your first Supajuice and all our imaginary surveys have shown $7 to be the retail sweet spot.
Retail Sales
We require the network to focus predominantly on sales to customers. Although a customer will be able to purchase a single bottle of Supajuice, we will incentivize bulk purchase with an auto-ship option. The customer will be encouraged to purchase a minimum monthly order of 1 case of Supajuice containing 24 x 500ml bottles. The invoice for this order will be generated automatically each month and the money collected via debit order or automatic credit card transaction. Once payment has been confirmed, the order will be shipped directly to the customer delivery address. The normal retail price would be $168 but we will sell a case for $150 providing an $18 incentive for the auto-ship option.
Commission to Drive Sales
To incentivize the salespeople, we will implement two commissions - retail commission and volume bonus. You can click here to see the detail pertaining to these commissions.
Retail
We will pay 15% in retail commission. This will be delivered in one of two ways. If an agent purchases the product personally, they will receive a 15% discount. They will, therefore, pay $127.50 for a case and can either sell individual bottles to their customers at $7 per bottle, thereby earning $1.69 per bottle ($40 for all 24 bottles), or they can sell the case, earning $22.50 per case. The second retail option is that the agent gets the customer to purchase directly from the site. The retail profit will be calculated by the e-commerce system and paid to the agent at the end of each month. Typically, this would be how the auto-ship works.
Volume Bonus
We will pay an additional 15% in volume bonus. As the agent’s monthly sales volume increases, their volume bonus will increase. In this example, we will add 1% for every $450 in monthly sales. In other words, 3 auto ship customers will result in a 1% volume bonus; 18 auto ship customers will generate a 6% volume bonus; and 45 customers will generate a 15% volume bonus.
Any agent with 45 auto ship customers will be earning a 15% retail commission and a 15% volume bonus. The resulting commission will be just over $2000 per month.
Commission to Identify and Maintain Leadership
In order to identify leadership, we will establish some desired outcomes.
An agent:
1. must purchase a starter pack for $200
2. must pay a monthly admin fee of $10
3. must be capable of recruiting, training and motivating sales agents
4. must be able to teach their personal recruits to recruit, train and motivate their own sales agents
5. must be able to maintain sales volumes over time
The easiest way to achieve the above outcomes is through the structure. I have an entire post dedicated to structure and you can click here to review it. Each new structure will be identified by rank and the ranks will be Bronze, Silver, Gold, and Platinum.
For a sales agent to be considered as active they are required to achieve a personal sales volume of $450 per month. They will automatically be considered as inactive in any month in which they do not achieve $450.
So, here goes:
1. To be a Bronze Team Leader (BTL) an agent would be required to recruit, train and maintain 2 active sales agents - the key word here is active
2. If one of the two agents becomes inactive, the BTL would be demoted to an agent
3. To get promoted to Silver Team Leader (STL) a BTL would be required to train and maintain 2 BTLs
4. To move up to Gold Team Leader (GTL) an STL would be required to train and maintain 2 STLs
5. To move up to Platinum Team Leader (PTL) a GTL would be required to train and maintain 2 GTLs
Due to the fact that each of the above agents is required to be active, the total minimum group sales volume for a Platinum Team Leader would be $6750.
As you can see, a Platinum Team Leader has proven that they are capable of recruiting and maintaining a substantial active team. In the real world, you would have many more ranks and rank qualifications, but they would all be based on similar structures.
Now we can reward the team leaders with progressively larger commissions as their team grows and their rank increases. In this plan, I will use a level based commission and leadership bonuses. You can click on the links to see how these are calculated.
Level Based Commission
We will open a new level for each rank. Agents will receive no level based commission. Bronze will receive level 1 commission, Silver will receive level 1 and 2 commission, Gold will receive level 1,2 and 3 commission and Platinum will receive level 1, 2, 3 and 4 commissions. We will allocate 20% to this commission and divide it over the levels equally. The result is that we will pay 5% on each level.
Leadership Bonus
We will allocate 20% to the leadership bonus. The bonus will be calculated on the level based income earned by their personally recruited agents.
The leadership bonus will be allocated as follows - Bronze will receive 25%, Silver will receive 50%, Gold will receive 75% and Platinum will receive 100%. We will allocate 20% to this commission and divide it over the levels equally.
Fast Start Bonus
We know from analyzing our data that most new recruits are won or lost in the first 6 weeks. It is therefore critical to provide a fast start bonus to get them up and running within this 6-week period.
If a recruit completes their training and passes their online test with more than 80% within 2 weeks, they will receive a $100fast start bonus. If they achieve sales of $450 or greater within their first 4 weeks, they will receive a $200 fast start bonus. If they recruit their first new member within 6 weeks, they will receive a $300 fast start bonus. This means they can earn $600 in fast start bonuses within the first 6 weeks of joining the business.
There it is – a compensation plan that will drive the correct behaviors and keep your team motivated to both sell and recruit. You can download a sample compensation plan here.