Think You Have It Tough? Imagine Paying Commissions as an MLM Business
The more I talk to comp plan managers, the more sympathy I have for them, especially those who suffered for years with manual processes and spreadsheets. Tales of five 12-hour days at quarter ends, a daily routine of four hours of dispute resolution with salespeople, and desperate attempts to fix backfiring comp plans on the fly make me happy I chose a career in the lucrative world of journalism. But all these issues pale before those confronting MLM companies. These are companies that sell through private distributors, who are also tasked with bringing more distributors into the fold. For recruiting new distributors, the recruiters get a percentage of the new distributors’ sales. This can result in a complex multi-tiered set of relationships, or a genealogy, to use the MLM industry term. Add to that the nature of the distributors. By definition, most of them are not professional sales people; they’re selling in their part time. As a result, many of them find the gig takes too much time or effort and they drop out. Churn rates can be surprisingly high. Each month, the payouts to “downline” recipients can vary wildly – not just in amount but in number of payees. Meanwhile, the distributors upline who are also paid based in part on downline performance, have little visibility into the size of their commissions checks. Disputes over pay can lead not just to the departure of experienced distributors; they can also cause managerial problems as their downline distributors are reassigned. There are few problems MLM comp plans don’t share with a more direct sales model. And there are many problems unique to MLM. Perhaps most discouraging is the issue of just how commissions are calculated and paid. Getting an MLM commissions solution up and working is very difficult, and as a result MLM companies often find something that is about 80 percent effective and then stick with it – often, for a very long time (centuries, in “computer years,” as one tech guru working in the space put it). That makes the finding answers to compensation challenges hard, and it also puts the IT manager in a position of power: if he or she leaves, the entire system will suddenly be without a guiding hand. That’s a pretty bleak picture to paint. Luckily, some companies are figuring it out. The first hurdle is to let go of your dependence on old technology. Next, look for solutions designed with complex payment and channel management considerations in mind (not coincidentally, CallidusCloud has just such a solution). And finally, once you’ve decided to make the leap to the next level, work with the vendor to get it right. The MLM approach is one tailor-made for incentivized behaviors through compensation; vendors in the compensation management space have seen many of these ideas in action with other customers and can truly function as trusted advisors. Technology has been a hindrance for many MLM companies, or a necessary evil that requires undue time and investment while also introducing delay to implementing new plans and incenting the right behaviors. Thanks to new products, however, MLM companies are close to turning the corner and making commission management a much less taxing part of managing their businesses.
Chris Bucholtz | August 9th, 2016