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Starter Kits. Business Kits. Enrollment Kits.

All of these names refer to the same thing: a packet of materials and/or products that is purchased at the time an individual enrolls with your company to become an Independent Business Owner (IBO). A business owner must have all the skills of a leader to manage decentralized power; the owner must be aware of everything. If you feel you lack leadership behaviour or want to learn what to avoid, then look up https://www.salesforce.com/blog/2017/09/leadership-behaviors-that-hurt-your-team.html.

There are many types of companies in our industry.

  • Internal/Self Consumption companies center their pricing strategy on the IBO/Wholesale (discounted) price, which results in most customers enrolling as an IBO in order to purchase at that price.
  • Customer/Retail Biased companies center their pricing strategy on the Retail Price and their IBOs focus on selling their products to customers who will purchase at the Retail Price and use the products without enrolling as IBOs.
  •  Affiliate Programs are kind of a hybrid of the two. I say “kind of” because it is not really as simple as that sounds. There are some unique nuances and very few companies fall into this category. For that reason, the Affiliate type is not addressed within this article.

While this explanation of business types has been simplified, it isn’t necessarily a choice of one or the other, it’s a spectrum with Internal Consumption on one end and Customer Biased on the other end and most companies fall somewhere in between. There are companies that have succeeded and failed throughout the spectrum so there is no right or wrong choice. Alignment to business type, including the Starter Kit, is critical to success.

The Starter Kit strategies differ based on where your company is on the spectrum and it is vital that you understand how this impacts your desired business type. For purposes of this discussion, we will refer to strategies of the Internal Consumption and Customer Biased companies, even though many companies have a bit of both.

In this three part series, we will address the following Starter Kit related strategies:

  1. Pricing
  2. Products/Materials
  3. Presentations

Strategy #1: Pricing

The Starter Kit is not merely materials and products, it is a strategy that creates a healthy “barrier to entry” that can (when desired) separate customers from business builders. It creates a monetary gateway that an individual passes through, whether low or high, when enrolling as an IBO. While you may question the logic of creating barriers for a potential IBO, it is important to understand how this decision will impact your business type.

When the price of the starter kit is low, your barrier to entry is low. Many of the people that join your company are likely to be customers who want to buy your products for the best possible price – like a buying club. This is the nature of the Internal Consumption business type and is reflected in common starter kit pricing ranging from $10-$30.

In this low price scenario, very minimal commitment is made at enrollment so while the customers become IBOs, they do not act like IBOs. These companies will have some business builder IBOs that develop very successful teams made up of a few business builders and lots of customer-IBOs. While the average per IBO sales volume may not be high, the number of IBOs makes up for that.

Higher priced Starter Kits create a stronger barrier to entry. This often results in fewer IBO enrollments but higher commitment to building a business and thus higher per IBO sales volume. In Customer Biased companies, the IBOs count on the retail profit that they make when they sell to customers (who purchase at Retail) as a major source of income. In order to protect this vital aspect of the business, companies of this model should price their kit high enough to discourage customers joining solely for the discount and ensure that the starter kits have the proper mix of materials and products (this will be addressed in strategy #2).

Unfortunately, failure to price the Starter Kit appropriately has destroyed many companies in our industry. A customer-biased company that fails to protect retail profit will find that its IBOs do not make enough money to make it worth their time to sell and build a business. When earnings are not sufficient, an IBO will stop working their business and become a customer purchasing at a discount. The company will find itself unintentionally moving more towards an Internal Consumption model.

For example, an IBO who sells $1,000 in products to customers might earn a 25% retail profit of $250.  If those same customers enrolled as IBO’s, they would get a 25% discount – in other words the retail profit to the seller becomes a discount to the buyer.  The sponsor (seller) who would have earned $250 had they stayed as customers might now earn 10% on the IBO wholesale price ($750) = $75 total (instead of the 25% profit on the retail price).  If the sponsoring/selling IBO had spent 10 hours finding those customers and taking their orders, then they would have earned $25 per hour for their time when those individuals were customers. When the customer became IBOs, that dollar-per-hour dropped to $7.50. When an IBO joins your company to make money, the $25 per hour is critical to achieving their goal as quickly as possible, thereby making the barrier to entry vital to protecting the retail profit.

As a rule of thumb, the higher your Starter Kit price is, the more Customer Biased you are and likewise, the lower the price, the more Internal Consumption focused you are. If I were to place a price on the Starter Kit for a company right in the middle of the spectrum, in today’s economy, it would be somewhere in the range of $50-60.

Please note that there are some legal requirements regarding the Starter Kit pricing in the USA. The are a number of states which specify a maximum amount that you may charge for the kit and there are rules that govern the cost of goods for the kit versus the selling price. Please check with your industry attorney for specific information on the legal aspects of the Starter Kit.

In summary, the pricing of your Starter Kit is a very important strategy that should be considered in your business in order to create alignment between your kit and the business type that you intend to be.

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  • Recognition and Incentives – Best Practices

    Let’s first define the difference between a Recognition and an Incentive Program:

    Recognition Programs: Involves a vital social aspect of the business in which a producer/performer is recognized by peers for their performance. Behavioral science suggests this may be the highest (most powerful) form of motivation.

    Incentive Programs: People earn non-cash rewards for meeting various requirements in addition to the compensation plan

    There are two primary components to a Recognition Strategy:

    1. Company Driven: The company directly recognizes performers for achieving notable milestones or levels of performance. Recognition is often done in a highly public venue such as conventions, web site recognition pages, monthly magazine, etc. There should be a strong social connection between the recognized person and their peers. A country-by-country approach can better facilitate most company driven recognition (for a multi-national). Example: The company publishes a list of people achieving Gold Consultant for their first time on the company web site with pictures and a short blurb about them. Example: the company recognizes new Diamond Leaders that have grown their business by 50% since becoming a Diamond Leader at a training event by inviting them to sit in a special seating section and then walking across the stage.
    2. Field Driven: The company creates a recognition system and teaches it to field leaders and team managers thereby establishing a consistent approach to recognition in peer groups (teams) leveraging the immense power of social group motivation (positive peer recognition). The vast majority of recipients of recognition will be affected at this level rather than at the company level. For example… a new recruit sponsors their first new recruit. The Team Leader recognizes this first major accomplishment in a team meeting or conference call. Example 2: a distributor advances to a higher rank in the career path and their Team Leader recognizes them in a team meeting. They get a certificate or a jar of M&M’s or something. It’s not the value of the reward. It’s what the reward MEANS. It could be a logo coffee mug or a tote bag. But if presented in a group setting, it will carry immense value to the recipient.

    What to avoid:

    1. Top 10 recognition: never works. Do not limit the number of people to be recognized as it will quickly devolve into more losers than winners and will lose any motivational power to the masses in the future. Never limit the “winners” but, instead, set the bar, train to it, and recognize EVERYBODY that achieves it.
    2. Distract people away from the compensation plan / career path: The career path reflects the vital behaviors (and rules) required to succeed. Always focus them on the best way (Amway best practices) to succeed in the business. Don’t create “innovative” ways to recognize people with other types of behaviors. Keep it simple and focus them on your best practices that build consistent success patterns. The more a company distracts people away from the career path by recognizing other non-related behaviors, the less ROI the company gets from their commission dollars spent. Instead, drive people TO the career path / comp plan by synergizing your recognition strategies (company and field) to the comp plan. Key emphasis: career path recognition. Your career path should be the backbone of your recognition strategy at all levels.
    3. Constantly changing rules for recognition: equally fatal. See #2 above.
    4. Recognition by field only / Recognition by company only: it takes both working together in a cohesive, well designed recognition system. A ‘system’ is a process or set of actions that a) is duplicable / trainable and b) produces predictable results.

    Best Practices for Incentives:

    1. Align all incentive programs with the compensation plan so people are not distracted away from the comp plan. In time this will reduce the ROI of the comp plan and create a highly reactionary culture that waits for the next incentive before they do anything. Not a sustainable business model. Fatal in most cases.
    2. Most companies spend between 2% to 5% of revenue on incentives and recognition. This is a separate P&L budget line item not included in the compensation plan. The comp plan payout should be constant for a large company. Its rules do not change. Incentives, on the other hand, have rules that change often and, therefore, must be budgeted separately.
    3. Always have clear and specific behavioral objectives: what behaviors are we trying to reward / improve? (think of the 5 Golden Behaviors: selling, recruiting, building team leaders, building leaders of team leaders, and retention).
    4. Incentive programs should last 3 months or more to get good traction with the field. Shorter incentives often expire at the very time when they are starting to gain momentum. It takes a while to communicate and train a new incentive program. Expensive incentives such as cruises, trips, etc., should last 6 months or more to be cost justified.
    5. Avoid an incentive that rewards the same people every time. You are looking to increase the pool of performers – not just reward the people who would have done it anyway.
    6. Train them how to succeed with the incentive program. Direct selling companies are often experts at trying to solve problems with motivational solutions. Yet many problems are not motivation caused but, instead, a competency problem. For example, to drive recruitment a company may offer a great bonus for recruiting 3 new people who generate $1,000 in volume. But they fail to teach people how to recruit. Then they wonder why the incentive didn’t work so well. Always assume most people need to learn how to earn the incentive reward and create a training strategy that goes with the incentive program. You’ll always get more ROI combining effective training together with a good incentive.
    7. Leverage the power of recognition with your incentive program. Recognize incentive reward earners publicly. Make sure that field leaders know who their downline incentive earners are so the field can do their part for recognition.

    If you want to discuss these principles and best practices more with us, just schedule a call. We are happy to help…

  • Placing Reps Frontline to the Company

    Placing Reps Frontline to the Company

    Every year, Dan Jensen Consulting helps over 40 new startup companies launch their business. Each one faces the challenge to find leaders who know how to build a team and motivate them to get to work. A common question our clients ask is:

    “How many people should we place frontline to our company?”

    While there is no “one size fits all” answer, there are some principles and guidelines that I would call “best practices” to consider:

    Never have just one leader at the top of the lineage tree

    When one single individual has all of your sales force beneath them, you add considerably to your risk of future failure for several reasons. First, if you ever have a falling out with that leader and they join another direct selling company, many or all of your leaders could be influenced to follow them causing your business to fail. I have seen countless examples of this tragic end to what started as a great relationship with the business owners. Second, that one leader will quickly advance to the top rank of your compensation plan career path causing your plan payout to rise faster than you expected. That would be costly. Third, they might not end up being the leader you expect them to be. What if they don’t perform? What if they eventually stop working and just want to collect their mailbox check? There are few things in our industry more frustrating to business owners than paying egregious amounts of money to people who are not working the business.

    The company makes a very poor upline

    If you place people frontline to the company who do not already know how to succeed in this business, they will require huge amounts of your time and mentoring. Their failure rate will be high due to the lack of time and resources you have. You need, instead, low maintenance people – people who will not be calling your mobile phone at all hours. You need people who will not need lots of your attention and time. As a business owner of a new company, your plate will already be overflowing. The last thing you need is lots of people demanding your time who don’t know how to build their business. Those needy people should be placed under competent team managers and leaders in your organization.

    Never compete with your sales force

    As you seek out leaders who will help you build your sales organization it is imperative that you never compete with your existing people. If you do, they will no longer trust you. Applying this principle means that the only leaders you will place front line to the company will be leaders YOU find somehow – not leaders your sales force has found or referred. When a prospective leader contacts you directly you must carefully find out if they have spoken to another representative. If so, always respect that relationship and  place them under the rep who has spoken to them. If not, they are a candidate for your frontline team.

    What are the best practices to follow?

    1. Find at least six front line leaders who are placed directly under the company. The more the better as long as they are low maintenance people. Only two or three are not enough. Diversify!
    2. Make it clear to your field that you will continue to actively look for leaders for the first year of business. Or 2 years.  Just set their expectations. After that, any new leaders that join will be placed under existing leaders who can coach and mentor them.
    3. Do NOT offer any special “joining fee” deals with prospective leaders no matter how tempting. Doing so creates a very slippery slope. You must always assume that anything you do with one sales rep will eventually be known by ALL sales reps. If you find a prospective leader willing to engage in the business on a full time basis, it is acceptable to offer to reimburse them for expenses with limits you are comfortable with. Get receipts.
    4. Do NOT appoint them to a leadership rank or title in your compensation plan. Do not “grandfather” them in to a high rank or exempt them from performance requirements. They must work their way up the career path like everybody else. If they know how to do it they will advance rapidly. Some will move up several ranks in one month! You will find their performance to be much higher if they don’t get a free ride and they will be better able to lead their teams by example.
    5. Do NOT allow them to sell their own training materials (if any). Instead, enlist their help to develop or improve your generic “best practices” training system for your sales force. Never lose control of your training system and tools.
    6. Listen to them but don’t let them control you. Leaders who are given too much influence with the business owners will often expect that to continue forever. They will eventually start making demands of you that will only benefit them and possibly weaken your business. YOU be the leader.
    7. NEVER let your leaders determine how your compensation plan and incentive programs are designed. In my entire career I have met only a handful of leaders (out of thousands) who really understand the vital principles and best practices of compensation plan design. They see the world through their own glasses as a field leader. They do not see it through the eyes of a business owner. They don’t sign the checks. You do. Never let them design your compensation plan.

    Conclusion

    I have seen too many tragic stories of companies (some of our clients included) who have violated these principles and best practices and later regretted it. By following these simple guidelines you can avoid the pitfalls and landmines that others do not see.

  • Incentives to sail through the summer

    andi_business copyIncentives have long been used as a crutch for MLM and Direct Sales companies to get through the difficult summer months. Sometimes they are effective and sometimes they are not. Here are some tips to creating a great incentive program:

     

    Incentives should support your Compensation Plan.

    Incentives are not supposed to fix a Compensation Plan, they are supposed to support it. If your Comp Plan needs to be fixed, then fix it. If you rely on Incentives for that, you venture down a very slippery slope. Use incentives as a way to spotlight areas of your Compensation Plan that need a little bit more focus. Additionally, identify what behaviors tend to decline during the summer and use an incentive program to motivate those.

     

    Avoid “Top 10” Programs

    I will never forget an experience I had early in my career. I was assigned a handful of the top “founding” distributors of the MLM company I was working for at the time and I was given the responsibility to help them be successful, acting as a liaison between them and the company. I was speaking to one of the distributors I was responsible for and they asked me to check on their status for the Incentive Trip. The qualification period had just closed and they were eagerly awaiting the results to see if they were one of the top 20 qualifying distributors that would be going on an all-expense paid trip to a tropical island. When I checked on their status, I found that the distributor I worked with was number 21 on the list. Again. For the third or fourth time. This real-life example shows why “Top X” programs don’t work: there are winners and losers.

    When you structure your Incentive Program to be based on a criteria and allow all who meet that criteria to receive the reward, you give the control for achievement to the distributors. Programs that limit the number of distributors that can achieve really remove the control from the distributor because no matter how hard they work, there is always the opportunity that someone else will do more. Make sure that your incentive program allows anyone that takes responsibility for their actions to receive the associated reward.

     

    Give it Time

    Remember that behaviors and habits take time to develop. Incentive programs are most successful when enough time is given for distributors to develop and implement the strategies the program is trying to develop. That doesn’t mean that every incentive program has to be 12 months. Consider running a three-month incentive program for the summer time or a back to school incentive program that runs for August and September. Remember that if you really want long-term results, you need to give it time.

     

    To learn more about creating an effective Incentive plan, click here or go to our “Learn” page and download Incentives that Sizzle.