In accordance with modern MLM laws, 70% of all sales need to be to customers. Customers are specifically described as people who do not benefit in any way from membership to the sales network. In order to motivate your members to make sales to customers, you will need to reward them. This is where retail commission (retail and volume bonuses) comes in. These bonuses usually promise 30% but average out to 25% across all sales.
Why retail commission is important
The downline commission is geared to pay the leadership. For the downline commission to be meaningful, the team needs to be significant. For argument's sake, we will say that a team of 25 members will generate a reasonable downline commission. It will, therefore, stand to reason that only 1 in 25 people will earn a decent commission. This is not sustainable as 24 of the 25 people will be disillusioned due to a lack of income. Retail commission gives every member the ability to make sales and generate income even if they have no team at all. For this reason, retail profit should be the first calculation you make and the first rule that is mentioned in your business presentation.
The retail bonus is traditionally provided in the form of a discount. Let’s say a product is listed on the site with a retail value of $100. When the member purchases the product, the system should detect that they are part of the sales network and give them a discount. For the purposes of simplicity, we will make the discount 15%. This means the member will purchase the product for $85 and sell it on to the customer at $100. In this way, they will realise a $15 profit.
In some cases, the member will be required to purchase the product at the full retail price. This is a little more complex as tax comes into the picture. Using the above example, the member purchases the product for $100, the system then calculates 15% commission minus tax. If tax is 10%, the system will calculate retail commission of $15 – 10% tax = $13.50. As you can see, this makes a significant difference to the member's actual profit.
The volume bonus is designed to reward the members who are doing above average sales. It is divided into breakpoints and as the member's sales increase during the month, so too does their total retail profit. Typically, the breakpoints are done in 1% increments between 1% and 15%. To decide how to create the breakpoints, answer the question: what would you consider exceptional but achievable sales volume for a single member? For the purpose of this example, I am going to make $1500 per month in sales that number. You can now work backwards:
$1400 - $1499: 14%
$1300 - £1399: 13%
$1200 - $1299: 12%
… you get the idea.
At the end of each month, the total sales per member are added together and the relevant volume bonus is then used to calculate the volume bonus.
It goes without saying that if the breakpoints are not achievable then your network will not try to achieve them. We will discuss the sales pitch in a future post, but it also bears noting that your members must have the belief and the skill necessary to make a sale to a customer and that is achieved through training.