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In network marketing, people often look at compensation plans in a black and white way: that they can either be a good plan or a bad one. That’s why Nancy Tobler is here to discuss what compensation plans are and what they can really become. Joining Patrick Shaw, Nancy shares how to design an effective MLM comp plan despite the often confusing and overwhelming choices of MLM commissions. She shares the practical approaches and tools she used to achieve and maintain financial growth and distributor loyalty so that you can, too. This interview also touches on the power of relationships, strategies, Advocare, and more. Tune in now and start designing the best MLM comp plan for your clients.
Nancy Tobler: Designing MLM Comp Plans
I’m excited to be with Nancy Tobler. Nancy, we finally got on the show together. You’ve got quite a background working with companies on focusing on the commission side of things, which always perks everybody’s ears up. You’re from MLM-CC, which is Compensation Consulting. I know your brother. I’ve met him a few times. You guys are partners. It’s great to have you on.
Thank you. I’m happy to be here. We finally connected. There were a few misses but we’re back.
It does perk people’s ears up. I’m not sure that it’s as true as people believe it is but it seems like everybody in network marketing talks about the compensation plan, either good or bad. It doesn’t seem like there’s any middle ground. I’m not sure it is quite as black and white as they may get out to be but nonetheless, it certainly gets people’s attention. That’s what you build your career around. Is that right? Can you tell us a little bit about that and your experiences?
I started working with Mark Rawlins in 1999 and he would hire me to do projects with his company, which at that time was InfoTrax Systems and they do compensation engines and commission engines. They’ll write the comp plan, run your data through it and pay your checks. Since 1999, I have worked on some specific analytics projects, which I like. My favorite thing to do is look at numbers and see what they say. I’ve done other things. Mark owns MLM.com. I’ve been the editor for MLM.com. I’ve interviewed people like you’re interviewing me and written articles. I have 70 articles on MLM.com.
Do most of those articles focus on compensation?
I have done a wide range of things. I’ve looked at the industry. One of my favorites is top women leaders in the industry and we looked at some that we liked, love what they do and how they approach the business. I’ve done quite a few companies where I have looked at their data. We take their data. They don’t have to be InfoTrax clients to do this. They just put their data securely into a box folder and then we download that data onto a secure server.
What are the primary things that you are looking for in a well-balanced compensation plan? What do you most often see as off? Where are the struggles? Where are their gaps for most companies that you work with?
A good compensation plan should reward the behaviors you want. Lots of times, people can’t tell me what behaviors they think this particular bonus rewards. We can say, “Here’s whom it rewards, what rank they are and what they’ve done in terms of recruiting.” We can tell them that kind of thing. We say, “Is that whom you thought you were going to reward?” Sometimes, people are surprised by what their data tells them. I can also tell them how they compare to the industry. For example, 70% of distributors never sponsor anyone. That means that 70% you bring in are customers, should you be treating them as customers. The FTC is so big on that. Should you be doing that instead of treating them as distributors?
Another one that surprises people is I do an analysis where I look and see at what check level, how much money you have to make to stick around. What’s the sticking point? Cross companies always surprise me with how consistent it is but people need to make between $200 to $500. Once they do, 80% of those people will buy for the next 6 months. It’s not as much as companies think they got to have big checks. With big checks, those people never leave or rarely if they’re making good money. What about, how do you keep the mid-level people and how do you keep those that are just getting started? Those are some things that we can tell.
That $200 to $500, do you consider that mid-level or are you talking about mid-level being that $2,000 to $3,000 more?
Mid-level is more like $2,000 to $10,000. Those are your mid-level distributors that are on their way up usually or it could be on their way down. We can tell them that these people over the past three months have enrolled or haven’t enrolled so they’re up or they’re on their way down.
Are you seeing patterns? With so many changes in the network marketing industry, particularly around influencers and social media, we’re seeing a lot of jumping from one company to another and comp plans that are much shallower. Would you agree with that? How are you seeing the comp plans interest in designing comp plans differently? Are you seeing them adjust to that?
Affiliate, that’s the big word. Everybody says, “We want an affiliate comp plan.” Sometimes my definition and their definition of the affiliate are not the same. In general, I would say an affiliate comp plan pays down fewer levels and pays more to the person who makes the sale. You’ve got party plan companies where you make money by selling the product. That’s where people are going. You got to have customers and pay a good amount for those customers. We see lots of people who want a shallow comp plan. There’s always this nagging feeling that they got to have some big checks somehow or else how are they going to get people to stay?
In network marketing, it’s more likely a micro social influencer, where they have a couple of hundred people, not a million. If you had 1 million people in your following, then you could sell 10% to those people who buy and you’re making a good check. If people want social influencers and they want to recruit those social influencers, it’s not super clear to me how they’re finding and recruiting them.
I’ve got my opinions on all this. It’s super dangerous but I’m curious if you are seeing a pattern when you see these companies that develop a shallower comp plan. Structure and incentives drive behavior. It’s been said forever. Warren Buffett preaches it. It’s true in every business. Do you see repercussions from that where it’s causing instability so often that leaders and companies don’t like it? They don’t want to see people jumping all around so much. Are you seeing that as a pattern?
I have not looked at that. You’re probably right that if you’re going to get a big social influence or a macro-social influencer, they’re by their nature going to be involved in multiple companies. That’s just how they are. If they got 100,000 people in their down line, they’re not just selling for you. How do you deal with that? Some pretty big-name companies have gone to an affiliate. They’ve doubled their comp plan. They do an affiliate model and the regular model. Nature’s Sunshine did one a couple of years ago. It would be interesting to look and see how they’ve done with the affiliates.
There’s a market out there for people who don’t want to do MLM and tapping into that market is huge. It’s potentially very big. Those people who will do an affiliate would never have done a traditional MLM so you don’t have to worry. They’re not the same people. It’s not the same Venn diagram. It got two circles there that don’t touch. It’s an interesting phenomenon. It’s good for the industry to think about customers first. The Herbalife and Vemma case changed the space. You have to think about customers.
Those people who will do an affiliate would never have done a traditional MLM.
I like how Melaleuca approaches that. Everybody comes in as a customer. You have to recruit someone to move into a distributorship so that 70% of people who never sponsor stay customers because they’ve never recruited anyone so they can’t be a distributor. There are some things companies can do that will look better in the FTC’s eyes. It’s unclear to me exactly what the FTCs looking for. It’s a surprise.
Probably because they’re not super clear. That’s a great point you make, designing it so it protects you from that. If somebody has to recruit somebody to initiate their distributor position, you’re good.
I don’t know that you have to have 70% customers. Vemma had to have 51% customers. They tried to tell the FTC that these people who didn’t sponsor were customers, even though it said distributor and the FTC didn’t buy that. They said no. They have to be listed as customers. Companies need to think about how to reward people for bringing in customers.
I feel like the industry has always been, “Bring everybody in as a distributor.” Some of them will stick, throw everybody at the distributor wall and 30% are going to do something. We have to shift and say, “No, bring them in as customers and nurture them,” maybe a little more than people wanted to do. “See which ones blossom into distributors.”
Companies focusing on retail and leading with the product, I’ve seen a little bit of a pattern where more companies are thinking to themselves, from an enterprise perspective, that they can sell directly to the customer. They get into a slippery slope. Are they violating trust with the field of distributors? How do they sell direct to the customer? Do you see a pattern? Do you give them advice? What are your thoughts on that?
I’m thinking of a company out of St. George that said, “We could make a lot more money if we sold directly to this customer base.” They were out of business. I don’t know how long it was. Distributors in MLM provide a valuable source. They are your connection to the customer. You aren’t the connection to the customer, they are. If they badmouth you, you’ve got a big problem. If you stop paying them, are they going to very happily say, “Keep buying the product. We don’t care?” No.
Distributors in MLM provide a valuable source. They are your connection to the customer.
They’re going to say, “No. These people screwed us out. They’re not good to work with. Don’t buy from them. Buy from here,” which is someplace where they went after. You cannot remember the name of that company. It’s been interesting to watch AdvoCare. They went to one level and survived. I’m surprised. I was sure that the doors would close but they must have swooped in and taken care of customers because that’s where people make their money.
It could be that the field was so driven towards retail already and the numbers were dismal that making the shift didn’t hurt them that bad because the real builders who like depth momentum, all of that, were gone.
It could be. AdvoCare is a lesson in you don’t have to pay a lot of levels to keep. You can pay the people who are selling the product a little bit more and get more people to that $200 to $500.
Advocare is a lesson in you don’t have to pay a lot of levels to keep a business.
What did Avon specifically do that has caused them grief?
I don’t know. In some ways, they are a model of adaptation because they’ve survived forever. In some ways, they have figured out, “We have to adapt,” and they adapt and move on. I don’t know what they’ve done. What do you think they’ve done?
I heard a lot about them changing their structure. I wouldn’t know enough to even restate it with certainty, except that they changed the model. It was more of a direct sales model.
They did. Almost every company that was a direct sales model, Mary Kay, Pampered Chef, Tupperware and Avon added an MLM component. Amway made it big and got people such big checks. The direct sales companies that were product-focused had to do something to get some depth in there. All of them made the shift but I don’t think all of them have had the struggles that Avon has had.
I attended a big event in the network marketing world, I was amazed by the number of people that were training in social media and digital marketing strategies, almost to the degree that if I were to join their organization, I’m like, “Do you mean I have to become a digital marketing expert and then I can participate in network marketing?” Some companies have forgotten the power of relationships and people.
That cuts through so much of the digital noise that is becoming more expensive and competitive than ever before that digital space, which provides a unique opportunity for network marketing, especially when the comp plans are designed properly to leverage what people and relationships bring to the table.
Money matters. Where I spend my time is looking at how money gets paid out. People have to remember that it’s a relationship business. It is about me making a recommendation about a product and supporting you as you use that product, talking to you about it and comparing stories. That has incredible power. That’s what has made the direct sales industry work for 100 years as it is. It’s people making recommendations to other people. Even those party plan companies still use the power of others. You went to a Tupperware party. It was your friends who said, “I use that piece of Tupperware all the time. This is what I do in it.” You’re like, “I never even thought of that.”
When organizations usually reach out and get in touch with you, what is the identifier that makes them go, “We have some problems with our comp plan?” Is it the field screaming? Is it them not seeing the momentum? How does that usually come about?
When companies are losing money and on their way down, that’s a natural part of growing. Network marketing companies tend to grow quickly. You’ve got some straw built into your house. It’s going to break away and you got to stand on the wood bricks. Sometimes that or their margins are too thin and they can’t keep paying out the amount they’re paying out. They’ve squeaked by on their payout for a long time. They do the economy such that they need to either raise their prices or cut how much they’re paying. Those kinds of things, they’ll come to us for. They’ll come when big distributors say, “We need to do this.” They’ll go, “What do you think of this,” whatever this is.
Network marketing companies tend to grow quickly.
Is there a range of payout you hear, a range in the marketplace of companies saying, “We pay out 110%,” which is not possible? They’re lying. Where is that range that is reasonable for a company? I imagine it varies whether they’re providing education training versus a real hard product. Is there a range in there generally that you find is proper?
I like to say it’s right around 42% to 45% of the commissionable volume. It’s right in there. Some of the big companies pay less than that. All of them will tell you they pay more than that. They make a fake number. They say, “This is the number we’re paying a percent up,” but that’s not the number. That’s how they can say 110%. They make up a number that they’re paying on and it’s twice the price of the product. I’ve seen some weird things. I always like to say, “What are you paying 50% off?” That’s the question. We have a universal number that we can compare across companies. I always go, “What is that exactly you’re paying?”
Is that what the comp plan is designed to pay out or does that factor in breakage? The distributor resigned and the money doesn’t flow up but the comp plan suggests that you have all those factors. When you say that 42% to 45%, is that hard dollars?
It’s pretty consistent when we look at companies. Some companies, like doTERRA, have their product margins so big. They can pay out a little higher, whereas somebody who’s got a makeup product that’s new, hot and expensive to make has to pay out less for it. Sometimes, you can do that by product. You can say, “On this product, we’ll pay this amount. On this product, we’ll pay that amount.” Companies do that as well.
Is it as simple as when designing a plan, you got to get new people off to a quick start? You’ve then got to pay them enough that $200 to $500 so that they can progress through the comp plan and then you design that middle higher tier and then a few big stories in there. Is it as simple as trying to find balance? Is it, “This is whom we target and that audience is interested in this so we’re going to put 70% of our comp plan towards this level?”
Some surprising companies are looking at doing a multi-level component that has never done a multi-level component. That always surprises me. I’m saying, “Whom are we recruiting? Who are these people that are going to walk through the door you’re going to pay three levels on?” Most of those new companies that have been doing business another way don’t want a big deep plan anymore. They want an affiliate model.
How do you design that? Do they come to you?
You have to think it through. “Are you going to do something for the founding members?” That’s always a good question to ask companies. What about the people you are willing to go out, knock on doors and hold meetings in hotels and get belly to belly in this business? Even if you’re doing affiliate marketing and you think you are going to bring in some big MLM people, then you’ve got to have some big checks. There has to be a way to make a big check. They don’t usually come from a company where they’re making a big check to make a small check.
Even if you’re doing an affiliate marketing, if you think you are going to bring in some big MLM people, then you’ve got to have some big checks.
People are still looking for the dream of freedom and flexibility, I assume. Nancy, if I’m a leader in a company trying to get some help with my compensation plan, how do people reach you?
They can send me an email at NancyT@MLM.com.
This tells you what a geek I am about some of this stuff but I found your brother’s book. He came into a company and you did consulting with them. This has got to be a couple of years ago. I found that book interesting. Is that worth mentioning to people that are interested in designing comp plans?
If they want to read Mark’s book, they can send me an email and I’ll send them an eLink. If they want a physical copy, I’ll send them a physical copy. It’s from From Commission Plan to Compensation Strategy by Mark Rawlins. I’d be happy to give them the book. Most of what I know about MLM is that I’ve worked with Mark. He got me into it and has been my mentor through all of this. I’ve done a lot of analyses for companies. He hasn’t looked at their data but we’ve also done a lot of analyses together.
Nancy, it’s been so great having you on the show.
Thank you. It’s great to meet you. Good luck.
Thank you very much.
About Nancy Tobler
Nancy Tobler has a PhD in communication from the University of Utah. She specializes in research on how organizations change, and how technology influences that process of change. She has conducted several research projects in cooperation with direct sales companies. She currently works with MLM-CC to analyze and compare MLM compensation plans. She is the editor of MLM.com.