I love getting paid for doing my business. It is and it isn’t about the money. The check gives me that feeling - WOW - I love this business but it’s really about what the money can do for you.
That’s why the first thing to make sure is that your supplier is going to pay and that their checks will cash. How can you do that - well nobody can guarantee anything — a clear track record that you can check on is important (check out my thoughts on Supplier requirements). If their publically the NYSE or whatever stock exchange or maybe a trade association their part of - like the Direct Selling Association. Example of what I look for: my supplier has not missed a compensation payout in 28 YEARS! They carry virtually no debt, have no outstanding legal action pending, have double digit growth and they are completely profitable. That’s certainly NOT a guarantee but I’ll put my money on it. Remember, there is no federal bailout for you and I, we work for a living.
Compensations systems, like all systems and processes drive behavior - not the reverse. It’s not about the compensation structure - it what’s you have to do to get there. Companies use similar payout terms but they can have TOTALLY different financial outcomes. Let’s review some terms to give you pointers of what to look for:
Volume - there are two types of volume, Personal and Organizational. Different Companies may call them something a little different but it’s the same idea.
· Personal Volume - this normally means the amount of product that you move in a month.
· Organizational Volume - the amount of Product that others associated with you move.
Pricing -Three kinds of prices:
· Wholesale price - This is what you pay your supplier for the product/service. This is always some discount off the retail price. Your discount or profit margin will vary based on the amount of product you move per month unless you have a guarantee of a fixed percentage. This is super important to understand - see sliding scale.
· Retail price - The price you charge your customers - traditionally fixed by the supplier. If you do any discounts or pricing promotions - it normally comes out of your personal profit margin. So, the more profit margin between wholesale and retail the more pricing flexibility you’ll have.
· Price You Sell At: Normally this would be the retail price of the product plus any shipping, handling or additional costs you incur. Based on your Supplier’s sales rules you could set up promotions offering free shipping, etc. Just another way of discounting - so make sure you have the margin to be profitable.
Royalties - This is the gold mine of all business! Also known as residuals, it is an incentive payout from your supplier for continued success and positive growth. Traditionally this is associated with growth in your organizational volume. Residuals are very common in many industries - insurance, entertainment, etc. They are important because it is a payout that is not based on your personal monthly production. Royalties are sometime capped based on volume or organizational size.
Production Bonus - Pretty much what it sounds like - a payout that is based on a certain level of production. This is usually a percentage of your organizational volume. Like royalties this is usually capped BUT look for a compensation plan that is NOT CAPPED. This is called an infinite payout structure - VERY lucrative!
Special or one-time bonuses - Some Suppliers offer distributors one time bonuses, usually available when you first get you business. Achieve a certain threshold and they send you a “thank you” check for $XXX. Always nice to make a few bucks doing what you were going to do anyway. ALWAYS take advantage of promotions! Don’t leave money on the table, especially when it’s yours.
Vacations - look for this - it’s great! Based on achieving production targets, your suppliers will supply you with a free vacation as a thank you. Usually, this is a company event at a 5 star location. My Supplier has sent myself and my family to Hawaii a couple of times, Ixtapa, Mexico and I have qualified for upcoming event at the Atlantis Resort in the Bahamas! Determine the qualifications, do the business you were going to do anyway, qualify and go. Then write any business associated expenses you incur off your taxes
Profit sharing - As you advance your business to higher levels in your supplier’s marketing plan, SOME Suppliers will have a special pool of incentive money set aside as an incentive to keep expanding and growing your business. My Supplier has that it is based 1% of the Company’s gross product revenues - which was $4 billion last year. We can’t wait to get our hands on a piece of that!
So, there’s many different ways to talk about compensation and see value. In the beginning be looking for:
· Lowest level of investment that will lock you into a fixed profit margin and get there ASAP. You’re going to do the same work anyhow - so why make the most money. Example: My Supplier’s highest retail profit margin is 50% and I had it locked the first day I started and it has never gone down, regardless of my personal production.
· If your supplier doesn’t have this fixed percentage as part of their compensation - you want to look for another supplier. If they do have it but you can’t get there right away for whatever reason - work to get there ASAP because until then you will probably be on a “sliding scale”, meaning that your profit margin will vary based on your personal production each month. You want to avoid that uncertainty.
· Watch how your Supplier calculates Royalty payments. Some will pay you based on your wholesale volume and not your retail organizational volume. So let’s say your royalty was 5% and your organization did $10,000 in retail - you get a check for $500 BUT if they pay you on wholesale volume your check would be $250 - BIG BIG difference when you start growing your business. Same work for half the money!
Take a look at how they pay any production bonus. Is there a cap? A fixed percentage you get and it doesn’t get any larger once you reach the limits. Could be an amount or the size of your business organization. Or do you have no cap, or an infinite payout, where your percentage increases as business grows and the bigger it grows the more you get - unlimited potential. Example - if you have a direct marketing business your production bonus could be limited to the first 3 - 5 levels of your organization instead of you being paid on the production of your entire business organization. Look for an infinite payout structure!
