Mark L. Rawlins - Understanding Multi-Level Commissions: and Their Role in a Successful Company

by Mark Rawlins

Founder and President, InfoTrax Systems, Inc.

InfoTrax Systems, Inc.

1815 South State Street, Suite 4500

Orem, UT 84097

Phone (801) 802-8729

Fax (801) 802-7408

www.infotraxsystems.com

November 4, 2008, Mark Rawlins

Note: This book is intended to offer general information on the subject matter covered. Although the multi-level commissions issues are believed to be accurate, some material may be affected by changes in law.

The author assumes no responsibility for errors or omissions. The author specifically disclaims any liability resulting from the use or application of the information contained in this book. If legal or other expert advice is needed or appropriate, the reader is strongly encouraged to obtain the services of a professional expert.

Mark Rawlins

All Rights Reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the author.

InfoTrax Systems, Inc.

1815 South State Street, Suite 4500

Orem, UT 84097

Phone (801) 802-8729

Fax (801) 802-7408

www.infotraxsystems.com

Revised Edition: November 2008

To Kerri, the best wife a man could have, who showed infinite patience and held our family together during my workaholic, absentee husband and father decade while I was off learning the ins and outs of network marketing software. She has certainly earned her share of whatever success comes to us.

To my parents, Julia and Lindsay Rawlins, whose commitment to making sure their children had a better life than they did and provided me the education, opportunity, and support to start my own business. To my children, Kenny, Christopher, Anthony, Whitney, and Jeffrey, who swear they wont hold my absentee years against me (although they do always mention a trust fund in the same sentence).

A number of people have offered invaluable assistance to me in the creation of this book. I owe thanks to the people of InfoTrax Systems: For help with content, Glen Rawlins and Nancy Tobler; the two best commission plan programmers in the world, Devry Anderson and Ray Rawlins; Leroy Ball for production work on the book under harrowing conditions; and Juli Wilkins for keeping us all on track.

Special thanks also to Robyn Openshaw-Pay of OP Publishing for showing me what the project could be, and Barbara R. Hume of TechVoice, Inc. who spent many hours helping me, organizing my thoughts, and digging in for the details for the writing and organization.

In 1981, as a junior programmer, I programmed my first network marketing commission plan. What a beauty! Unilevel in structure, it paid five percent down six levels on a $25.00 per month service (compression had not yet been invented). I attended company meetings and got caught up in the excitement. I just knew that it was only a matter of time until someone made $20,000 or even $30,000 a month!

Each month, I ran the checks and watched the top ones grow. And grow they diduntil they stalled at about $3,000 a month. Shortly thereafter, the company stalled.

The lesson I learned from this experience was that in a simple unilevel plan, people stack; therefore, sales volume moves out of a distributors pay level very quickly. The potential payout that people think they will earn is never even remotely achieved.

This was the first of dozens of such lessons I learned in working with more than 200 companies in the last twenty years.

In 1985, I was working with a company that wanted to decrease its number of qualified leaders in order to increase the value of the individual shares of its leadership commission pool. The decision was made to double the amount of sales volume required to become a leader and double the monthly qualifying volume. The following month, the number of qualified leaders did not decreasein fact, it increased by fifty percent! Although the company failed in its goal of increasing the leadership pool because the value of the individual shares of the leadership pool diminished by ten percent, within two years the companys sales had increased five-fold! Because sales went up, all the other commissions went up as well.

Another fascinating lesson learned the law of unintended consequences. When people believe that theres a lot of money to be made, they dive in and work very hard. So, by extension, sometimes qualifying volume can, in fact, be too low.

Because of my unique position of working with marketers and then seeing the effect that changes to the commission plans they make, not just for one company but for a couple of hundredIve gained a perspective shared by only a handful of people. For years, as president of InfoTrax Systems (a provider of software to the network marketing industry, but thats another story; see www.infotraxsys.com ), I have consulted with companies, sharing the knowledge gained as a result of these and many other experiences. Unlike someone who designs commission plans from scratch and therefore tends to work with a few types of plans, the majority of my consulting is taking a plan that has already been designed and making it work. You could compare this to what engineers do once an architect has designed a building; they take over and figure out how to make things like heating, elevators, and electrical systems work. As a result, I have worked with every type of plan in existence. Im writing this book to give anyone who wants to understand how commissions work a good foundation on the basics of commission plans. This book doesnt contain everything you need to know, but its a starting point.

In my consulting career, Ive always made a practice of trying to give advice thats grounded in experience. This advice is based on theories that have been tested at enough companies to prove them out. I dont think that you have done well by a company if you bet their future on an idea that hasnt been proven out by the marketplace. In this book, youll see sidebars in which I get On the Soapbox. These sidebars deal with my ideas and concepts that havent necessarily been proven by the marketplace. In the body of the book, I try to stick to the tried-and-true facts that Ive seen through twenty years of providing software and consulting.

Over the past ten years, it has become increasingly clear to me that its just as important for network marketing distributors to understand these concepts. Why? Because distributors invest their all into building a downline. In the first example, I showed you that the distributors worked night and day for almost three years, thinking there was an opportunity to earn an income that simply was not there! And I, however unknowingly, was part of that deception. Im writing this book because I know that if distributors understand these concepts, they can make better choices about the companies in which to invest their lives.

After I spent nearly ten years thinking about writing this book, the catalyst for getting started on the project was being asked to help create the curriculum for a course on direct sales/network marketing for the School of Business at Utah Valley State College ( www.uvsc.edu ). Thanks to this endeavor, I finally gathered together all of my miscellaneous memos, my videotaped talks, and the notes from my seminars. With these materials as a basis, I have written the book.