So what’s the difference between a “Stairstep Breakaway” and “Party Plan” compensation system?
Actually “Party Plans” are a type of “Stairstep Breakaway” compensation plan.
The “Stairstep Breakaway” compensation plans bascially allow a representative to start out making a retail profit.
As the reprseentatives sells increasingly higher volumes of products per month, the company rewards the representative with additional profits in the form of a rebate check.
Along the way, the representative who recruited the new distributor is paid (ostensibly to train and support the newbie) until the new rep is “on their own”… that’s when they’re earning enough through their own sales to “break away” from their recrutier and form part of their “downline” instead of their “personal group”.
This concept is true of party plans as well, but party plans can look deceptively stingy compared to some other “Stairstep Breakaways”.
While the “downline commissions” don’t look too bad in comparison with outher breakaways, the retail profits in a Party Plan can look very small.
In some modern Party Plan companies, retail profits remain flat at 25% no matter what one’s level of success otherwise, though royalties may be paid in addition to this amount. Still one plan I recently reviewed only paid a 2 – 9% royalty or rebate on personal group volume.
Some big breakaways pay much more.
Why the discrepancy?
1. Depending on the product line, there may be lower profit margins. Selling kitchen ware that has to compete favorably with other top of the line kitchen ware lowers the upper limit for pricing. Nutritional products may have much higher margins by comparison because of claims to being “proprietary”.
2. Party plans by definition retain revenue from the distributor in order to provide incentives to the party’s host/hostess. Since the host/hostess is making the invitations and doing lots of the “legwork”, party plan companies retain revenue to compensate these folks well and increase the likelihood that a visitor to the party will herself want to schedule one so she can get things for free as a “reward”.
3. Other incentives like free business supplies are often accounted for retaining revenue. If you join a party plan company, you make money by selling in homes, not – for instance – through internet marketing of your own website. That requires a steady supply of business supplies… catalogs, brochures, order forms, etc. You can either pay this out of pocket or the company can build in a reserve for average supply use per month for a successful representative.
So before you write off that “Party Plan” as “stingy”, ask your recruiter what the company is providing up front out of the seemingly “missing commissions”… you might be pleasantly suprised.
Rod Cook on February 13th, 2006 at 12:15 am
Today What Is The Best
Party Plan Compensation Pay Plan?
Rod Cook Bsc., M.A., M.B.A.
There are basically now four Major Types of MLM Party Plan Pay Plans, they are the antique Stair Step Breakaway, the Group Breakaway, the group Unilevel and modified Unilevels. All have been successful but the older ones are losing ground.
Examples of elder Party Plans such as Mary K, Tupperware and Stanley Home Products are “Party Plans� based on the old type of “Stairstep Breakaway� compensation plan. The “Stairstep Breakaway� compensation plans basically allow a Party Plan Representative to start out making a small retail profit. The more sales volume they generate each month the cost of their products drop so they make a larger retail profit. The difference used to be given in rebate checks but today most companies just drop the “wholesale� price of products. Why? Because it caused double taxation on the Representatives since the IRS considers rebates income. The rebate isn’t as dead as the Dodo Bird but pretty close to it!
The newer plans have gone with a straight group volume requirement to collect wholesale in a single swoop. By that we mean if the new Representative buys a builder kit largely made up of products to be sold, they can buy at wholesale right away. This is much more positive and less time consuming and has worked great for Party Plan companies like Pampered Chief, Southern Living and Starlight Candles.
The recruiter that brought in the new representative gets a bonus or override on the sale of products by the newbie until they buy at full wholesale. If they buy a package of products say at $500 the recruiter gets a commission on the products in that package. This is a “group� volume on the front end. Now the group is a group of products in an initial sales package that it is legal to pay commissions on.
Now comes the Love – hate relationship of the Breakaway part of Party Plan. If a Representative becomes an Executive and signs up a person under them they usually get a level bonus of about 4% (on that person and all the new persons that come in). They also get a group bonus of say 10% on every body that is below them. However when someone in the group gets to be the same rank as the Executive? Ouch! They get blocked from collecting the 10% group volume Bonus pay. That is when MLM Party Plan owners start to get grey hair with either the Breakaway or Generational (another name for the same thing). Representatives can’t be double paid thru hundreds of levels of the pay plan or they MLM Party Plan Company goes broke! Top Representatives spend time and energy harassing the MLM Party Plan Management to give them another level of Bonus Overrides on their downlines. Once the company is maxed out on the amount they can pay?
The solution? The newer companies with faster growth have gone to using a modified Unilevel. It sure makes life easier than listening to top distributors moan and cry about being blocked. See the section on modified Unilevels.
The next problem is that pure MLM companies are able to pay more downline levels and look far more lucrative. Why is that? A Party Plan needs a high wholesale to retail split. There are few survivors in the Party Plan arena that pay less than 30% the competitive ones pay 40% on the difference between wholesale (what the Rep pays for product) and retail (what a customer pays for product). This means that a Party Plan is not able to put as much money into deeper MLM downline pay levels so appears to be less competitive than a pure MLM Company.
Why does a Party Plan MLM have to have a higher wholesale to retail margin? That is because the Representative has to do a lot more work and driving around than most pure MLMs. The Representative has to help the hostess get out invitations to the party, lug samples to the party; in some cases sales merchandise to the party, talk at the party, and recruit at the home party. Plus (in general) the Representative has to provide (pay for) an incentive gift to the person giving the home party. These “Free Gifts� are one of the major drivers in soliciting hostesses to have the first and also continuing home parties. Having done 100’s of home parties I can swear to you that I do not know a home party company that I think has too high of a retail margin. Home parties are work and a cost for representatives.
A critical area is for new MLM Party Plan Companies is to have easy to use Internet Computer order entry systems so Representatives can enter home party sales quickly and easily. The company ships the product to the end Customer. This is a golden cash cow for the MLM Party Plan Company! Why? The Direct Sales Association (DSA) indicates an 80% annual turnover of Representatives in some home party companies. An MLM – Network Marketing Party Plan Company should do it’s best for retention of Representatives which we specialize in (see below). Still some Representatives will leave. What happens then? You retain the Customer’s name if the Representative leaves!
A current tool for domination in the Home Party Plan arena is Rod Cook’s patent pending re-entry certificates for the Unilevel that Representatives love. This allows them to build a deep downline compared to most shallow MLM Party Plan pay plans that are on the market. The beauty of this patent pending Unilevel modification is that the pay plan does not pay out one cent more from the Company’s cash flow.
This article is by Rod Cook a Senior Certified Consultant in the MLM Industry and a compensation plan expert. He is the Senior Consultant at America’s MLM Consultants http://www.mlmconsultant.com. He also serves the MLM Industry as the MLM WatchDog to help product our good industry that has helped so many little folks find their way to riches. You can keep up on the Network Marketing – MLM Industry news at http://www.mlmwatchdog.com. If you wish to contact him see either website or Google him!
Sven on September 12th, 2007 at 9:31 am
Do you know what is rated as the best mlm compensation plan? I would like to know before joining mlm
Jackson on May 8th, 2008 at 12:30 pm
Sven,
I would say that YTB has the best compensation plan available. YTB is a travel based company on course to be the largest travel company in the world by 2011.
With YTB there is no limits as to how wide you can sponsor people and it goes down to infinity. No limits! There are bonuses from $1,000 to $1,000,000! Residual income, health and life insurance and the compensation plan can never be changed! No other company can say that. Read the fine print on the other companies plan and you will see “Compensation plan is subject to change.” Not with YTB!
More information available at http://www.YTBexplained.com
Have a great day!
Chuck on May 8th, 2008 at 12:36 pm
The compensation plan can be changed… when the company goes out of business. But I’m glad you’re happy with it for now.