Guest author Steve Jamieson is the Chief Executive Officer and Founding Partner of WorkingSocial, offering innovate and transformational business, sales, marketing and digital strategies to network marketing companies at every stage of success. Steve has a 20+ year career in direct sales that included working as the CEO at three prominent network marketing companies and as the CMO and Executive VP for Success Partners and Success Magazine.
Guest post by Steve Jamieson
Customer Viral Marketing Compensation Plans Go Viral!
James Carville, a famed political consultant once said to Bill Clinton – “Don’t worry, it’s not about you, it’s the economy stupid”.
To every MLM C-Level Executive, that is struggling from continual stagnation in your direct sales company, let me say to you, “Don’t be Stupid”, it’s about the Compensation Plan. Alternative Gig-Economy compensation plans provided by such companies as Uber, Amazon Marketplace, Shopify and Customer Sharing Apps, are in direct contrast to the out of touch chase the dream compensation plans still found in many direct sales companies.
If we are to become a relevant and vibrant part of the “Gig Economy”, then we can no longer have compensation plans with similar promises offered by no money down real-estate schemes, forex trading platforms, bitcoin currency mining and now click-funnel programs that promise to teach you how to be a marketing guru.
If your Company isn’t working the way you envisioned, more than likely your compensation plan isn’t working for you. It’s built upon the wrong premise, it promotes the wrong behavior, no one understands it, no one can teach it, invites legal scrutiny and is hurting your brand.
For the past two decades, comp plans were designed to mirror the success and failure of traditional businesses whereby 20% of the people earn 80% of the income. The attraction of our business model was simple, we offered the 20% tier to people who didn’t traditionally have an opportunity to be in that group! Carpet cleaners, mattress salesman and stay at home moms were offered a second chance at a first-time exclusive income.
While those comp plans did, in fact, work for the few, doesn’t it make sense that any plan designed for the majority of people to fail is eventually destined for failure?
Customer Viral Marketing
There is a new phenomenon sweeping across retail sales called Customer Viral Marketing (CVM) that can evoke revolutionary change at the core of every direct sales compensation plan.
If you still think going viral is how many views a video has reached or whether or not an influencer is now marketing your products, the marketing world already blinked, and that moment has come and passed as your next best marketing strategy.
The new viral metric now is how much money have you paid your customers for sharing your app or your products.
- Companies such as Ibotta, Dosh, RetailMeNot, BeFrugal, and Rakuten have paid more than 1 billion dollars in cash back to customers for sharing their products or apps with their friends.
- Companies with formalized referral programs experience 86% more revenue growth over the past two years when compared to companies that do not.
- Repeat customers are often the most profitable. McKinsey found that repeat e-commerce customers spend more than double what new customers spend ($52.50 average cart size for repeat customers, compared to $24.50 for new customers).
As John Lennon once said, “Imagine all the People”. Imagine how many more people you can now talk to when you are speaking to all your satisfied customers about getting paid for sharing your products, instead of just your distributors? In today’s gig economy, is it easier for your company to create viral activity among customers in order to create viral activity among your salespeople, or do you want to continue to try to create viral activity within your sales force with the intention of having them create viral activity among your customers?
I recently spoke with the CEOs of 3 direct sales companies that are all more than 20-years old with a similar profile of about 2500 active distributors and 75,000 active customers here in the United States. When I asked which group, they believed had a more positive perspective of their company and was more likely to recommend their products, without hesitation they all said their customers. When I asked them why they don’t have a compensation plan in place for the 75,000 satisfied customers in addition to the 2500 distributors, they said I didn’t know we could.
Not only can these companies expand their conversations and talk to customers about referral-based income, so can every direct sales company. Virtually every company can integrate such a program almost immediately on top and alongside their existing compensation plan structures.
The Change Doesn’t Have to be Disruptive Only the Result
The Nutritional and Skincare Direct Sales Companies mentioned above all have a traditional Uni-level/Breakaway model with a wholesale discount of up to 40%. And as usual also have back-office software, not unlike their distributors, that is not kind or receptive to change or innovation.
The good news for both the entrenched distributors and the back-office IT teams for each company is we didn’t need to program a new comp plan to launch the programs. We simply brought in a team to create replicated marketing sites that pay out the potential 40% wholesale/retail commissions in real-time to customers and distributors who refer people to the marketing sites to purchase products. Then, through an API, send the sales information to the company back-office for the monthly override commissions to be paid as usual. We didn’t change the distributor’s ability to purchase products at wholesale discounts or affect how monthly override commissions are paid, but we did create an instant cash-back program for both customers and distributors based on the same 40% retail model that each Company had already established.
Here is How it Works
If a customer is sent to the marketing site by a distributor and spends $100.00, the customer receives $10.00 instant cash back he or she can use for their next purchase. The Distributor would receive 3X instant cash back or $30.00 from the customers purchase paid immediately. The total payout would be $40.00 or 40% of the purchase.
The customer viral marketing begins when customers are excited about getting paid to shop. The marketing goes viral when customers also tell a friend and get instant cash back anytime their friends’ shop.
When a customer goes to the site who was referred by another customer and spends $100.00. The customer who spends $100.00 receives $10.00 instant cash back for his next purchase. The customer who referred the customer to the site gets $10.00 instant cash back for referring them and in this case, the distributor who signed up the original customer gets 2X times or $20.00 instant cash back. The total payout would be $40.00 or 40% of the purchase. The distributor makes $20.00 instead of $30.00 because his customers were doing the work for him or her.
Regardless of whether or not your comp plan has a 40% wholesale/retail or 25%, the philosophy remains the same…only the numbers people receive an instant cash back are different.
This is the First Step We Can All Take – The Second Step is Up to You
Creating a relevant compensation plan with only your wholesale/retail is a first step to creating Customer Viral Marketing (CVM). Sample programs, shopping carts with AI, machine learning prospecting tools, a simplified back-end compensation plan for royalty overrides and customer acquisition programs, are all next steps that companies outside of direct sales have already taken to be competitive in the new gig economy. Why not take the first step that all direct selling companies can and should take?
Go viral! Pay your customers and your Company will be paid back with Customer Viral Marketing (CVM).
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so, which companies are implementing this CVM so we can research them. Thank you.
Hello Carmen,
As you can tell from some of the comments received there are many companies looking at implementing it right now…some of who I am working with to help them understand how to layer this on top of their current plan. One company I would look at would be
http://www.livecrescendo.com. They have done an excellent job of repositioning themselves with several marketing innovations that includes paying your customers.
Steve–a great outline of an approach that pulls together several key threads that are currently running through our businesses: 1. Focus on customers! 2. The effect of the Gig economy. 3. Overall regulatory view of MLM in particular. Nicely done.
Hi Mike, great summary of where we are but more importantly where we need to go! Everyone will design their own way to get there but do an excellent job of outlining the fundamentals that need to be a part of the solution. It is time to move past the criticism of where we are and offer concrete solutions on how to get where we need to go! Mike, you have a great perspective and will be one of those people that move solutions forward
Great article Steve! It has always “puzzled me” as to why direct selling companies have never fully leveraged the buying power of their consumer base by revitalizing compensation plans while also risking that the sales force will deliver their message to the consumer. This article is spot on, empowered by the growing accuracy of demographic data resulting in greater relevancy to consumer purchases & ultimately creating an extended consumer life cycle. Thank you for the insight.
Hi Mike, great summary of where we are but more importantly where we need to go! Everyone will design their own way to get there but do an excellent job of outlining the fundamentals that need to be a part of the solution. It is time to move past the criticism of where we are and offer concrete solutions on how to get where we need to go! Mike, you have a great perspective and will be one of those people that move solutions forward
I think you are exactly right…we were originally the cost-effective alternative distribution model but got lost in thinking that our salespeople were the only ones that can drive the enthusiasm for our companies, when in fact customers in many cases are the true evangelists.
Maybe now our vertical will be able to reach a new potential
This was a great and very relevant article. I do see one potential risk point being the way the FTC has viewed customers of Direct Sales companies and how rewarding or “paying” the customer muddies the line between customer vs distributor. I know many Direct Selling companies have a customer referral program (i.e. refer 3, get yours free) and there has been some question as to the legality of that, at least in some states. Obviously, it does not seem that other industries have had issues with rewarding customers so I’m hopeful that our industry will not be limited either, allowing us to stay relevant in our ever-changing world.
Andi, yes…you never know how the FTC views things but the good news here is there is a distinction between who is the customer and who is the distributor in this model. and the rewards are not tied to a false expectation of income which is what usually triggers an inquiry. Costco spends more of their advertising dollars on their cashback reward program than their discounted pricing without blurring the confusion that this is a customer rewards program. In addition, I would have the customers earn only product cash until they reach $25.00 before they can convert it to real cash. This puts the program in a rewards category from the outset.
Hi Andi, hopefully, the FTC would have a kinder view of our industry if we can focus on customer rewards instead of only distributor dreams. but I agree it will be a dramatic shift in how the regulatory people look at us…and whether or not we approach this with authenticity and transparency on the expectations we create. Look forward to working with someone like yourself on finding the best way to go forward.
Steve, I am so excited about this article. This has been on my mind for a couple of months now as I have been deep in the process of building a comp plan for a company that I am involved with. We have been taking a dish of ideas and putting them together making a comp plan that pays over all the steps in the plan. I was trying to figure out how to tie in a kickback if you will for the customers. There are many out there that have no desire to be in business, or build teams……but they do want the product and will refer. Thank you for writing this. Nothing like the Universe confirming you’re on the right track. Enjoyed this read very much!
Hey Kris,
You know how to make my day!..Thanks for the validation. Established companies can not alter their current back-end programs to match the philosophy of this new type of front end…but new companies can have a more cohesive complan from front to back.
If I can help…please reach out and let me know steve@working.social…and we can discuss!
how about scaling back the traditional distributor compensation a bit, and add a bigger pot for customer referral program? Sum of all would definitely be more than the traditional distributor compensation on the average. In addition, it would allow room for pricing that is close to or better than fair market pricing for Direct selling company products, making them price competitive for customers.
I think you are right on point…some of the few bright spots in direct sales is coming from the more traditional wholesale/retail-driven comp plans. MaryKay for instance still has a 50% retail margin and recently had tremendous success with a trip promotion that was based on significant sales accomplishments. Comp plans drive behavior they are not merely the scorecards of behavior after the fact. If we don’t change the sales psychology created by current comp plans we won’t change the future of the industry
Steve, well stated! Rewarding customers for telling other customers seems like an obvious choice, though few companies are actually doing it. In order to compete in the gig economy, those first-level sales need to be more robust and more frequent.
The evidence is so overwhelming in non direct sales companies where customers get rewarded on their own purchases.
When we people for friends purchases we one again gain a competitive advantage for our vertical
Well said Steve!
Thanks john and thanks for all the great work with you new magazine that has shined the light on this issue
Steve, Great insight! Currently working with several new clients on exactly this same line of thinking.
Craig it is why I think of you as a strategist and not a consultant. Consultants tell people what they are doing wrong and a strategist tells them how to do it right…keep leading them in the right direction
Steve, well done! There is no question that traditional direct selling compensation plans no longer work well in this econonmy.
Thanks, Alan,
You are one of the few voices that have been preaching to the choir along with me! What makes this approach different is that this is something companies can run alongside their existing program without changing the program they currently have! Companies such as Nuskin, Perfectly Posh and LifeVantage have all started to go in this direction…this would allow them to go all in!