So wrote Laura today after learning how to figure out what she’s really been getting paid from her company at the Hoorahrah this past weekend.
“My company is not geared for customers, as far as paying Associates. I believed I made 10% of what a customer brought but in reality, I get paid 10% of PV which is 80% of the $ amount going to the company….I feel like I’ve been cheated and lied to…but I won’t do that to anyone else…”
Other Hoorahrah attendees told us how much they got paid for bringing in orders – customer orders or recruit orders.
One couple said they earned 30%. Everyone thought that was pretty nice, so I asked her how much money in dollars she’d make on a $100 order.
She paused. She stammered, then took out her calculator, and smiled up at me. I asked her:
“OK, so do you get paid on the dollars a customer or rep pays the company or do you have a BV, PV or points-type pay plan?” (Business volume, purchase volume, or points assigned to products instead of their dollar value, where those values are less than the dollar amount the company receives.)
“Oh, a BV plan.”
“What percent do you get paid on?”
“75%.”
“What’s a typical customer order?”
“$125.
“And you get paid 30% of 75% of that, right?
“Yes.”
“OK. 75% of $125 is $93.75. So you get 30% on $93.75. Yes?
“Right.”
“30% of $93.75 is $28.”
“Yes. That’s it.”
30% of $125 is $37.50. Almost $10 more. How many people come into that company thinking they’re going to get 30% of the selling price, but they’re really not?
That’s why the gal couldn’t figure out what 30% of a $100 order would be. It’s not what she gets paid.
Many companies do this. They pay based on the BV/PV or points they assign to the products, and that is ALWAYS less than the real dollar amount of the order the rep brought in.
This little BV/PV/points trick enables companies to inflate what they tell you they pay you.
Reps often just play along – telling new recruits “we pay 30%”. It sounds good. When you get them in, they’ll maybe hear the true story.
Normal people assume, like any other type of sales, that when they tell you that you get paid a percent of sales, that the percent is of the dollar amount of the orders you bring in. Real estate agents get 6% of the house’s selling price, not 6% of of 75% or 80% of the selling price.
And how do the corporate types and recruiters explain it? “Oh, it’s a really complex pay plan…”
Some reps do tell, but why should they have to explain that it’s not as good as it sounds?
Company brass are no dummies. They know that 30% sounds big. Better than 22%, which is, in this case, what $28 in pay on an order of $125 really is. Or that 10% sounds much better than 8%.
Know what you are getting paid and what you’re getting paid on. It may not be what you thought.
I think this is the responsibility of the sponsor to truly educate their new person. Personally, I am VERY clear as to what/how people get paid and where the numbers come from. I feel blessed that my compensation plan is easy to explain and that I know how to do it. If you can’t answer the question a new person has, look to your upline or call your company. To me, this is my livelyhood, I MUST know it and be professional.
Sara
http://www.nikken.com/thewellnessgrp
Unbelievable! No wonder so many former networkers (and their friends and family) run screaming from us when we mention a business opportunity. I lucked out — my company pays everything, commission (both wholesale & retail), royalties and bonuses, based on the retail price of the product. Period. No BV, PV, or other such percentage gibberish. My retail profit is 50% of the product price and wholesale is 8 to 42% of the product price. Pretty good, huh?!
I agree with Sara that it is the sponsor’s responsibility to educate her team.
With one of my companies we are paid 10 percent of the CV which is sometimes different than the wholesale price paid for the product.
This is not done to be deceptive though. The company assigns different values to different products. E.g – The wholesale price of a cleansing bar is $4.00 and the CV is based on $4.00 too. But, the wholesale price of a candle is $9.50, but the CV is $4.75
While I think it is important for the sponsor to inform prospects of the comp plan, it is also up to a new distributor to do their research.
Is it possible that Laura’s sponsor actually did explain how it worked, and Laura thought she understood, only discover later that she didn’t?
I know I have been guilty of thinking I understand something and I don’t take the time to go over it to make sure. This doesn’t mean that the person delivering the information was intentionally being deceptive.
Thanks Kim for getting us all thinking!
It’s nice to know I can be upfront with new recruits when I explain how they get paid on their customers. Immunotec Research pays their distributors 20% of the PURCHASE PRICE the customer pays for products. When a customer buys a box of Immunocal at the wholesale price of $59.40, the distributor gets paid $11.88. If the customer buys a box of Platinum for $84.90, the distributor makes $16.98. No deception there! I encourage ALL distributors in my organization to have lots and lots of customers and to always ask for referrals.
Thanks Kim!
Karen
http://www.pioneeringhealth.com
My company allows me to set the price for which you purchase our products. Using your credit card I go on line and place an order for the products you want at a price I determine, as long as that price is at least my wholesale price. My profit is the difference between what your credit card was charged and my wholesale price. Sounds like most businesses to me.
I am also paid a bonus that is based on the amount of product sold for which I am directly or indirectly responsible. This is based on what most companies refer to as BV/PV. My bonus is determined as percentages based on my volume. The BV/PV allows the same percentage to be paid for all products and at the same time allows for the companies profit margin to vary for each profit.
In a MLM profit-sharing system the BV/PV seems to be a very logical process if explained openly and correctly.
That the problem!
I loved the exercise we did about what you get paid for customers. That also made us think.
As far as distributors, I have this “burning match theory”. You should be able to light a match and explain your company’s compensation plan before your finger burns. If not, your plan is too complicated and you will only add to the bad name that Network Marketing gets.
In our company, we get up to 33% (example: in a sale of $157.25 we pay $104.80) leave us a retail profit of 51.89. at leader’s level, (leader is a commitment of 2000 minimum PV at least 11 out of 12 months). Of course most of the time we allow for a distributor discount of 24% for good retail customers that occasionally recommend us other prospects or make a retail sale.
For most consumers we service, they get what is called MN that is 15% off retail that leave us with 18% for the trouble.
Over 25 years we have kept about 20% MN customers (even before the company implemented that “rank”) and 80% DN; with gasoline expense, we calculate everybody leaves us 6%. Besides, on PV, that is calculated on the overall sales for the month (probably about 78%) below suggested retail price we get anywhere from 16% up to 34% plus incentives like the occasional trip, or invitation to dine by our up line.
With minimal effort we have driven seven cars off the rack (dealer) starting with less than 50 miles and our mortgage has being paid for. It is unfortunate that our company dropped the car incentive.
Overall, retail profit, DN profit, MN profit,and PV accounts for about 30% all together.
We also get up to 7% on the PV of business builders but that is another mater.
Rubén
Ruub002@ca.rr.com
Thanks for helping to educate the network marketing industry.
We need to know what we should look for in our compensation plans and company contract we sign.
Great information to pass along.
Brenda Bunney
http://MLMSuccessBunney.com
brendab@brightok.net
I had never thought of this before. Just one more way for us to be totally honest with people.
Thanks Kim,
Nancy Carlson
perfectmombusiness.com
Thanks, Kim
We love it when we understand a pay process. I agree with the lady’s “Burning match” Theory.
I tell people that we get 60% of a travel commission, not of the retail price ofthe ticket.
On a cruise, a person can set up a $600 commission, per se. they will receive 60% or $360.
I can explain and teach my organization to explain the money easily and quickly and without hoding anything back!
Thanks for all you do, Kim!
I don’t think the points are deceptive. I’ve never seen a network marketing company that didn’t do it. I tell my prospective business partners that it is a universal currency, used to calculate commissions because we do business in many different countries.
I feel the company I partner with is very transparent that commissions are a percentage of points volume. No problem to me.
I think the PV approach makes great sense the way our company does it. We are paid 2 ways and the methodology is much like traditional business.
1) When we sell product, we earn a profit — the difference between the price we can buy it for and the price our customers pay — just like anyone who sells merchandise anywhere. That margin ranges from approximately 15% to 35% of the retail price of the item.
2) In addition, we earn a volume bonus which is calculated as a percentage of total point value of the product we have sold during a month on a graduated scale from 4% to 34%. The point value is approximately equal to the lowest wholesale price.
It is simple to understand and makes sense if you are familiar with the concepts of profit margin and volume bonuses used in traditional businesses.
I see no misrepresentation in this system. It rewards finding customers and selling product. To try to force this system into a flat percentage or a dollar amount almost guarantees that the information you give a recruit will be inaccurate. The commission on the first bottle of supplements you sell in a month is not not known until you sell the last bottle and know your total volume. This which simply increases incentive to build volume and rewards those who do.
Thanks for exploring these questions.