Written by Brett Duncan. Brett specializes in helping direct selling companies evolve into modern social selling models while still maintaining the culture and essence of who they are and what makes them different. He is co-founder and managing partner of Strategic Choice Partners, a business development firm that helps direct selling companies take their next steps.
4 Timely Reminders for Compensation Plan Design in 2024 (and beyond)
Direct selling is changing … fast! Conventional wisdom and tried-and-true measures are, well, not always measuring up like they used to. We’re seeing it in so many areas of our industry, including compensation plan design. What used to work five, ten or twenty years ago can feel antiquated in the face of modern social selling and digital business models. In a way, it’s exciting – there’s room for creativity and new approaches that speak to today’s sellers and customers. But it’s also daunting – keeping your distributors happy, your company growing and your budget intact has never been more challenging.
For decades, compensation plans have been hailed as the secret sauce that fueled the success of direct selling companies. But let’s face it, today, that sauce seems a little less spicy and a little more secretive. The days when a well-designed plan could single-handedly drive growth and retention are behind us. In the digital-first world we’re living in, companies need more than just a lucrative payout structure to attract and retain distributors. Today’s sellers don’t just care about how much money they can make – they care about how fast and how easily they can make it.
Think about it: when was the last time you evaluated your compensation plan, not as compared to the payout and structure of other direct selling companies, but rather against the shifting landscape of social selling? If your compensation plan isn’t designed to facilitate easier, faster and more effective selling experiences, you’re already falling behind. Simply increasing payouts won’t solve the real problem anymore.
It’s time to challenge the conventional wisdom. With rising operational costs, increasing technological demands and the relentless pace of social media-driven sales, your compensation plan must be more strategic, focused and creative than ever before. It’s no longer about offering the highest commission – it’s about delivering a plan that integrates with the systems that help sellers succeed.
If you’ve been relying on your compensation plan as your company’s primary selling point, it’s time to rethink your strategy. Compensation plans are still important, but they’re no longer the main ingredient- they’re just one part of a much larger recipe.
Many companies partner with my team to help modernize their approach and operation, and compensation plan design is typically a foundational part of the transformation the company is looking for. But it’s rarely the only part. In the past, I’ve shared thoughts on the makings of a modern compensation plan, and ways to start thinking differently about compensation plan design. These two articles are still very helpful.
In this article, I want to expand on those thoughts, and offer up what I’m finding to be four key reminders that need to remain at the center of your thinking and planning as you look at possible updates to your compensation plan.
1. Conversion Rates Are More Important Than Commission Rates
In the past, companies used commission rates as the primary motivator for salespeople. But today, with the rise of social selling and ecommerce, sellers aren’t just looking for how much they can make – they’re asking how easily they can make it. Conversion rates are becoming the critical factor.
This is not to suggest that the commission rate doesn’t matter; it just doesn’t matter if the offer doesn’t convert. In a world with so many options, the modern social seller is aware that they cannot waste a sharing opportunity on an offer that doesn’t resonate with their audience, regardless of the payout for their referral.
Modern social sellers want systems that make it easy to share and promote products that convert well. They are more motivated by tools that help them close sales quickly than by higher commission percentages. High-converting landing pages, simple shareable shopping carts and seamless customer experiences matter more now than offering an extra point or two in commissions. For many, they aren’t just perks; they’re expectations.
This shift challenges companies to think beyond traditional compensation structures and focus more on the infrastructure that supports better conversions. Direct selling companies must take conversion rates into account as much, if not more than, the size of the commission rate. If you’re still focusing solely on percentage payouts, you’re missing the bigger picture.
2. The Cost of Your Plan Can’t Be Looked at the Same Way
The cost structure of direct selling has fundamentally changed. Running a successful company now requires heavy investment in digital infrastructure, marketing, compliance and more. As much as we all wish we could keep payout percentages high, the reality is that other expenses are eating into that same budget.
If the cost of your plan remains high while the cost of everything else keeps eating away at your bottom line, that high-paying plan won’t be around long enough for anyone to make anything on it.
Your sellers expect more from you now: seamless technology platforms, well-designed apps, social media marketing support, and even logistics improvements. And, let’s not forget about the expectation of low and free shipping in a world where the actual cost of shipping continues to increase. The capital needed to deliver all of this means you can’t afford to design your compensation plan with the same kind of generosity you may have once offered.
That doesn’t mean your plan needs to be less rewarding. It means you have to be more strategic about where and how you invest your payouts. Compensation plans, ultimately, are about rewarding certain behaviors. Prioritize the behaviors that matter most, and that benefit both the seller and the company the most. Maybe this means focusing less on immediate recruiting bonuses and more on sustained sales performance or customer retention incentives. Whatever approach you take, make sure your plan rewards the activities that will sustain your company long-term. As stewards of the opportunity you offer, sometimes the best compensation plan update is the one that allows you to keep the doors open and thrive for years to come.
3. Be Clear on Whom You’re Trying to Attract
One of the biggest mistakes companies make when designing or tweaking their compensation plans is trying to appeal to everyone. Today, there are multiple types of sellers out there, and they don’t all respond to the same incentives. Not everyone is interested in building a team. Some don’t care about recognition the way others do. Many aren’t even looking for huge payouts. Before you design (or redesign) your plan, be crystal clear about who your target audience is.
Are you going after traditional network marketers who want to build teams? If so, you’ll need a plan that rewards leadership and team-building. Or, are you trying to tap into the growing market of affiliate marketers and influencers? They likely want simple commission structures and direct incentives for sales, along with streamlined online selling capabilities. More interested in attracting as many spare-time casual sellers as possible? Each group has different reasons for considering your company and your opportunity.
It’s easy to see how confusion over this can cause tension. If you’re trying to attract experienced network marketers, offering them a shallow affiliate plan might turn them off. On the other hand, an influencer or affiliate might be equally put off by complex binary systems with spillover and multi-tier payouts.
Of course, direct selling companies have attracted all of the above for a long time. I’m not suggesting that you should shun certain segments in order to attract another. However, the decision as to whom you are most trying to attract will heavily influence and impact the decisions you make in plan design.
Be deliberate about the type of seller you’re targeting and make sure your plan reflects that.
4. Consider Repositioning Your Plan Before You Redesign It
When companies feel their compensation plans aren’t delivering, the instinct is to throw out the old and bring in the new. But often, the issue isn’t the plan itself – it’s how the plan is positioned. Before you go to the drawing board, ask yourself whether you really need an overhaul or whether your plan just needs better communication and a new presentation.
Many companies already have strong compensation structures in place but fail to articulate their value. Or, they may not be highlighting aspects of the plan that would resonate with the types of sellers they’re trying to attract. For example, perhaps your plan already offers great incentives for customer retention, but your marketing focuses only on recruitment bonuses. Leverage certain components of your existing plan in new ways before deciding to throw everything out and start from scratch.
I’ve seen many companies who think they need a new compensation plan only to discover their issue is actually one of perception, not mechanics. A small tweak in how you position the plan – or how you highlight certain benefits – can make all the difference in energizing your salesforce and driving growth. This approach has worked wonders for clients looking to breathe new life into their compensation plans without a massive overhaul.
Compensation Plans Do Way More Than Just Compensate
Your compensation plan should do more than just pay out. It should support behaviors, drive
growth and align with the overall vision and strategy of your company. Are you focusing too much on commission rates and overlooking conversion rates that could make a bigger impact? Are you trying to spend the same amount on compensation when rising costs mean you need to be more strategic with every dollar? Have you clearly defined who you want to attract with your plan, or are you trying to appeal to everyone and satisfying no one?
Lastly, could your current plan work better with a shift in how it’s positioned, rather than a full overhaul? The most effective compensation plans today aren’t necessarily the most expensive or complex – they’re the ones that reflect a company’s clarity about what it wants to achieve and who it wants to attract, and who have a core compelling offer that customers want to buy and that sellers want to share.
It’s time to make some decisions. Compensation plans may no longer be the secret sauce of success in direct selling (and I think that’s a good thing). But they do have the power to either serve as an accelerator for growth, or an obstacle. Will your compensation plan help drive the future, or will it hold you back?
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Thank you Brett for sharing your insights with all of us.
Great article Brett, your insights and understanding are on the cutting edge of a more modern Direct Sales strategy.