ARTICLES

by Dan Jensen (used with permission):

• Industry Definitions


• Principles of a Successful Compensation Plan


• The 10 Most Common Mistakes in MLM


• Compensation Plan Types


• Are you wasting your hard-earned commission dollars?


• Compensation Plan Breakage - Why and How

by Leonard Clements (used with permission):

• Is this a Pyramid Scheme? - by Leonard Clements who has concentrated his full-time efforts over the last six years on researching and analyzing all aspects of Network Marketing.

by Doug Cloward (used with permission):

• WOLF! WOLF! WOLF! Read what this compensation plan expert has to say on training programs and similar business tools.

by Jay E. Leisner (used with permission):

• Business Plans and Budgets - Who Needs Them?

LINKS

Starting an MLM Company?
I recommend this book: One of the best books in the industry on starting a company. Step by step business advice and secrets that come from a leading consultant, Rod Cook.
How To Start Your MLM -- NetWork Marketing Company www.mlmconsultant.com
Life-raft in the Sea of Legal Jargon
Law Dictionary

ORGANIZATIONS

• Direct Selling Association - Contact: Eileen O'Neill, New Memberships
  1666 K Street, Suite 1010
  Washington, DC 20006-2808
  202-293-5760 MAIN 202-463-4569 FAX
• PANM - Contact: Debbi A. Ballard
  1245 West Guadalupe Rd., B6#356
  Mesa, Arizona 85202-9136
  480-839-1455
• Direct Sellers Association / Canada - Paul J. Thériault, President
  180 Attwell Drive, Suite 250
  Etobicoke, ON M9W 6A9
  416-679-8555 or 416-679-1568 FAX
• MLMIA - Contact: Doris Wood, President
  119 Stanford Court
  Irvine, CA 92612-1671
  949 854-0484, fax 949 854-7687

PUBLICATIONS

• MLM Woman is a monthly online magazine especially for women!



• Step Into Success is a monthly magazine focused on the needs of woman direct sellers.



• The MarketWave Alert Letter is published by Len Clements. The subscription rate is $29.95 for ten issues. Worth every penny. Contact him at 800-688-4766.



• Here is an inexpensive resource for anyone considering starting an MLM or Multi-Affiliate company: "How To Start Your Network Marketing Or Internet Multi-Affiliate Company !" by Rod Cook. I believe the price is $169, which includes an hour of Rod Cook's consulting time. To order, call 210-494-3994<



• Or go to MLM Consultant

MISCELLANEOUS

• Make Your Site SELL! - this is simply the best resource there is for selling on the Web, at any price. I have already changed several things on my own site, based on ideas in the book.



• I also recommend Internet Adept, Inc. for managing your web presence. They solved an ownership problem with my site, keep it up to date, send my eletters and answer all my internet questions!



• Traveling to West Michigan? Check out Bed & Breakfast accommodations at the historic Hackley-Holt House.



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Industry Definitions




by Dan Jensen, Jenkon International, Inc.

Accumulated Group Volume (AGV)
A Representative's group volume from the day he or she becomes a Representative to present. This value does not clear or reset each commission period; it continues to grow.

Accumulated Personal Volume (APV)
A Representative's personal volume from the day he or she becomes a Representative to present. This value does not clear or reset each commission period; it continues to grow.

Active
Only Active Representatives may have earnings. A Representative is considered Active when they have a predefined minimum amount of Personal Volume and/or a predefined minimum amount of Group Volume within a set predefined period of time. Some plans impose other requirements as well.

Back End
A term used to describe the portion of a Step-Level / Breakaway plan which pays commissions to breakaway representatives. (Also see Front End)

Bonus Volume (BV)
The Qualifying Volume from the sales order that will be the volume credited for a sale. It is added to the Personal Volume (PV) of the purchasing Representative, his Group Volume, and the Group Volume of any upline Representatives according to the plan. This volume may optionally be different than the volume on which the commissions are paid (See Commissionable Volume).

Breakage
Many Representatives are either unqualified or ineligible to receive some or all types of commission each month. When the company retains unpaid commissions, it is called Breakage. Breakage also happens when an order is placed by a Representative who is close to the top of the genealogy such as a Representative sponsored directly by the company or an orphan. In these cases, some or all of the commissions that would normally be paid to an upline are retained by the company because there are few, if any, Representatives in the purchasers upline. Please note that commissions are always paid upline. When the upline is small or nonexistent, the company retains the unpaid commissions, causing Breakage.

Breakaway
When Representatives are promoted to a certain title, they "break away" from their sponsors and are thereafter called "breakaway" Representatives. Their group volume is no longer included in their sponsor's group volume. Breakaways are entitled to additional compensation, which is usually referred to as a Generation Override. Breakaway positions are usually considered sales leaders.

Commissionable Volume (CV)
The pre-assigned value of each product purchased, and on which commissions are paid. It is in the currency of the country in which the order was placed (though the eventual commission check may be issued in yet a different currency). Sales aids usually have no Commissionable Value. Commissionable products have a Commissionable Value, which does not have to equal the price paid for the product.

Commissions
An amount paid to a Representative on his or her direct and downline Commissionable Volume. It usually comprises Commissionable Volume within his own Group. Some plans call all forms of payment to Representatives a "commission".

Compression
See Roll-Up. Also used to describe the impact on a genealogy when a Representative is terminated. In this case, the downline of the terminated Representative is linked to the sponsor of the terminated Representative causing a "compression" effect on the downline.

Distributor
A person or entity in the genealogy with a class of "D" (Representative) is a Representative. Anyone who gets credit for a purchase or can receive commissions must be in the genealogy. All Representatives must sign a Representative Agreement to avoid being considered employees of the corporation. Some companies allow two or more people to join together as a single Representative entity. Often called a "Representativeship" or Independent Representative.

Downline
The Representatives personally sponsored by a Representative, as well as all the Representatives they sponsor, etc. Example: You sponsor Jim, who sponsors Mary, who sponsors Ted. All these Representatives are in your downline.

Enrolling Sponsor
A Representative who recruits another (new) Representative or customer into the business is a Sponsor. This person may be different from the Sponsor assigned to the new recruit in some compensation plans such as Matrix or Binary. It may also be different if the Enrolling Sponsor of a Representative is terminated. In this case, the Representative is placed under the sponsor of the terminated Representative. (Also see Sponsor, Compression)

Exemptions
Representatives may be permanently or temporarily exempted from meeting certain requirements for qualification. These should be clearly defined but not published. Representatives should not expect to be exempted when they fail to meet their qualifications even when they have an 'excuse'. Reality requires this capability, however, to deal with corporate mistakes and other exceptions.

Front End
A term used to describe the portion of a Step-Level / Breakaway plan which pays commissions to non-breakaway Representatives. (Also see Back End)

Genealogy
The downline sales organization of a company or Representative often called simply a Downline.

Generation
The relationship between an upline breakaway and a downline breakaway, not including non-breakaways The first breakaway in any leg is called a first generation breakaway. Generations are counted based on this period's fully qualified title.

Generation Override
The commissions paid to upline Generations based on Group Volume. This is only paid to Breakaways.

Group
A Representatives entire downline, but not including any breakaway Representatives or their groups.

Group Count
The count of Representatives in a group not including one's self. Also called Group Size.

Group Volume (GV)
The total of all Personal Volume (PV) sold by a group for a commission period. This includes one's own Personal Volume (PV).

Inactive
Each commission period (month?) that a Representative is not Active, he is considered Inactive.

Leg
Each personally sponsored Representative and all his or her downline. Also referred to as Line of Sponsorship. If a Representative recruits five other Representatives and places them on his first level, each recruit comprises a Leg of the sponsor. Leg is also used to signify a single chain of Representatives where "A" sponsors "B" who sponsors "C" who sponsors "D", etc. Together, they are often referred to as a Leg.

Level
The position a Representative has in a downline relative to an upline Representative. Representatives personally sponsored are level one to the sponsor. Those Representatives sponsored by a level one Representative are level two, relative to the original Representative. (Also see Qualified Level)

Level Override
The commissions paid upline Representatives based on relative position in the genealogy. Note this is only paid to qualified levels. This type of commission is usually paid only in Uni-level compensation plans, not Step Level / Breakaway plans.

Orphan
When a new Representative joins a company, a Representative application form is completed and sent to the company. On the application, the new Representative's sponsor name and account number is noted so the company can link the new Representative to his sponsor. Occasionally, the sponsoring Representative noted on the application is either incorrect or nonexistent making it impossible to correctly link a new Representative to an existing sponsor. In such cases, the new Representative is called an orphan. Procedurally, most companies have a Representative in their genealogy called "Orphan Account" to which all orphans are temporarily linked until their correct sponsor can be resolved. Commissions normally paid on the purchases made by orphans are usually kept by the company (called breakage) because orphans have no upline. Resolving orphan-sponsor linkages quickly is a high priority with most companies to avoid problems caused by not paying commissions to the correct upline.

Paid-as Title
The title a Representative is qualified for in each commission period. This title is not necessarily the Representative's permanent "official" title. The Paid-As Title may change with each commission run but the Title does not. The Paid-As Title will never be greater than the permanent Title.

Personal Volume (PV)
The value of commissionable products purchased in a commission period is called Personal Volume or PV. It is based on the sum of each purchased product's Qualifying Volume. It is credited to one and only one purchasing Representative in a commission period. It represents the total value of commissionable product purchased. It is usually included in the Representative's Group Volume. When retail customers buy directly from the company, the Qualifying Volume of their order is usually included in the Personal Volume (and Group Volume) of their sponsoring Representative.

Qualifying Volume
The value of a commissionable product applied toward Representative qualifications in the compensation plan. This value is added to both Personal Volume (PV) and Group Volume (GV) when purchased. It is different than Commissionable Volume. Commissionable products have a Qualifying Volume, which does not have to equal the price paid for the product. (Also see Commissionable Volume)

Qualified
In most plans, a Representative is "qualified" if they can receive Generation Overrides.

Qualified Level
Some Uni-level plans pay commissions based on Levels instead of rank or title based on Qualified Levels. In these plans, a Qualified Level is represented by each qualified Representative in a single Leg or in a single chain of Representatives. Inactive Representatives are not counted as Qualified Levels in these plans. (See also Roll-Up)

Recruit
A Representative recruited by another Representative to participate in the compensation plan or business opportunity. Retail Volume The total retail value of commissionable products is called Retail Volume. Retail Volume is seldom used by compensation plans; most plans rely on wholesale values to determine Qualifying and Commissionable Volumes used in their compensation plan.

Roll-up
If a commission payment cannot be paid to a Representative due to that Representative's being inactive, unqualified or not eligible in a given period, the payment will "roll up" to the next qualified, active and eligible Representative upline. In most plans, the volume does not roll up with the payment which would result in increasing the Group Volume of upline Representatives based on the poor performance of their downline - the practice of volume roll-up is not recommended while the practice of commission or override roll-up is recommended.

Sponsor
The Representative immediately upline of a Representative. It is usually the person who originally recruited the Representative but may be different if the Sponsor has inherited one or more people through Compression due to the termination of previously sponsored Representatives. It may also be different in plans that automatically place new recruits in certain spots or positions based on plan rules such as in Matrix or Binary plans. In these plans it is common for the sponsor to be different from the original Enrolling Sponsor. (Also see Enrolling Sponsor)

Stacking
A usually undesirable technique used by Representatives to manipulate the compensation plan. Stacking occurs when a Representative recruits other Representatives placing them in a single Downline Leg or chain instead of directly under the recruiting Representative.

Unencumbered Group Volume (UGV)
To avoid the Group Volume of one Representative inadvertently promoting his sponsor (and his sponsor, etc., which is often called Stacking), some plans require Group Volume used for advancement to Breakaway position to be derived from sources other than new breakaway Representatives. These other sources are most often other legs within the Group, which are not being advanced to Breakaway positions. The Group Volume derived from these other sources is considered Unencumbered Volume. This distinguishes it from the Group Volume used by a downline Representative that breaks away (encumbered volume). Some plans allow a portion of the Group Volume of a Representative achieving Breakaway status to be included in the Unencumbered Group Volume of his sponsor. For example, a plan might allow the excess or unused Group Volume of a downline Representative who is achieving Breakaway to be included in his sponsor's Unencumbered Group Volume. The purpose of Unencumbered Group Volume is to avoid Representatives manipulating the intent of the compensation plan by funneling all their volume into one downline Representative which causes an entire leg to be advanced to Breakaway status. (Also see Stacking)

Upline
A Representative's sponsor, along with his or her sponsor, etc. All Representatives in the genealogy above a Representative are referred to as his upline. For example, if A sponsors B who sponsors C who sponsors D, then the upline of D consists of A, B, and C.

All contents © Copyright Jenkon International, Inc. 1996. All rights reserved. Permission is granted to reproduce this article, AS LONG AS the biographical section above is included with the article.


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Principles of a Successful Compensation Plan




by Dan Jensen, Jenkon International, Inc. Introduction

A compensation plan that fails to motivate the company's representatives will stagnate that company faster than any other factor. While there may be many other factors that contribute to the success or failure of a direct selling company, the compensation plan is probably the biggest. I have often been asked, "What is the best compensation plan available today?" Unfortunately, there is no one right answer to this question. There are, however, proven principles of success that are common to virtually all successful plans.

The Golden Rules you should always follow:
Always provide incentive dollars for a specific desired behavior. Don't waste your incentive dollars on behaviors that provide little value to you or the representative. Question each type of compensation and verify that it will provide the expected return on investment.
Leverage the principle of relationships. Most people recruit others they already know because they want to work with them. Be sure your plan builds on these relationships. A plan where a new recruit is trained or mentored by a person other than the sponsor usually results in poor recruitment and weak relationships.

Recognition is as important as compensation. Remember, "Representatives will work for money but they'll kill for a cause." - Jim Adams

The five objectives of a successful compensation plan

1.Sell Product to end consumers
Retailing products to the end consumer is key to moving products. Corporate failure is inevitable as people stop buying product that they do not or cannot sell.
Have a motivating retail/wholesale profit - a minimum of 25% discount below retail or 33% markup over wholesale is common. This retail profit is the basis on which people are motivated to sell (retail) products. Other motivations are often artificial and will not withstand the test of time.
Set a realistic retail price otherwise people won't be able to sell the product to the end consumer.
Don't sell products whose wholesale price is really the market retail value and then add an artificial retail price on top.
Require heavy emphasis on retailing from field leaders, training and marketing materials. Retailing products based on the hope of future rewards will never result in the movement of product to retail consumers. If a representative is selling product by promoting a dream that the buyer will earn future commissions when the buyer, in turn, sells the product to another buyer, you will eventually be sitting on a "time bomb" of unhappy representatives who have a lot of inventory sitting in their garages. Proper retailing moves only the amount of product from representatives to the end user that is justified by natural consumption of the product.

2.Build organizations (recruit)
Done by placing incentives on group volume building. Recruits must see that it is easier to build their businesses by having others help do the selling in addition to their own selling.
Recognition and reward should be built into the plan, especially for the new recruit. Most recruits are lost in the first 60 days because they lose the confidence that they will succeed in the long term.
Rewarding new recruits early on helps to keep their interest and excitement levels high.
Lack of rewards for new recruits often results in sales leaders promoting 'buy in' organization building.
They pitch people that a 'buy in' is an investment in their future. While the new recruit has enough 'equity' (inventory) to keep them in the business longer, they often quickly become disillusioned and are quick to complain to regulatory officers that 'they were taken'. Regulators are always on the watch for 'investment schemes' of this nature.
Reward people early by building a series of goals and rewards. As they reach each goal, new recruits are quickly recognized and compensated. This helps build the confidence that they can actually achieve their future dreams.
Early rewards build the initial skills required to become managers. Lack of early incentives builds ineffective field managers who do not have the skill to sell or recruit based on product viability.

3.Build Managers (people who train others to sell and recruit)
Follow Step 2, above (Build Organization). Otherwise the field force will have many ineffective managers who do little to earn their compensation.
Managers are built by learning the basic skills of success as representatives through product retailing and recruiting. Once a representative learns these skills, they become a manager when they teach others (those they recruit) to do the same. Successful managers learn the power of duplication.
Incentives are placed on group activities (group volume and recruiting). Group Volume incentives usually reward both selling and recruiting.

4.Build Sales Leaders (people who train others to manage)
Incentives must exist to motivate and reward managers who build other managers. Avoid disincentives that penalize a manager when a new manager is created. Otherwise, a manager will work hard to suppress their own star performers from reaching their full potential for fear of losing significant compensation in the future.
Provide incentives that reward leaders for several 'generations' of downline managers so that these leaders will want to train their managers to build other managers as well.
Avoid making it too easy to become a sales leader. Representatives who don't know how to build or train other managers to succeed should not be entitled to become sales leaders or the field organization will become superficial and weak. Remember that building strong sales leaders takes time, money, and effort. Invest in training them to become effective sales leaders, to build effective managers and to recruit product retailers and recruiters.
Provide incentives for your top performing sales leaders. Avoid having the plan quickly 'Max out,' otherwise top performers will wonder "what's next" and you won't have an answer.

5.Retention
Retain people by helping them receive significant reward for their time. You compete for their time and attention with many other opportunities and distractions. Make it worth while early on. As a representative works the business, they build an 'equity investment' in their downline organization and will continue to work the business if their downline continues to work the business. This is why a balanced emphasis on product retailing and recruiting is so important.
Representatives who build a downline are far more likely to continue to be active than those who do not build a downline are. If your product is consumable, consider using an "Auto Ship" program to build repeat business, both retail (preferred customers) and wholesale (to representatives).
Promote contests and competitions that can be won by everyone. Avoid 'top ten' contests where everybody loses except your top 10 performers.

Other principles of a successful compensation plan
Reasonable compensation percentages: Most compensation plans of today pay between 30% to 50% to field representatives. If a company promotes a plan paying only 25% or so, they will have a hard time recruiting and keeping representatives unless other factors offset this competitive weakness. These factors might include how well the public accepts the product (telephone service or other common consumables) or intangible incentives that motivate representatives. Real percentage pay out should fall between 35% and 42%, in my opinion. Higher percentages are possible with high product margins. Theoretical pay out (the percentage the plan would pay if all commissions were paid out in every case) should not be more than 8% above actual to avoid disappointing representatives expecting more.

Keep it simple: Many plans are designed by Multilevel Marketing (MLM) professionals for other MLM professionals. These plans often assume most people already understand the terms and principles of MLM or can at least learn them quickly. Time has shown that this is definitely not the case. While experience is essential when designing compensation plans, one must never forget that ordinary people are the ones who must be motivated by the plan. If a new recruit isn't motivated early, he or she will quickly fall away. The more complex a plan becomes, the fewer people that plan will motivate. The plan needs to affect the heart of a representative first, before it can affect their pocketbook.

Avoid novelty or "fad" plans: Changing a compensation plan is costly in terms of lost momentum and representative commitment. When a representative recruits another person, the compensation plan is often a significant part of the selling process. To change it later is, in essence, admitting that the original plan was not very good after all. Some people may perceive the change as a "bait and switch" tactic. By staying within more traditional plans, plans that have proven themselves over the years, a new MLM company can still be innovative but know that the plan has staying power. It's often joked that compensation plans are like men's ties; when one plan goes out of fashion, you can count on it coming back a few years later. Stick to more traditional plans that won't need to be changed as new fads come and go.

Don't put too much credence in the impact of your compensation plan: Many entrepreneurs are convinced that they have the best possible compensation plan imaginable. When asked what product or service they will sell, they sometimes respond, "We're still looking for the right product." Obviously, these well intentioned people have focused on only one issue of starting their business by thinking that the compensation plan is the only key to their future success. Many companies have gained great success despite poorly designed compensation plans! Don't change the plan very often: Companies that experiment with their compensation plan are asking for frustrated representatives to join other more stable opportunities. Even good change can be traumatic. Be very reluctant to change the plan. Be careful when recruiting "heavy hitters": These very successful Multilevel Marketing professionals can bring tremendous short term success to a company but can also be a major cause for failure when they grow bored with your company and join another, often taking thousands of their downline with them. Wise companies always build slowly for the first few years until they have the critical mass to handle changes in business volumes. Don't design your compensation plan to focus on attracting these heavy hitters.

All contents © Copyright Jenkon International, Inc. 1996. All rights reserved. Permission is granted to reproduce this article, AS LONG AS the biographical section above is included with the article.




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The 10 Most Common Mistakes in MLM




by Dan Jensen, Jenkon International, Inc.

Multi-Level Marketing, also called Network Marketing, is the essence of free enterprise. Thousands of MLM companies have sprouted during the last few decades. Sadly, many are no longer in business. Having been entrenched in the MLM industry for over a decade seeing hundreds of companies come and go, I have observed a pattern that might be of help to an entrepreneur wanting to build a successful MLM organization in today's competitive marketplace. This pattern includes at least ten common challenges facing new start up ventures. These common challenges include:



1.Adequate Funding
2.A Business Plan
3.Management and Leadership
4.Staff Training
5.Computer Systems
6.Compensation Plans
7.Have a Lawyer Review your Compensation Plan
8.Customer Service
9.Corporate Marketing Personality
10.Fast Growth

While these challenges are not in any particular order, they carry differing levels of severity. For example, Adequate funding is required to keep a company in business. And while a compensation plan can become a major obstacle to the success of the organization, it isn't too difficult to creating a good one.




#1: Adequate Funding




Let's suppose you want to build a house and have borrowed $150,000 to complete the project. You have $50,000 of your own money to add to the mortgage and expect the house to cost no more than $200,000. During the construction, you found a few unforeseen problems. While digging the basement, a water spring was found that had to be capped and routed to a different part of the property. Cost: $8,000. Lumber prices rose 30% from the time you started the project. Cost: $12,000. You upgraded the carpeting hoping to make up the difference in other areas. Cost: $9,000. As you near the end of the project, try as hard as you can, you can't get the house complete without another $40,000. You've already borrowed as much as you can to get the $150,000. You have no more money of your own. What will you do?

So it is with starting a business. Many well-intentioned entrepreneurs embark on a long journey to prosperity full of hopes and dreams. As they journey along the road, they hit a few "springs", and find many things costing far more than expected. They make a few mistakes, which are expensive to fix, and soon find they didn't budget enough money to get the business off the ground. These people always come from the experience learning a golden rule of business: Know how much money you need and secure the funds before you start.

How does a person find enough capital to start an MLM business, and how much does he need? Nobody will be willing to risk his or her money without a plan.

Common sources for funding include:



• Home Equity financing through banks, savings and loans, etc.
• Venture capital organizations that specialize in helping new businesses. This type of investor or investor group will expect a significant ownership position for taking the risk. Venture capital groups are found by networking with financial planners, accountants, bankers, and merger/acquisition specialists.
• Private investors, including friends, business associates, friends of friends, etc. Find them by networking with everyone you know. Talk to financial planners, accountants, business owners, etc.
• Small Business Administration, or other federal and state agencies. These agencies will either loan the money, or guarantee a loan through a bank. In either case, you'll need to be able to pay back the loan on a set schedule.
• Local community bond funding. Some communities, especially those with high unemployment, work aggressively with businesses to acquire funding for starting or expanding. Contact local county and state agencies to see if programs are available in your area.
• General Financing from banks. Banks will often lend based on credit history and assets with a personal guarantee of the business owner or another creditworthy third party.

Don't become impatient and launch the business without the necessary funding! How much funding is necessary will depend on your business plan. Some companies start for as little as $10,000, while others find they require several million dollars. As my father wisely told me when I started Jenkon, consider every dollar in the beginning as being worth five dollars later on. Save your precious start up capital as if your life depends on it.




#2: Business Plan




The business plan is the blueprint of your success. Companies that are successful without a plan gain their success more by accident and luck than by design and thought. Which type of success do you want? Are you willing to trust luck for your success? A business plan is a "first creation" of the business, just like an architect's blue print is the first creation of a beautiful home. A good architect will plan out every detail of a home long before the first shovel of earth is moved. So it must be with any MLM business. You must become a business architect before you build the business.

Another aspect of the business plan is that it is often used to attract potential investors, lenders, and vendors. No investor will be willing to risk his or her hard-earned money on a business venture without a well-designed plan. You shouldn't either! As you establish credit with vendors, they will be more generous granting credit if they can review a well-prepared business plan. Remember, that any credit granted by vendors reduces your starting capital requirements; if your manufacturer is willing to extend 90 days terms up to $100,000 for product, you will need $100,000 less to start.

Key elements of a business plan should include:



• An Overview: One or two pages describing the business will help a potential investor become interested in learning more of the opportunity. If an overview is missing, few investors will be interested enough to take the time to read the entire plan. The overview should describe the products or services being sold, the principals involved, funds required to launch, and estimated return on investment, both conservative and potential. This overview is also known as the Executive Summary.
• Background of Principals: A summary resume of the owners and executives of the company is a critical part of a business plan that will be read by investors, banks, and other trade creditors.
• A mission statement that clearly identifies what the company is all about should be included. It's been said that distributors will work for money, but kill for a cause. Your mission statement should be something you can proudly display in literature or on a wall plaque. A corporate motto might be taken from the mission statement. Most mission statements are expressed in one or two paragraphs. Find samples of mission statements in annual stockholder reports of many public companies. There are a number of books available that also teach how to write and use a mission statement.
• Goals and objectives should be identified and each should spring from the mission statement. Goals might reflect the level of customer satisfaction, order turnaround, staff efficiency, but most certainly sales and profits.
• A market analysis must be done to determine the potential of the product or service, priced as it is to be priced. The analysis should address market demand, similar products and how they have been accepted and marketed, competition, etc. This information can be found in libraries, universities, and other business consulting groups.
• The Small Business Administration has access to large amounts of information, or people who can get the information for you. Many universities have students who would love to do market research for businesses, often at no charge, for their MBA requirements.
• Implementation plans: How much office space will you need? How many employees will be needed to handle the expected business volumes? Warehouse space, telephone equipment, initial product orders, printing, distributor kits, videos, and scores of other issues must be addressed in as much detail as possible. This section may be the most important section of all and is usually the one people try to gloss over. It's more fun to make sales projections than to figure out how much office space is needed. Yet, one major mistake in this area can cost tens (or hundreds) of thousands of dollars. This part of the plan takes time, often several months. Time spent here will pay large dividends in the future.
• Projections: Profit/Loss and cash flow projections are critical to every business plan. A competent consultant or accountant can assist in this effort by identifying common areas of expenses for new start-up businesses. With computer programs like Lotus 1-2-3, Microsoft Excel, and other spreadsheet analysis systems, many different scenarios can be created once an initial spreadsheet format is built. Always prepare a pessimistic "worst case" scenario, a middle of the road scenario, and an optimistic (but realistic) best case version. As you develop your business plan, always plan on the conservative side, but be ready to upscale into the more optimistic version should the need arise. Remember that if your investor has read the overview, the next thing he'll want to know is how much money is needed. These projections are critical to a prospective investor. Return on Investment Analysis is important for those investing into the business. This is why they would want to take the risk. Attractive charts and graphs are essential. This section answers the investor's question of what's in it for me?
• Risk Analysis: Careful study of the risks involved should be explained in this section. While not intended to "turn off" a potential investor, most investors will do their own risk analysis but with only the bits and pieces of information available. This is an opportunity for you to address the potential concerns of an investor in a positive and controlled fashion. If you don't need an investor, this section will make your business plan more bulletproof. No plan is viable that hasn't addressed the potential points of failure and risk.



Once the plan is complete, bind it so it can make an attractive presentation. Include a table of contents, index tabs, and an impressive cover. Don't put the plan on the shelf! Use it in each manager's meeting, refer to it like the corporate bible. Change it when needed, but follow it carefully.

Part of the business plan, of course, is to plan to be a profitable company. It's amazing how many companies fail to plan to be profitable. A general rule might be:

• 40% of income should be set aside for commissions to the field.
• 20% of income should be set aside for cost of goods or products.
• 20% of income should be set aside for administrative expense such as payroll, facilities, utilities, etc.
• 20% of income for profit.
While the above numbers are very rough, they have proven to be a target that many successful companies have set.



#3: Management and Leadership




No business can rise to the pinnacle of success and sustain it without effective management and leadership. It's been said that leadership is doing the right things. Management is doing things right. Yet, the graveyard of free enterprise is littered with the bones of companies who were poorly managed or poorly led. Most often, the mismanagement started with an enthusiastic business owner with little or no experience believing that he or she could handle the job. While there are many who launch businesses very successfully, there are few that have the skills to sustain the success.

A wise business owner must be honest about his or her shortcomings and hire talent that makes up the difference. He or she must then empower the hired talent to do their job effectively; don't hire skilled people and then ignore their wisdom and talent!

The role of the business owner becomes leader once effective managers are empowered to handle the operations. Leadership becomes one of planning, reviewing results, promoting, and motivating. Let the managers do their job according to the business plan. It becomes the yardstick to which the managers are accountable.




#4: Staff Training




What NBA basketball team would recruit a new player, place him on the floor his first day, and expect him to perform like the rest of the team? Without training with the rest of the team, his performance, at best, would be mediocre. At worst, disastrous, and the game would be lost.

Such it is with any new employee, especially if the whole staff is new as in a new business launch. Who should train them? What should they be trained to do? How do we know if they have completed their training? These questions need to be addressed individually:

Who should train new employees?
Don't let the old adage, the blind leading the blind be said of the trainers. If you are a new start up company, find very competent people for each department and have an experienced general manager orchestrate the various departments like a symphony. Don't be led into the trap of saving money on inexpensive workers in the beginning; it will cost far more than it saves.

One critical department that needs to be trained is the Order Processing department. This group is charged with taking orders over the phone and receiving orders by mail and FAX. They are in constant contact with field distributors and portray an image of your business to everyone they talk to. If you hire educated, warm, and friendly people, your image will also be such. If you hire minimum wage clerks to take orders, they will portray a much less impressive image. These people need to be screened during the hiring process for personality traits, patience with frustrated callers, and their ability to think on their toes. They must be trained by others employees who are of the highest level of competence; don't let them receive training by less experienced peers.

The second most critical department is the Distributor Services Department. Each person in this department will handle problems, complaints, inquiries, and a thousand other issues that arise. These people must comprise an elite "SWAT" team with an obsession for customer service excellence to the field distributors. These people must have a similar obsession for excellence.

Where will you find experienced people to do the training if your company is just starting? Look to consultants (a list is provided at the end of this report), trade organizations such as the MLMIA, and the DSA for names, and advertise in industry publications. Executive search firms can often be fruitful as well.

What should they be trained to do?
As an experienced person is hired to supervise a department, their first task is to design and document a "system" or method of operation. For example, to process sales orders, a diagram of how an order must flow through the office could be created. Exceptions should be noted with a flow chart or diagram to handle each. What should an order entry operator do if the credit card is declined while the caller is on the phone? What should a warehouse person do if some of the products ordered are not in stock? Every conceivable problem must be documented in advance with an appropriate solution. Policies need to be documented and organized into a handbook for the staff. They might even be put "on line" on the office computer system for instant look up. Professional MLM consultants can be an invaluable source to help prepare these flow charts and documentation.

Once the systems, policies, and procedures are documented, training can begin. With documented systems in place, training proceeds quickly and thoroughly. Without systems, policies, and procedures, training can never be complete, and takes many times longer.

How do we know if the employee has been trained?
An evaluation process should be established which takes a new employee through a sequence of duties and responsibilities. For example, an order entry operator might be required to take ten phone orders with a supervisor at his/her side before being allowed to take an order alone. A distributor services rep might not be allowed to handle commission related questions until they have explained the compensation plan to the department supervisor thoroughly, top to bottom. In summary, each department must also establish a minimum level of competence before allowing an employee to perform their assigned tasks alone. Until then, they are "buddies" with another peer or supervisor. Many companies have tests that are taken and scored which focus on the various objectives each job has. The best tests focus on objectives rather than on the mechanics of the job.




#5: Computer Systems




In the section on training, I addressed the need to have good "systems" that, if followed, comprise the methods to handle each type of business transaction, whether the transaction is a sales order, a phone inquiry, a complaint, or the return of product for a refund. Computer systems in Multi-Level Marketing companies become the glue that binds the office departments together, a "core around which the business is built. No successful MLM Company has ever sustained their success without a well-designed computer system. Likewise, there are many MLM companies that have failed due primarily to the lack of a good computer system. Don't let your new venture become just another statistic. Choose your software vendor wisely.

What is a good MLM computer system?
There are three major pieces to any computer system:

• The equipment or "hardware" is comprised of the main processor which does the "thinking", disk drive to store the business information, work station screens, and printers for reports. Fortunately, the cost of equipment has declined drastically in recent years while the performance or capacity to process business information has increased many times.
• The operating system software makes the computer work when you turn it on. It comprises the programming language that the business software is written in, the commands necessary to create a back up tape of the data to avoid losing all the information, and many other commands necessary to simply keep the computer working as conditions change. Without an operating system, the computer is nothing but plastic, metal, chips, and silicon. Operating systems include MS/DOS, UNIX, PICK, VMS, AIX, and scores of others.
• The application software is the most important part of the computer because it is the piece that determines how you will run your business. The hardware and the operating system are of little importance compared to the application software. This software provides input screens for order processing, creates your commission checks, prints downline genealogy reports, and provides look up information to handle distributor inquiries when they call the office. In short, this software is the core of running your business successfully. It will make or break an MLM business.

The greatest challenge companies face in this area is to think they can save money by writing their own software. This can take months or years, it can never include the experience and know-how that packaged MLM software contains. Why reinvent the wheel? Would it be worth the risk of losing the business to poorly designed software resulting in incorrect commission checks, errors in tracking a person's downline records, lost orders, and so forth? Those companies that elect to write their own MLM software often find later on that they are vulnerable to the programmer who wrote it. What if he moved away, or became injured or sick? Never let someone convince you they can program an MLM software system in weeks or months. It's never been done successfully before. Why should you believe it could be done, now? Companies such as Jenkon have spent many years writing MLM software that works right the first time, every time, and offer it to the public for a small fraction of what it costs to create it. It's the best money you'll ever spend.

How do I choose a good MLM software package?
While this report does not have the space to address this subject fully, a few suggestions should be noted:

• Choose a reputable vendor. There are many fly-by-night software companies that make many claims of experience, know how, and software gadgetry. Unless you are willing to be a guinea pig, choose a vendor that has developed a proven track record. Track records are built over many years of working with MLM companies, not just selling a software package a few times. Indeed, only having a small handful of clients may speak more about a company's persuasive abilities than their actual know how and skill. Above all, check out at least six references. Remember that vendors will be eager to provide only their best references. Always get the names of other companies from these first references that you might call. You might be surprised to find a different story when you call companies not included in the reference list.
• Visit the Software Company's office. When you choose an MLM software package, you not only choose the software; you also choose the vendor's support services. If the vendor is not able to provide support services acceptably, what will you do when you need to change your compensation plan, or add a new input field to the order entry screen? Jenkon has serviced over 500 MLM companies since 1982 and has yet to find one company that has not needed support services. There is only one constant among all MLM companies - they constantly change things! While at the vendor's office, meet the vendor's people that will service you. What kind of people are they? How long have they worked for the vendor? If you find they are relatively new, either the vendor has little experience, is growing rapidly (in which case you may have trouble competing with other clients for good service), or has high staff turnover. All these can mean trouble for you, as the vendor may not be able to handle your needs quickly and competently. Be willing to pay for experience and competence. You'll pay far less in the long run. If you think knowledge is expensive, try ignorance!
• Avoid very small software companies. Small software companies, to compete with larger established firms, must offer software at bargain prices. This often puts them on shaky financial ground during their most critical years. Many MLM companies, trying to save money by purchasing software from these small software houses, find themselves virtually abandoned later on when they need assistance. The problem is that servicing one highly successful client can consume virtually all of the human resources of a small software company leaving the other clients out in the cold. It can take months (or years) to train competent software technicians on an MLM software package. The more deadly problem, however, is that smaller companies tend to go out of business without warning. The MLM industry is especially brutal on small software companies and has caused a number of firms to close their doors leaving their clients high and dry. If you value your business, stay away from the small vendors and stick to those with staying power and track records.
• Buy a software package that allows you to create your own reports. Many packages force you to live only with those reports they put on the menus. Managers must resort to running large reports to answer small questions or concerns instead of small exception reports on demand. Small exception reports can be reviewed quickly and accurately. Large general-purpose reports can take hours to review and digest; this is not a wise use of a manager's time. The computer industry has adopted a standard in modern software engineering that allows non-programmer users to type free-form queries on a computer terminal. In response, the computer provides specific and focused information according to the query. For example, suppose a manager wants to see a list of all the distributors in Florida with a group volume of $5,000 or more. Most modern software systems would allow the manager to type a relatively simple command sentence to obtain the report.
• Make sure the company can program your compensation plan. Compensation plans are complex and take massive amounts of experience to program properly. When you have your tax return prepared, do you go to an inexperienced person, or do you find the most competent one who is also reasonably priced? Compensation plan programming is not something inexperienced programmers should be doing.
• Do you plan to expand internationally someday? If so, choose a software package that incorporates international issues such as currency conversion, language translation, cross border sponsoring, VAT tax reporting, and foreign address formats.
• Buy software that can work on bigger computers and a PC. While personal computers are terrific for starting a new company, they are not cut out for larger successful MLM operations. Most personal computers allow only one person to use the computer at any given time. Networks allow PCs to be linked together and can grow to become quite powerful and large. Networks are good but expensive. Minicomputers allow less expensive workstations to be connected to more powerful systems and are usually less complex to manage than networks. Most large MLM companies have either a minicomputer with several hundred workstations attached, or larger mainframe computers. In either case, if you expect to be successful, don't limit yourself by choosing software that only runs on PC computers. If you do, you will be forced to use networking to expand, the most expensive way to connect employees together.
• Compare features. Software is designed to handle specific business issues and often has a great deal of difficulty dealing with matters outside designed limitations. It's difficult to force a software package to do things it was never intended to do. Wise computer buyers compare features and capabilities, side by side, of one package to another. Ask the vendor which features they consider are unique to their package compared to others. A package that is missing an important piece will never be a bargain at any price. As you compare software packages, use the feature list of the package that has the most to offer as a guide and compare the features of the other packages against it feature by feature. You'll be quite surprised as to how many "holes" the other packages might have.
Remember that you aren't just buying a computer; you are buying software, expertise, emergency support services, programming services and you are starting a long-term relationship. Choose your software vendor wisely. Of all the aspects of a start up MLM business, don't be tempted to penny pinch in the computer area. If you do, you may cripple your chances for success.



#6: Compensation Plans




A compensation plan that fails to motivate distributors will stop a company fast. Some people believe that a good compensation plan is the key element to success. I have found this not to be the case as I've observed many successful companies reach very enviable sales volumes with poorly designed compensation plans. At the heart of the issue is the question what makes a compensation plan good? Let's address a few points:

• Reasonable compensation percentages. Most compensation plans of today pay between 30% to 50% to field distributors. If a company promotes a plan paying only 25% or so, they will have a hard time recruiting and keeping distributors. Real percentage pay out should fall between 35% and 42%, in my opinion. Theoretical pay out (the percentage the plan would pay if all commissions were paid out in every case) should not be more than 8% above actual to avoid disappointing distributors expecting more.
• Keep it simple. Many plans are designed by MLM professionals for MLM professionals. While experience is essential when designing compensation plans, one must never forget that ordinary people are the ones who must be motivated by it. The more complex a plan becomes, the fewer people it will motivate. The plan needs to affect the heart of a distributor first, before it can affect his pocketbook.
• Avoid novelty or "fad" plans. Changing a compensation plan is costly in terms of lost momentum and distributor commitment. When a distributor recruits another person, the compensation plan is often a significant part of the selling process. To change it later is, in essence, admitting that the original plan was not very good after all. Some people may perceive the change as a "bait and switch" tactic. By staying within more traditional plans, plans that proved themselves over the years, a new MLM company can still be innovative but know that the plan has staying power. It's often joked that compensation plans are like men's ties; when one plan goes out of vogue, you can count on it coming back a few years later. Stick to more traditional plans that won't need to be changed as new fads come and go.
• Don't put too much credence in the impact of your compensation plan. Many entrepreneurs come to Jenkon convinced that they have the best possible compensation plan imaginable. When asked what product or service they will sell, many respond, "we're still looking for the right product." Obviously, these well-intentioned people have focused on only one issue of starting their business thinking that the compensation plan is the key to their future success. The facts, however, are different. Many companies have gained great success despite badly designed compensation plans. Put simply, the plan is only one part of the puzzle; it isn't the only part.
• Don't change it often. Those that experiment with the compensation plan are asking for frustrated distributors to join other more stable opportunities. Even good change can be traumatic. Be very reluctant to change the plan.
• Avoid recruiting "heavy hitters". These very successful MLM professionals can bring tremendous short-term success but can also be a major cause for failure when they grow bored with your company and join another, often taking thousands of their downline with them. Wise companies always build slowly for the first few years until they have the critical mass to handle changes in business volumes. Don't design your compensation plan to focus on attracting these heavy hitters.



#7: Have a Lawyer look at your Compensation Plan




While a compensation plan may motivate distributors, unless it is acceptable by every state or country where it will be used, it could put the company in jeopardy. There are many legal statutes that must be complied with in order to carry out an MLM business in any state or country. Those affecting Multi-Level Marketing vary and are well beyond the scope of this report. Several major points, however, should be discussed:

• Nobody should profit by recruiting another person. Pyramid schemes are illegal and allow distributors to profit simply by recruiting people. Many companies avoid pyramid statutes by paying commissions solely on the sale of product (or services) and stipulating that people are not required to buy any commissionable product in order to join. Never pay commissions on distributor kits or other materials purchased as a condition of joining the company.
• Have a generous return policy. Inventory loading is a term used to describe a distributor who buys too many products, more than can be sold in a reasonable period of time, to qualify for higher commission percentages. Many states have acted aggressively against this unethical practice. Many companies, to avoid any association with inventory loading, have instituted generous return policies allowing customers and distributors to return unused product. The Direct Selling Association (DSA) has recently established a requirement for all company members to offer a 12-month, 90% buy back policy. Most companies are now adopting this rule and deduct commissions from distributors and their uplines when products are returned. Incidentally, automatic calculation of commission adjustments for returned product is often considered a major requirement in a software package. Otherwise, it must be done manually costing hours of wasted time and leading to embarrassing mistakes.
• Sell products and services at a real market price. If your product or service can't be sold unless an MLM compensation plan attached, regulatory agencies will eventually take action. Imagine selling toothpaste for $10 a tube, but paying out $9 in commissions. While some people might be attracted to this scheme, it will most certainly demand the attention of consumer protection agencies as well.
• Make no claims of income. While it's a tremendous temptation to explain the potential income available in your new venture, avoid it at all costs. Regulatory agencies are notorious for video taping distributor meetings to gather evidence of unsubstantiated claims of income. If you mention any income statistics, then mention also the average income. It is not enough to simply tell the truth in this case. You must also avoid setting unrealistic expectations.

I have included in this report the names of several attorneys who work almost exclusively with the MLM industry. Many companies have found them to be very competent and knowledgeable in MLM legalities. It is highly recommended that a new MLM company retain one to review the compensation plan.



#8: Customer Service




Many companies enter the industry thinking they sell business opportunities and their products. They soon learn that they sell a third product, one of immense power: customer service. Distributors are fickle and seem to join the company that offers the most. One great discovery of our age, however, is that people love to be served well, and their loyalty is placed on those who service them best. Some MLM companies find their average distributor stays active only six months. Others find it is several years. What's the difference between them? It's not the compensation plan. It's not the products they sell. Instead, it is how well the distributor is served.

Excellent customer service does not come by accident. It is the result of well thought out plans and hard work. It starts by having a very committed Distributor Services Manager empowered to implement the necessary systems, policies, and procedures to achieve excellence. The Customer Excellence System (CES) must comprise at least four areas:

• Customer Information Data Base
• Follow Up Systems
• Satisfaction Measurement
• Work Load Monitoring

Customer Information Data Base
In today's modern business, customers have very high expectations for service. When a distributor calls the home office to ask for information, they expect to receive their answer immediately, not an hour later. With a customer information data base, the service rep on the phone can instantly access information that would otherwise take minutes or hours to find. The goal of any customer information database is to know everything possible about the distributor that might be the source of a question. From order status to commission problems, the customer service software must provide instant answers to distributors as they call the office.

Follow Up Systems
If 1,000 distributors were recruited this month, and 10,000 distributors had already joined, how many phone calls would they place with the home office? Statistically, well over 1,000 phone calls would need to be answered by professional, courteous, and competent office staff during the month. Of the 1,000 calls, how many would require a "call back"? It depends entirely on the quality extent of the customer information database. The better the on line information, the fewer call backs necessary. The goal of a good customer service system should be to have less than 5% of the calls requiring a call back. If 30% of the calls required callbacks, there would be at least 300 opportunities for not following up and finishing the call.

Any customer service system that strives for excellence has a means of tracking each phone call to completion. Open calls can be tracked and aged with priority given to the oldest calls, or to the most important distributors. Such a system, often called an Event Management System, becomes the hub of any professional customer service system. In essence, it tracks every inbound phone call from the field and makes sure that each call is answered quickly. It provides the department manager with the reports needed to avoid having a call "open" too long.

Satisfaction Measurement
If you don't know how well your customer service people are doing, then you don't know how your future will be. If they are doing poorly, the company is doomed to failure. If the distributors rave about the excellent service they receive, you can be assured of future success. A customer service system must include the ability to track satisfaction levels. How is this done?

When a distributor phone call is logged and closed, a follow up call is placed, or a survey letter mailed to the distributor asking:

• Was your call answered in a timely manner?
• Was the customer service representative courteous and professional?
• Was your question answered to your satisfaction?

Questions such as these, when answered by field distributors, become invaluable to reaching the goal of customer service excellence. The best software packages today incorporate Customer Service Excellence systems to make your obsession for excellence a reality.

Work Load Measurement
No customer service department can survive increasing workloads for long without burn out. If the number of calls received each day is tracked, with the length of time it takes to handle the average call, expansion plans can be put in motion before workloads become critical. Distributors cannot be serviced with excellence if there are too few people to do the work. Once again, the task of measuring workload will require an excellent MLM software system.

In summary, let customer service by your secret weapon to success. It takes planning, commitment, and hard work to achieve the excellence a successful company seeks.



#9: Corporate Marketing Personality




Complement an "on the road" campaign with effective videotapes that motivate, sell, and train. While nothing can substitute for being with them, videotape is the next best thing.

What businessman would start a new company and stay in the office waiting by the phone for customers to call? Time after time, the most successful MLM companies have proved the effectiveness of having corporate marketing people hold meetings on the road. Distributors need contact with corporate people for motivation, training, and especially, to help them recruit. There is no substitute for being in the field. Your success will be greatly enhanced by putting highly motivated corporate personalities "on the road".




#10: Fast Growth




While most businesses would give their right arms to grow at exponential rates, MLM has a track record of just that. Unfortunately, this kind of growth has often been a major demise of many otherwise successful ventures. Success is wonderful, but it can bury you.

New businesses have new staff, new computer systems, new facilities, and are short on the experience to handle business efficiently. An office can only handle a certain volume of business. What if that volume is exceeded? Something must give. Many companies go on a spending spree, throwing money at their problems. While growing, cash seems to be unlimited. This too, is a false security, for as surely as the growth came, it will level out, and eventually go downward for periods of time. It is far better to limit growth temporarily, than to succumb to its demands.

How can an MLM company control its growth?

• Start locally by not accepting distributor applications from everywhere. Distributors who seek to join from unopened regions are simply given a courteous thank you letter. Let them know how much you want to have them join, but that the opportunity isn't available yet in their area. Notify them when they can join.
• Don't sponsor road trips by corporate or field promoters. Take advantage of the less expensive local opportunities, first. Meetings can be held locally every night of the week for the cost of one meeting on the road.
Don't recruit professional MLM promoters or big hitters. If they want to join, then they must join as any other distributor. Don't, however, go out of your way to recruit them.

By controlling growth, a business plan can become a real guide to making the business profitable. Use the plan to make success become a reality.

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Conclusion
Multi-Level Marketing offers incredible opportunities, but also has a vast assortment of challenges. By following these simple guidelines, your potential for success will improve dramatically. Those that have money to burn can ignore these rules. Those that must be careful and hit profit projections must give heed to these MLM Solutions to the 10 Most Common Challenges. Life is too short to learn every lesson by ourselves. We are far wiser to observe others, and let their experiences teach us a better way.

All contents © Copyright Jenkon International, Inc. 1996. All rights reserved. Permission is granted to reproduce this article, AS LONG AS the biographical section above is included with the article.

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Compensation Plan Types




by Dan Jensen, Jenkon International, Inc.

1.Direct Selling Plans



• Traditional Direct Selling
  One on one, the distributor sells direct to the consumer and earns commission on those sales. Management is limited and often appointed. Sponsoring is not aggressively pursued except by those in sales management. Retail commissions are a large percentage of sale and are paid to the Distributor/Agent or retained in cash payment. Example: Rainbow Vacuum sales.


• Party Plan
  A one to many sales environment with the distributor arranging sales "parties" typically through a hostess. Distributor earns commissions on the inventory sold directly to retail customers in the party. Sales management is usually shallow. Distributors can often promote themselves to management through their recruiting and sales efforts though higher levels of management are often appointed. The distributor recruits other agents and hostesses who hold parties and recruit retail customers. Hostess receives purchase credit for efforts based upon party success. Generally, there are several levels of management commissions but only a small percentage of total sales dollars is paid to management. High retail profits (35 to 50%) are common. Example: Tupperware

2.Network Marketing / MLM Plans

• Stair-Step / Breakaway
  Characterized by distributors who are responsible for personal and group sales volumes. Volume is created by recruiting and retailing products. Various discounts or rebates are paid to group leaders. A group leader can be any distributor with one or more downline recruits. Once personal and group volumes are achieved, a distributor becomes a manager, and "breaks away" from their upline manager. From that point, the new manager's group is no longer considered part of his upline manager's group - hence he is called a "breakaway". Managers receive commissions on the group sales of their downline managers which often becomes the majority of their earnings. These plans pay unlimited commission on limited downline groups. This is the most common type of Network Marketing plan.
  
• Uni-Level
  Often considered the most simple of compensation plans, Uni-Level pays commissions primarily based on the number of levels a recipient is from the original distributor purchasing product. Commissions are not based on title or rank achieved. By qualifying with a minimum sales requirement, distributors earn unlimited commissions on a limited number of levels of downline recruited distributors. Typically, there is no sales management position to achieve. Example: Kaire International, Inc.
  
• Matrix
  Similar to Uni-Level plan except there is a limited number of distributors who can be placed on the first level. Recruits beyond the maximum number of first level positions allowed are automatically placed in other downline positions. Matrix plans often have maximum width and depth. When all positions in a distributor's downline matrix are filled (maximum width and depth is reached for all participants in a matrix), an additional matrix is started. Like Uni-Level, distributors earn unlimited commissions on limited levels of volume with minimal sales quotas. Example: Melaleuca, Inc.


• Australian or 2-up Plan
  Based on a large commission on unlimited depth of a small amount of a distributor's total group. Large scale recruiting is necessary to drive the program. The distributor gives up the first two of his/her recruits to their qualifying upline. This pass up may move through an infinite number of levels. Typically, sales management positions are minimal. Volumes accumulate through unlimited depth but limited width. Earnings are unlimited.


• Binary
  Requires distributors to constantly assess their personal recruiting and sales management. Distributors activate Income Centers (also called Business Centers), then recruit distributors into each one. Income Centers can be considered a distributorship entity or business. Volume in each Income Center accumulates on each of it's two legs (only two legs are allowed per Income Center - a left and a right leg). Successful distributors in a Binary plan must constantly watch their downline to ensure volume accumulates evenly. Compensation is made at fixed intervals of evenly accumulated volume up to a threshold where the maximum payment is made during a pay period. Volume accumulation starts again in the next period after maximum payment. Binary pans pay limited commission on unlimited levels of volume.2

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About the Author: Dan Jensen is founder and Chairman of Jenkon International, Inc., a computer software firm specializing in the Direct Selling / Network Marketing industry. Founded in 1978 and having served over 600 industry clients, Jenkon has acquired an unequaled level of experience and knowledge about what makes companies successful in the industry. Many of Jenkon's clients have risen to become industry leaders such as Nu Skin International, NSA, Cell Tech (Blue-Green Algae), Usana, Cabouchon, Melaleuca, and many others. Many industry leaders have come to Jenkon to utilize their advanced software technology including Shaklee, Avon, Stanley Home Products, and Nature's Sunshine Products. Most of Jenkon's clients start very small utilizing Jenkon's Summit V business management software system in their office. Summit V software puts the tools to deliver total customer satisfaction into the hands of even the smallest network marketing or direct selling company. From accurate and timely commission checks to order processing to managing downlines numbering in the hundreds of thousands, Summit V has proven itself to be a formidable weapon in the competitive marketplace of direct selling. For many, it has become the key to their success. Jenkon, based in Vancouver, Washington, employs 60 people in the USA with another six in its UK office near Birmingham, England. For more information, contact Jenkon at 360-256-4400 or Fax 360-256-9623.

All contents © Copyright Jenkon International, Inc. 1996. All rights reserved. Permission is granted to reproduce this article, AS LONG AS the biographical section above is included with the article.

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Are you wasting your hard-earned commission dollars?




By Dan Jensen, Chairman, Jenkon International, Inc.

As one looks at the bottom line on a profit and loss statement, one quickly realizes the largest cost factor is for commissions. For many companies, this ranges between 30% to 50% of revenue. While executives search for ways to reduce expenses, "commissions" is seldom touched because it drives the motivation and loyalty of the distributors. Cut the commission check and distributors leave. Increase commissions, and distributors are more motivated (theoretically, at least), but the bottom line suffers dramatically.

The real question an executive should ask is not "how do we reduce our commission expense?", but rather "are we wasting any incentive dollars?". If there was an accurate way to measure it, I believe many companies would find they are wasting between 10% to 50% of each commission dollar. In other words, incentive money is being spent without any resulting behavior or effect.

Identifying wasted commission dollars

In our last newsletter, I described five foundational objectives or behaviors a compensation plan should include. These are:



1.Sell product to end consumers (retailing)
2.Build organizations (recruiting)
3.Build Managers (people who train others to sell and recruit)
4.Build Sales Leaders (people who train others to manage)
5.Retention (keep them active)

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Step 1 - Is it accomplishing the five basic objectives in a balanced manner?
As you look at your compensation plan, determine how well it accomplishes these fundamental objectives. Figure out where it's weak and where it's strong. For example, suppose you look at your plan and realize that there are few incentives to retail product. Symptoms might include garages full of inventory or distributors who have to sell product to other distributors because they bought too much. Perhaps distributors focus on recruiting but fail to train them how to sell the product. As you look at the plan, you realize that the retail profit is poor (maybe only 20%) and that the presentation of the plan doesn't emphasize retail profits as part of the overall compensation system.

Try making a chart like the one below to see how each commission type contributes to the desired behaviors (your types of commissions may be very different than in my example):



Behaviors	Retail Profit	G. V.	Break- away	Infinity	Recruit Bonus	Total
Retailing	3	2	0	0	0	5
Recruiting	0	4	2	0	3	9
Build Managers	0	2	4	1	0	7
Build Leaders	0	0	4	5	0	9
Retention	0	1	3	4	0	8


In the above example, suppose your compensation plan had the five types of commissions. Now, assign a point value from 1 to 5 based on how well each type of commission (top row) produces the five behaviors (first column). I've filled in some example numbers to give you an example. Total them up and see how balanced your plan is, where your weaknesses are and where your strengths are. Is it accomplishing the five basic objectives?

Step 2 - Is each type of commission obtaining a desired behavior?
Look at each component or type of compensation by itself and ask "what behavior does this type of commission create?" or "if this type of commission was removed, what behavior would stop occurring". For example, if you took away the retail profit, what would happen? (Correct answer: sales would stop) If you eliminated your breakaway overrides, would leaders continue building other leaders and managers? Too many times, plans are designed to redistribute the sales dollar to others without any specific expectation. The result isn't as much a compensation plan as it is a form of "welfare" (no political message intended). Successful plans focus on behavior. Reward distributors for good behavior. Avoid rewarding them for undesirable behavior.

Step 3 - Are there any duplicated or overlapping behaviors being paid for?
Compensation plans usually have at least four types of commission incentives. If two or more types of commissions are being paid for the same behavior, would it make sense to combine them or eliminate one? Sometimes it does.

Step 4 - Are there disincentives in your plan?
As you look at each type of commission and how it interacts with the other types, you might find some conflicts or opposing forces at play. Eliminate them quickly.

Step 5 - Are you rewarding the non-producers?
If a distributor fails to produce, what happens? Do they continue receiving compensation at the level of their performance? If not, you're rewarding nonperformance at the expense of the performers. What one man receives without working, another man works for without receiving.

Conclusion
Every plan has weaknesses which are opportunities to add to your bottom line. While you may not need to reduce your commission expense, I promise that you would increase sales and profits by redirecting some of the wasted commission dollars to strengthen the weaker areas of your plan. And who knows, spending a few hours on this may give you enough money to buy that shiny new Jenkon computer you always wanted.

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About the Author:
Dan Jensen is founder and Chairman of Jenkon International, Inc., a computer software firm specializing in the Direct Selling / Network Marketing industry. Founded in 1978 and having served over 600 industry clients, Jenkon has acquired an unequaled level of experience and knowledge about what makes companies successful in the industry. Many of Jenkon's clients have risen to become industry leaders such as Nu Skin International, NSA, Cell Tech (Blue-Green Algae), Usana, Cabouchon, Melaleuca, and many others. Many industry leaders have come to Jenkon to utilize their advanced software technology including Shaklee, Avon, Stanley Home Products, and Nature's Sunshine Products. Most of Jenkon's clients start very small utilizing Jenkon's Summit V business management software system in their office. Summit V software puts the tools to deliver total customer satisfaction into the hands of even the smallest network marketing or direct selling company. From accurate and timely commission checks to order processing to managing downlines numbering in the hundreds of thousands, Summit V has proven itself to be a formidable weapon in the competitive marketplace of direct selling. For many, it has become the key to their success. Jenkon, based in Vancouver, Washington, employs 60 people in the USA with another six in its UK office near Birmingham, England. For more information, contact Jenkon at 360-256-4400 or Fax 360-256-9623.

All contents © Copyright Jenkon International, Inc. 1996. All rights reserved. Permission is granted to reproduce this article, AS LONG AS the biographical section above is included with the article.

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Compensation Plan Breakage: Why and How




by Dan Jensen, Chairman, Jenkon International, Inc.

Breakage is defined as the commissions left unpaid each month compared to the theoretical maximum of the plan. If a compensation plan pays a maximum of 45% but the actual pay-out is 35% each month, then the breakage would be 10%. On the surface, one might suggest that breakage is unfair, unethical, or at the very least, misleading, considering a plan that represents itself as paying 45% but actually pays 35%. Upon further study, however, a plan which uses breakage wisely will reward the producers much more generously than one without Breakage. It allows a company that can only afford 35% for commissions expense to pay perhaps 45% or more to the distributors doing the greatest amount of work. Breakage can be a strong competitive advantage if it is used correctly and for the right reasons.

Objectives for breakage in a plan
Every piece of a good compensation plan has a specific purpose or desired result. With breakage, we want to:

• Keep the total commission expense at or below a target maximum. If we can only afford to pay 30%, with breakage we can often afford a plan which can pay out up to 35% to 40% (or more) to the productive distributors.
• Reward specific behaviors which are most desired by the company such as recruiting, retailing, building managers and leaders, and retention. (See my Principles of a Successful Compensation Plan)
• Reward those who exceed minimum levels of performance more than those who don't.
• Avoid rewarding distributors who fail to perform consistently.


The benefits of properly using breakage



• Breakage is applied by imposing reasonable rules to qualify for commissions. If a distributor fails to perform at a desired level, the commission that he would otherwise receive is retained by the company. For example, if a distributor failed to meet his $100 minimum personal volume requirement, the company might keep his commissions instead of paying them to another distributor. This allows the company to pay more to other distributors who are meeting or exceeding the desired level of production. In essence, the company withholds commissions for lack of performance and increases the compensation of those performing well. The advantages are obvious.
• Distributors who meet or exceed expectations are rewarded more generously using commission dollars that would have been kept by distributors who are performing less.
• The company can afford to pay more than they could otherwise afford expanding the capacity of the plan to provide incentives for desired behavior. The company gets more of what it wants (desired behavior) and the performing distributor gets more of what he wants – compensation and recognition. Breakage can be a win-win deal for both company and distributor.

There are many ways to implement breakage and methods vary according to the type of plan used.

1.Bob, a breakaway manager, fails to meet his minimum $100 personal purchase for the month. He would have otherwise received a 25% commission of $200 on his group volume. Rather than paying it to his upline, Bob's $200 is retained by the company. The company determines that about 1% of total pay-out is retained from unqualified managers like Bob each month. The company decides to put this 1% into a bonus pool paid to every distributor who sponsors at least three people in the month. For each new recruit, the participants in the bonus pool receive one share of the pool. The company happily discovers that redirecting the commissions into the pool has resulted in a 10% increase in recruiting and a 4% increase in sales volume for the fiscal year from those new recruits. Equally important, over $100,000 has been paid to those distributors recruiting three or more people in a month making a number of very happy and committed distributors.

2.After a recent compensation plan change, the plan calls for a 4% first generation bonus to managers who achieve $100 in personal volume and $1,000 in group volume. If a manager achieves $2,000 in group volume, the commission is increased to 7%. When the 4% is paid instead of the 7%, the company retains the difference as breakage. The company has determined that about 25% of their managers achieve the $2,000 GV level, so they pay out the 7% 1st generation bonus about 25% of the time. The total 1st generation bonus paid is about 5%. In their old plan, the company paid out a 5% 1st generation bonus if the manager achieved $1,000 GV. In their new plan (4% - 7%), they pay out the same commission but have found a 50% increase in managers achieving $2,000 GV each month. They can afford to pay 7% to the higher producers out of the 1% obtained by lowering the original 5% to 4%.


Strategies for the wise use of breakage

Don't set performance thresholds (GV, PV, etc.) too low. Breakage is only available when there is a gap between poor performance and desired performance. If you need to set low levels of performance, than offer graduated compensation opportunities for those who are willing to work harder. Low performance requirements produce low performance.

Redirect the breakage into new incentives when possible. Increasing the 5th generation bonus from 5% to 6% may make a few leaders happier, but they may not do anything different to obtain bigger checks for doing the same old things (no wonder they are happier!). Putting another 1%, however, into a new 6th generation bonus (assuming the old plan paid only 5 generations) which is contingent on adding another 3 personally sponsored breakaway leaders will stimulate leaders to recruit and build more front line breakaways than before.

If your plan uses titles or ranks like stair-step breakaway plans do, then always use "paid as" titles. Let distributors keep the highest title they achieve, but always "pay them as" the title they actually qualify for each month. To continue paying them based on performance that occurred months ago is wasting incentive dollars which could be applied to the better producers. It also reduces breakage opportunities.

For group volume incentives (front end stair-step), consider rewarding the breakaway manager based on his actual group volume instead of his title. For example, if a plan calls for a breakaway manager receiving a maximum 25% on his group, consider adding a minimum volume level to receive the full 25%. If he falls below the minimum, then he would earn less, perhaps much less, than 25%. The difference between actual and maximum would be retained as breakage and added to other incentives in the plan.

Never roll up volume from an unqualified breakaway to his upline. Rolling up commissions (called compression) is often desired, but avoid rolling up volume which would add to the group volume of upline managers. This results in creating phantom qualification volume for upline managers not related to any real performance and often rewards the poor performer who receives a nice check and wonders what he did to earn it. The net effect is to eliminate breakage and waste your incentive dollar.

Distinguish between active and qualified when qualification levels are defined. Active usually refers to personal performance often measured in Personal Volume (PV). Qualified often goes beyond active adding group volume or sponsoring requirements. Breakage rules can be defined differently for active and qualified. For example, the company might keep as breakage some commissions for unqualified distributors who fail to meet their group volume requirements, but roll up commissions (no breakage) for those distributors who are not active.

Grandfathering: A common technique when a company changes their compensation plan is to grandfather existing leaders and distributors into former (often lower) levels of performance requirements to "soften the blow" of the new plan. While this may be essential to winning their support for a much needed plan change, it is often unwise to offer these special arrangements for long periods of time. Wise companies often make grandfathering a temporary or transitionary arrangement. Grandfathering often reduces the breakage the company would otherwise receive due to poor performance. The net effect is that the producers are compensated less while the poor producers are compensated more.

Other sources of breakage


• Shallow company downlines: Companies that sponsor wide and new start up operations find a "windfall" in the commissions left unpaid because there is no upline to pay them to. Be careful, however, because as the downline grows and matures, this short term windfall diminishes.
High end titles and ranks:
• Many companies implement plans where the top end ranks or titles are achieved so rarely that few, if any, collect the corresponding commission benefits. These unpaid commissions provide breakage until more and more leaders achieve these higher titles and collect the commission benefits.

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Finding breakage opportunities in your plan
To determine where your breakage opportunities are, follow these steps:



1.Write down each type of commission your plan pays and what it's maximum pay-out could be. For example, if your plan pays out 5 generations in the "back end" of 5%, then your maximum generation bonuses total 25%. Try to identify each individual type of commission such as 1st generation, 2nd generation, group volume bonus, etc.
2.Determine how much each type of commission actually pays out. Jenkon's Summit V Commissions Module provides standard reports each month that provide this valuable information.
3.Subtract the actual pay out from the maximum for each commission type. The difference is your breakage.


Once you know where you already have breakage, you can also spot areas where you don't. Look at these areas and determine if you want to have more breakage and modify the plan accordingly.

Conclusion

Breakage can be a significant competitive advantage if you use it wisely and a terrific tool to reward the producing distributors more than you could otherwise afford. All plans have some breakage opportunities which can be tapped to make the plan an even more powerful motivator. As in most things, moderation is more prudent than extremes when applying the principles of breakage to your own plan.

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About the Author:
Dan Jensen is founder and Chairman of Jenkon International, Inc., a computer software firm specializing in the Direct Selling / Network Marketing industry. Founded in 1978 and having served over 600 industry clients, Jenkon has acquired an unequaled level of experience and knowledge about what makes companies successful in the industry. Many of Jenkon's clients have risen to become industry leaders such as Nu Skin International, NSA, Cell Tech (Blue-Green Algae), Usana, Cabouchon, Melaleuca, and many others. Many industry leaders have come to Jenkon to utilize their advanced software technology including Shaklee, Avon, Stanley Home Products, and Nature's Sunshine Products. Most of Jenkon's clients start very small utilizing Jenkon's Summit V business management software system in their office. Summit V software puts the tools to deliver total customer satisfaction into the hands of even the smallest network marketing or direct selling company. From accurate and timely commission checks to order processing to managing downlines numbering in the hundreds of thousands, Summit V has proven itself to be a formidable weapon in the competitive marketplace of direct selling. For many, it has become the key to their success. Jenkon, based in Vancouver, Washington, employs 60 people in the USA with another six in its UK office near Birmingham, England. For more information, contact Jenkon at 360-256-4400 or Fax 360-256-9623.

All contents © Copyright Jenkon International, Inc. 1996. All rights reserved. Permission is granted to reproduce this article, AS LONG AS the biographical section above is included with the article.

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Is this a Pyramid Scheme?




1996 Leonard W. Clements

"Questionable" MLM programs continue to flood the market at a record pace. But unlike their predecessors, they're hiding their true nature better than ever. Many quasi-pyramids and money games today are taking great advantage of the ignorance of most people as to what constitutes an illegal pyramid. Please understand, I do not use the term "ignorance" derogatorily. The term comes from the word "ignore" and many of us are simply ignoring two basic, simple facts that make up a composite of a typical pyramid scheme. Also, understand that I am not an attorney, an attorney general, or a postal inspector. But I know what questions they ask, and so should you! One of the most common, and least accurate, questions we're taught to ask is, "Is there a product involved." Terrible question. Almost every pyramid out there today has thrown in some kind of token product knowing you'll ask that question. Some extremists will go so far as to tell us that the "service" they provide in exchange for your fee is their administration of the intake and outgo of cash. Some will claim you are paying to have your name added to a mailing list! Of course, the typical chain letter leads you to believe you are paying for a report of some kind. However, there are literally dozens of schemes out there that are not nearly as obvious. Some offer what appears to be an abundance of bona fide, tangible products.

One of the best examples I can recall was a program called The Ultimate Money Machine. For $300.00 you were to receive such items as luggage, a 35mm camera, and a seminar on cassette tape valued at, of course, hundreds of dollars. Well, the camera was a cheap, plastic job that Sports Illustrated couldn't give away, and the luggage you unrolled from a tube. Total cost to the company for all of these products was probably less than ten bucks!

A program called Euro-Round required a $100.00 payment in exchange for nothing. Later, to "make the program legal," they added a little book.

Remember Marathon? Here you were asked to invest over $2,000.00 for a series of cassette tapes and some literature. The participants claimed that "education was priceless." Let's give them the benefit of the doubt and say the information may even have been worth the $2,000.00. I guess it's possible. Unfortunately, this was an ongoing monthly fee! Were the tapes and literature supplied by Marathon worth over $24,000 to a participant who'd been in for a year? Probably not.

Several companies today offer product vouchers or certificates that can be spent on items out of a catalog or from various local merchants. They then claim to be offering "thousands" of products. Uh uh. They are only offering the funds to purchase these products from third-party, unrelated vendors. How many folks do you know that would be willing to purchase a $200.00 product certificate for $200.00 cash?

So don't just ask if there is a product involved. Question whether the product is even close to being worth the overall price paid. You don't have to be an economics genius to know the answer. Just ask yourself this question:

"Would anyone realistically ever purchase this product or service without participating in the income opportunity?"

Thousands of people purchase products from such companies as Nu Skin, Watkins, Herbalife and Amway every day without becoming distributors. They just want the product. This is true for most of the MLM companies out there. But ask yourself, Would anyone have ever subscribed to Washington Power Digest for $125.00 per year just for the publication alone? Very few. Did many people pay over $350.00 to Consumer's Buyline just for the $39.00 discount buyers service? Doubtful. How many folks would pay over $30,000 for a two day seminar in the Bahamas, as was offered by CommonWealth and several other such schemes? Unless it was one helluva seminar, probably no one.

Another consideration would be whether or not there is any kind of financial reward for just the act of recruiting. But this question is trickier than it seems as well.

For example, what if a product based company also offered upline commissions on sales aids and training fees? Wouldn't it then be possible to earn commissions by just signing up new distributors and getting them trained and ready to do the business of selling the products long before they've actually sold any products?

They key question here is, Does the product or service have value to someone who just wants the product or service? Is it retailable? Again, would someone pay for it even if they were not a distributor? So, would someone go to your company's distributor training meeting or buy your company's brochure if they were not going to participate as a distributor? Of course not. Does the company claim you only have to make a one time purchase? I've seen several programs recently where they claim you pay once, then sit back and wait for the residual income to roll in. But think about that. Where is the "new" money coming from? Obviously they can't pay out more than they take in, so the only way the program can continue is if people keep recruiting. So, even if the "one time" fee is for a perfectly legitimate, tangible product of reasonable value, and upline commissions are only coming from that purchase, it may still violate the principle of a financial reward for the act of recruiting. If youÕre not convinced, then ask yourself this question:

"If all recruiting stopped today, would this company still be able to pay monthly commissions in the months ahead?"

If you only have to pay a one time fee in the beginning, then the answer would be a definite NO. Eventually all the existing funds would be used up and no new funds would be coming in. Commissions could only be paid if people continued to recruit. Whereas legitimate, legally sound MLM companies could continue to pay commissions from the ongoing buying and selling of their products.

So if you can't answer the above two questions with a confident, resounding "Yes," you should probably tell your prospective sponsor "No!"

Epilogue:
I want to make it clear that the previous article is not necessarily based on the author's opinion of the way it should be. It's simply the way it is. Personally, I believe we are all intelligent, mature adults and should be allowed to do what ever we want with our own money as long as there is full disclosure and we are made aware of the risks involved. Also, much of this discussion is based on years of precedent, not just my lawmen's interpretation of the law.

In fact, the roots of most MLM law is founded on the Amway vs FTC decision in 1979. Perhaps the single most defining characteristic of a legal network marketing company came from these hearings. Essentially, the question was asked...

"Can the last person in still make money?"

Obviously, the last person in a pyramid scheme (the most obvious of which have no product at all, only a cash investment) will never make a dime. But if you were the very last person to ever sign up as a distributor for Amway, Nu Skin or Shaklee, could you still make money? Of course. By buying the product at wholesale and selling it at retail. In some MLM compensation plans it would even be possible to earn commissions or bonuses based on national bonus pools, car allowances, or other prize awards.

If you were the last person to sign up in your MLM program, could you reasonably expect to be able to mark up the product or service and resell it to an end user? That is, someone who only wants the product or service.

Understand that I'm in no way suggesting that any company who might be violating any of the above three principles are necessarily going to be shut down. First of all, federal and state regulators don't go out searching for them. Usually, someone must bring them to the attention of the regulators. As long as the scheme is keeping people happy and no one complains, it could last for years.

There are also some very good, honest programs out there that might not receive a "yes" answer to one or both of these questions. For example, I know of one very promising program that does pay commission on sales aids. Again, that does not necessarily put them in dire jeopardy. If a regulator has a problem with this, they'll just stop paying commissions on sales aids. Most of the time, unless it's just an outright scam, the offending company will always be given the opportunity to fix the problem long before there are any serious consequences.

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Leonard Clements has concentrated his full-time efforts over the last six years on researching and analyzing all aspects of Network Marketing. He is a professional speaker and trainer, and currently conducts Facts & Myths of Multi-Level Marketing seminars throughout the U.S., Canada and Mexico. He is also a contributing editor of Profit Now (previously published as MarketWave), an opportunity analysis newsletter focusing on the MLM industry. Mr. Clements is the author of the controversial book Beyond The Veil, an objective, no-holds-barred, insider's look at MLM industry. He is also the author of the best selling cassette tape Case Closed! The Whole Truth About Network Marketing, which has been labeled "the best" generic recruiting tape by six MLM company presidents. Mr. Clements has been involved in the MLM industry for sixteen years and is a successful distributor for a prominent MLM program (which is never mentioned in either the book or the cassette tape).

To receive additional information about MarketWave and its products, please call 1-800-688-4766, or write to MarketWave, 7342 North Ivanhoe Avenue, Fresno, CA 93722.


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WOLF! WOLF! WOLF!




by Doug Cloward

Wolf, wolf, wolf! There are wolves in the flock! This cry of alarm from a self-proclaimed shepherd of the direct selling pasture is neither prank nor the effect of fanatic "sky is falling" hysteria. The wolves are among us in direct selling sheep clothing, and the shepherds have lowered their staff of defense.

The wolves of which I speak are those direct selling companies, DSA members and non, whose compensation systems are largely dependent on the revenues of fees they charge their distributors. They are companies whose consumer products cannot sustain sufficient margin to drive their sales organization. Therefore they seek to employ methods to "artificially build and support" their network salesforce with a variety of wolf schemes. Because we have not seen through sheep's clothing we have allowed these wolf companies and their tactics into the fold. Again, I call wolf!

Companies that resort to selling training programs, sales aids, kits and other business support tools to fund their businesses, knowingly or unknowingly, establish what amounts to a pyramid system. Systems that are dependent on the buy-in of newcomers to fund the profits for those who got into the deal earlier are using classic pyramid technology. In reality they are selling "opportunity." Often, the program requires some token business activity to qualify to share in the "booty" of the future participant's buy-in "investment." These types of compensation plans and their "legitimizing" requirements amount to the purchase of a position in a chain of participant fees. They are illegal, unethical and are putting the industry at great risk.

These wolf-clothing programs are often camouflaged with legitimate sounding names like "training bonuses, customer acquisition plans and coding bonuses." The name alone does not condemn the program as a pyramid "laundering" system, but all too often when we uncover this camouflage we find a wolf. And, we discover that the compensation is in reality tied to headhunting. They are hunting in your pastures.

A few of these wolves can devour a lot of "sheep" investments. Again, it is my opinion that these devices cross the line of selling product and enter the realm of selling business opportunity. Thereby they constitute a significant threat to the rest of the flock.

Shepherds awake! As "wolves" get into the pasture and feel free to feed on the hopeful aspirations of the sheep who flock to their "something for nothing" promises, more wolves will feel free to work this mayhem. They are excelling. We cannot continue to turn our heads and allow these practices to infect our industry. Nor can we assume that the policing is the sole responsibility of consumer protection agencies and organizations.

What is most alarming is the attitude some shepherds are taking. "Surely if they were wolves someone would have stopped them by now." "They can't be that bad. After all, they are a successful public company." "Our attorneys reviewed their practice and said it is okay, even recommendable."

And so the shepherds are lulled into a false sense of security and return their attention to their own flocks and ignore the encroaching wolves. Worse - some of the shepherds are actually considering the greener pastures they might afford by adopting the wolves' practices.

In a complex, competitive recruiting marketplace, short-term success at the expense of long-term principle has its allure. But, its cost, the good name and legitimate value of our products and channel of distribution, is too high a price to pay. We must not ignore nor succumb to the cunning deception of those whose rapid growth is fueled by a wolf system that will eventually fall and leave scars on the lives of its participants and the direct selling industry.

For those who are true shepherds, who are committed to the continued feeding of their flocks, who are so dependent on free access to the public pasture, it is time to raise the warning cry and the staff of defense. We must identify the wolves, drive them out.

We have a shepherd's union. We pay for mutual defense. Has our focus to keep the dogs at bay at the gate on the hill allowed the wolves to come in through the holes in the fences in the field? Should we reexamine the defenses and the priorities of our defenders?

Again, I call wolf, wolf! Do not wait to act until they are nipping at your heels and feeding on your sheep. It is time to get more specific with the code and more vigilant in enforcing its adherence.

Doug Cloward is President and CEO of Salesforce Development Solutions, a full service direct sales consulting firm. He is an industry expert in salesforce compensation. With over 20 years of direct selling experience as a distributor, corporate executive and consultant, Mr. Cloward's breadth of service brings a wealth of experience and timely advice. Doug can be reached at 851 East 1100 South, Spanish Fork, Utah 84660, 801-798-8874, 801-798-9504 fax.


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Business Plans and Budgets - Who Needs Them?




by Jay E. Leisner, Sylvina Consulting

Many people think that the sole purpose of a business plan is to secure outside investment capital. However, this is only one of the two purposes.

A business plan helps demonstrate that you have thought through the business in detail and can show convincingly that you have a viable, profitable model. Before you spend time convincing others, focus on convincing yourself.

Some folks think that budgets are only for big companies. "We're bootstrapping the business. We don't have much money and certainly we don't have the time to create a budget. Our budget is to spend as little as possible to get this business off the ground."

A budget helps to identify not only the costs but also the items that you may need to purchase (including those for which you decide to defer the purchase). Before you spend any of your money, take the time to identify the items that may consume your money.

Writing a business plan forces you to think about the seemingly endless collection of details about the business you plan to launch. The exercise of writing the business plan is key to the process of working through the plan as you write it. The pain is worth the gain. You'll see what you know already, and you'll also see what you have yet to learn.

Having a business plan gives you a concise document to share with those you'll contact as resources to help launch your business.

If you have your business model reviewed by a qualified attorney, he or she may ask to see your business plan (and any other documents you've written about your business, such as your compensation plan).

If you choose to engage a business consultant to help you fine tune your business model, having a business plan will save you money in reducing the amount of time the consultant will need to spend to understand your business model.

When the time arrives to make decisions with respect to software, your software company will appreciate reading your business plan for it will help to identify unique requirements that may need to be addressed with software.

Don't view your business plan as a static document, once written, that shouldn't be changed. On the contrary, your business plan should change as you adjust your business model prior to and after the launch of the business.

Preparing a budget is first an exercise in identifying the major items that you'll need to purchase to launch your business. The process of assigning costs to each budget item comes next.

Deciding when to purchase each item is also important. Some items will need to be created or purchased immediately, such as a compensation plan and hostess program (if you'll be launching a party plan company).

During the excitement of preparing your business plan, don't forget about the legal aspects of your business. For a long business life, you'll want to make certain that both your products and your business opportunity don't violate any laws, as there are many laws that apply to direct selling companies.

Unless you're an attorney with experience with this marketing channel, don't presume that you already know what's legal. Engaging the services of a qualified attorney is a wise decision before you open your doors for business. While you may have a relationship with a general practice attorney, for your new business we strongly suggest you contact an attorney who has worked with other direct selling/network marketing companies.

Be sure to include the costs of legal representation in your business plan.

Other items, like software, sometimes can be delayed until the business is larger.

Working with a consultant can give you insights into what's possible and practical when launching a new company.

Jay Leisner is President of Sylvina Consulting, a business and software consulting firm with more than 18 years of experience working with over 150 direct selling, party plan, and multi level marketing companies.

For more information on Sylvina Consulting or to request a complete information packet including several white paper articles about how to launch a direct selling company, contact Jay Leisner at 503.244.8787 or visit www.sylvina.com

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The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

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