Optimize Effort vs. Reward

A majority of the salesforce compensation plans in Direct Selling are suboptimal and do not accurately address the issue of effort vs. reward. Based on our analysis of salesforce effectiveness we have identified three key foundational components:

• Simplify the compensation model – focus on rewards for selling, customer reordering / frequency in purchasing and recruiting others who do the same.
• Development of brand  ‘Ambassadors’ who lead the effort to acquire, service and retain customers.
• Decrease the number of Levels / Ranks and ensure that reward is commensurate with effort.

Companies frequently have a compensation model where there is a mismatch between the impact sales leaders have on their organizations (downlines) versus the earnings they received. Leveraging our proprietary analytical framework, we have developed a sales attribution model which assigns the appropriate ‘downline’ sales that can be attributed to an ‘upline’.

For example, using attribution modeling we found that in Company X,  a Level 1 (the highest rank) influenced only 35% of their organization (downline), but received 52% of their downline earnings. In this instance aligning compensation with sales contribution resulted in a 19.6% reduction in payout without compromising top line growth. At the same time motivating leaders to make more level 1 appointments resulted in 24.4% increase in sales.

To drive the optimal top and bottom line growth, it is critical for direct selling companies to take a closer look at their compensation plans and ensure that the key levers of their compensation strategy are driving the expected behavior from their salesforce.