How Important Are Compensation Plans In Network Marketing?

What criterion do you use when picking a network marketing company to build?

After a few years of doing network marketing full time my top 3 criterion for choosing the "right company" are as follows:

1. Integrity - this is non-negotiable. My values MUST align with my company's values. I don't care if it is a billion dollar opportunity, integrity is the #1 priority for me. Without integrity all of your work will be undone.

2. Products people WANT - Most network marketing companies have products that are good but not necessarily what people want. Seth Godin says that brilliant marketing is creating products people actually want as opposed to need. If the product is something LOTS of people want then it will spread naturally and you won't have to always talk about duplication (because duplication will be happening on its own).

3. A great culture - This comes back to integrity. It is of utmost importance, in my opinion, that a company has a culture of integrity, honesty, transparency, fun, etc. People should LOVE being a part of the company. And if someone were to leave they should always look upon the opportunity as one they really had a great time in. In other words, the company should do its best NEVER to create enemies.

There you go, these are my top 3 criterion for picking the "right" company. I firmly believe that if these three things are in place then you have a winner. The sad part is that most companies fail in one or more of these areas.

I hope you noticed that the compensation plan isn't even mentioned in my top 3 factors for choosing the right company. Yet, I'm amazed at how the compensation plan is almost always the #1 deciding factor for most network marketers.

I believe the whole compensation plan thing is a game of "smoke and mirrors".

Don't believe me?

Well, take a look at the top companies in the world for direct selling. Herbalife, Amway, Avon, Mary Kay, Nu Skin, Arbonne, etc. Do you think they are billion dollar companies because of their compensation plans?

Hmmm... interesting isn't it? What makes all these companies so great? May I suggest that my three criterion above might have a lot to do with their success. Now, I'm not saying that all these companies are great opportunities... a great opportunity also has to do with timing and a host of other things.

Don't be fooled, the "smoke and mirror" game of compensation plans is border line a ponzi scheme. Pretty strong statement huh? Well, let me explain what I'm saying.

Does everyone in network marketing make a profit? Of course not! It is a mathematical certainty that MOST people in a mlm company will NOT be making a profit. In fact, around 75% of people in a downline will most likely not be making a profit.

So, if EVERYONE is joining a company based on the amazing compensation plan and the idea that they can get rich what do you think will happen long-term? It doesn't take a rocket scientist to figure it out. You can see it happening everywhere right now in network marketing. People leave!!! And the entire thing starts unraveling from the bottom up.

The ONLY people who win in these type of scenarios are usually the owners and the ones at the top of the company. They make a few million before the whole thing implodes.

Let me make this abundantly clear. If the main driving force behind the growth of a company is the compensation plan and the opportunity to make money then it will NEVER last. Only the people at the top will truly benefit. And the only way the company can keep it going is by opening other new countries.

So, what should the main driving force be behind the growth?

Isn't it obvious? It HAS to be that people truly want the product and love being a part of the community. In other words, the company should continue to grow even if it removed the compensation plan. It's sad to say that over 95% of companies in network marketing fail this test.

A lot of times the product is simply an excuse for money to exchange hands. I know this isn't going to sit well for a lot of people but it is the truth.

Let me ask you something.

Let's pretend you are presented with two scenarios. I want you to choose which one you think would offer you the most real opportunity to build a legitimate, long lasting business.

Scenario #1: You have the chance to join a brand new MLM that has a compensation plan that pays out 70%. But, it gets better. The compensation plan is SO easy. All you have to do is get two who get two who get two and so on. If you get in early, you'll have a MASSIVE downline and people will be put under you. There's crazy momentum. Everyone is going to be rich! The product is okay... you convince yourself to use it ONLY because of the opportunity that is attached to it. In other words, you or anybody else you know would never be actively looking or wanting this product.

Scenario #2: You have the chance to join an opportunity where the compensation plan only pays out 40%. It isn't sexy at all. In fact, you have to really go to work and build it to get paid. Positions mean nothing in this compensation plan. People at the top have no advantage whatsoever. Leaders are paid well but have to work to earn their money. The product is something people really want. People are going buzzirk over it. The product spreads on its own.

What would you choose?

Anyone who understands marketing would realize that creating a product people really want is the HARDEST part of the entire equation.

I hate to say this, but I think a lot of owners use the network marketing distribution model as a way to market an inferior product (that would never sell on its own because people don't want it) in order to make money. In other words, they use the "compensation plan game" as a way to disguise the ugly truth that their product would never fly in the real world of business.

Here's the dilemma.

If you invested millions of dollars and a lot of time into creating a product a LOT of people want (like the iPhone) then why would you use network marketing as the distribution model? In today's world, if you have a product people want it will spread on its own with lightening speed via the Internet, email, blogs, cell phones, etc. Why would you pay 40% of your profit when you know that your product will spread without it?

Do you see where I'm going with this?

Most network marketing companies are selling products that people really aren't actively looking for or buying. And the ONLY reason the company is growing is because of the compensation plan and "hype" that is attached to it (false growth).

I believe that last 10 years has been the decade of border line ponzi schemes in MLM. People have been buying into the "hype" and thinking the compensation plan is the most important part.

Here's what I predict is going to happen in the next 10 years.

People are going to get wiser. People are going to realize that if 75% of people in a downline won't make a profit then it HAS to be a product people want and can't live without (to keep the auto shipment going) with a culture people love being a part of. People's criterion for choosing a company are going to shift dramatically. And a lot of the "hyped up" deals are going to disappear.

We live in an economy where we can't afford to work on a business for two years only to see it all unravel. People are going to be looking for something real, something lasting, something that won't disappear after putting their blood, sweat, and tears into it.

Maybe I'm wrong, but this is the trend I foresee.

And this is good news for the very small percentage of companies that have innovative products that people want with a culture of integrity and having fun.

So, how important are compensation plans in network marketing?

I guess the short answer is NOT nearly as important as having a product that people truly want and a culture of integrity.

P.s. I can almost hear people accusing me of saying compensation plans don't matter. That is NOT what I'm saying. They do matter. Network marketing is more than just a product people want. It's about developing leadership. And leaders MUST get paid. Leaders inspire others to overcome all the difficuly associated with building a successful business. Without leaders, a company's growth would suffer even if they had innovative products.

Let me suggest that the most important part of the compensation plan is the psychology behind it. In other words, the compensation plan's job is to reward certain behaviors. It must be good at encouraging retail sales. It must be good at motivating the new distributor to enroll and build and advance as a leader. And it must also be good at rewarding the true leader that is building a big business.

My goal in writing this to you is that you become wiser in choosing what MLM company you want to build. You should treat your MLM business like you're investing a million dollars into it. Use sound principles and don't get caught up in the hype. Lastly, write down your values and make sure you align yourself with a company that has the same values as you.

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