Interview with Jay Leisner, MLM Pay Plan Consultant

Hi, everyone. Kevin Thompson here, MLM attorney. And I'm here with my great friend and partner in the DS Edge conference, Jay Leissner.

Hi, Kevin, I'm Jay Leissner with Sylvina Consulting.

And Jay and I just concluded our seventh Edge conference for startup network marketing programs. And I think it was a success.

It was. We got lots of positive feedback and.

We are looking forward to our next.

Conference in late April or early May.

Good deal. You know, during the event, it just occurred to me that you and I, we've never done a video together. And I've done a number of videos with a lot of different people. And based on what you know, with startups and how you design plans and you help them with their systems, I thought, you know what, let's do a video. Let's share it with the world so we can get some really good information out of you.

My pleasure to share it.

Good deal. How long have you been designing pay plans?

Been designing compensation plans for 12 years.

Okay. In your experience, networkers out there, they always compete with one another based on a lot of different factors. But also they say, well, my plan is better than your plan. My plan pays out more money. My plan gets people paid faster, leads to profitability sooner. In your experience, is there any one particular plan that just surpasses them all, or is it that simple of a question to answer?

Networkers sometimes make the mistake of comparing comp plans based on the total percentage that's paid out. You could have a plan that pays out 52%, another plan that pays out 45%. And the 52% plan isn't necessarily a better plan. For example, you could have a company that had a product that people didn't buy unless they were active in earning compensation through the comp plan. Well, that company will not generate long term as much revenue for the distributors than the 42% or 45% company that has a product that people continue to purchase even if they're not recruiting or not earning compensation.

Right. The product is certainly one factor. Another thing that I look at is that some people in their quest to move the payout higher, they starve the operational revenue. And so, great, you're paying out 90%, you've got 10% of revenue goes to the operations and profit, and you're having a very anemic business and the support is bad and the systems are bad. Which then leads to a longevity question.

Right. Then what it also leads to is a future pay cut. Because when the company recognizes they're paying out too much, they Say we have to cut back on commissions. And when they do that, the field knows that it's always dangerous to pay out too much, even for a short period of time. We have a client right now that's paying out a special bonus based on recruiting as an example. I've told them that that's illegal. And they said, well, that's going to spur recruiting and we're only going to do it for a short period of time. I told them, I said, it's kind of like cocaine. Once you start, it's hard to stop. So they told me they would do it for a month. Afterwards they called me back up and I said, how's it going? He said, oh, it's going great. We're going to do it for another six months. So you need to be very careful.

Right. I've seen that. And I compare it to quantitative easing, which is the idea that, hey, we can inject money into the system and we'll eventually be able to pull it out. And it's never theoretically been done before. In theory, you're right. Once you have momentum, it's hard to hit the brakes on these programs. So you've worked with a lot of different companies and as have I, and you have a perspective and a sense as far as what distinguishes a good company from a really bad company. What are some factors that you can sense early that determines whether a company's got a shot or not?

Good question. The first one, I think it's most important, is that the company needs to be selling a product or service that stands on its own that people will buy even if there's no compensation plan. That's what ensures longevity. If you look at the largest, most successful network marketing and party plan direct selling companies, that's what they have. A product that people will buy even if they're not making any money. And that's a critical piece. Anytime a company starts with a product that people only buy for the comp plan, that company is going to have a short life.

Okay, so step one is product. What other factors do you look at or can you sense in the early stages that separate the good from the bad?

I'd say the second one is whether the plan is legal or not. As you know, Kevin, there are companies operating today with illegal plans, but they won't be for long. So their longevity is also tied to whether the plan is legal. I'd say the third point would be whether the compensation plan is structured properly. Structured properly means that it's paying out enough money in the beginning to motivate the recruiting and nurturing and field development behaviors that we want and long term pays out enough and deeply enough to be able to support full time incomes. So one of the questions I ask my clients at the beginning when we design compensation plans is do you want your representatives to have the ability to earn full time income through your comp plan? And 99% of them say yes. The 1% that say no change their mind afterwards when I say to them that if you don't do that when a representative is earning a lot of money or not enough money, they're going to leave and go somewhere else. So the plan has to have the ability to support full time income, which is the reason why very shallow plans don't work. And there aren't any long term successful companies with very shallow plans. Simple plans are only good for one thing. They're easy to explain. Everything else is bad about them. Right?

So if I'm a startup and I come to you and I have a product and I've got some systems in place to distribute that product, what variables do you need? What information from me do you need to give them advice on a pay plan?

What I need to know are three things. I need to know what the cost structure is for their product or service. I need to know what their desired pre tax profit is. That's an interesting question that I ask people. What type of pre tax profit do you want to have? And interestingly, about half the people I speak with, they've never been asked that question. They've never thought about it. Sometimes they say to me, will you tell me how profitable should the business be? So once we know those two numbers, we can do some math and we can determine what the field compensation budget can be. We take a figure for overhead for the business which is all the costs associated with the exception of the product cost and compensation. And we can determine what that field compensation budget is. Then we have to look at that and ask the question, is that competitive? And if it's not, then we have to adjust what the pre tax profit is going to be or adjust the cost structure. We start in the beginning by looking at the math. Before the comp plan is designed, we have to decide how much money are we going to pay out because that is the one thing that determines how rich the comp plan can be. Then we can take that and look at the 12 essential behaviors that we need to motivate through the plan and apportion the funds and design the plan around that.

I run into a lot of people that Say, you know what, I'm just going to do the pay plan myself, and as do you. I'm sure I have an opinion, But I want to know your opinion. What happens typically when somebody just tries to throw something together. Or copy somebody else's plan? Is that a good idea? Can they say, you know what? I like nu skin. I'm going to copy their plan? What happens in that kind of scenario?

Well, there's two things that people do when they try and write their own plans. They either write them themselves or they copy someone else. So I'm going to answer that in two parts. For people that decide to write their own plans, the mistakes that they made is they don't understand what they need to do. To have a successful plan. It would be like taking a layperson and asking them to build their own house. The structure is probably not going to be sound. The roof's probably going to leak. There's going to be problems with it. They've never been down that road before. With regard to people that pick up other companies comp plans and say, well, nu skin's successful, Shackley's successful, Herbalife is successful. I'll just take one of their plans and run with it. What they don't realize is that that plan is based upon that company's cost structure. It's based upon that company's business and compensation ethics. It's based on that company's priorities. For where they think they should put money. It's based on that company's products. And that company's experience with other comp plans and other environments. You, as a company owner, need to be able to defend and explain and feel comfortable with how you're paying people. When you take another company's comp plan.

You don't own it.

You don't own. Doesn't represent what you're doing. It doesn't fit. It's very dangerous from a cost perspective. And if your goal is to motivate and reward Specific types of activities, you're not going to get what you want. It would be like walking into someone's house and wearing all their clothing. Some of it you may like, but some of it's not going to fit. So developing plus it has to fit your company culture, right? It's a shortcut, but it's a dangerous shortcut. Not advised.

So the last question here. There's a very hot topic right now on wall street about the legitimacy of paying commissions on internal consumption. In particular with nu skin and herbalife. And one thing that gets brought up is the Success rate of independent representatives. They'll say, In Herbalife, only 1% of distributors achieve profitability within a 12 month period of time. And if taken out of context, those stats are pretty bad. What's your perspective on the success and failure rates of independent reps? And. And what can companies do in the early stages to make it to where these folks have a better shot?

Okay, this is a sad fact, but it's true. Most people that join network marketing and party plan direct selling companies never recruit anyone. With network marketing, generally speaking, in order to earn compensation, you're going to need to build a downline. You may have opportunities to retail the product, but generally speaking, to be successful, you're going to need to build a downline. And most people don't do that. So if everyone did that, everyone would be successful. So essentially, if everyone recruited people who recruited people who bought and sold product, everyone would be successful. I compare it to school. It's like a class of students where 75% of them don't do their homework. So they join the business, they're told what they need to do, and they don't do it. Whose fault is that? As far as the profitability question becoming profitable or not, the reality is this. Many people join companies not just to build a business. They join them because they like the culture. They join them because they want the product discounts. Or they join them and then they change their mind. I thought I was going to do this, but then I didn't. And as far as getting to specific positions in the pay plan, what percentage of people that work for a company become vice president or become directors of departments, it's very small.

You know, I think of an analogy and I've got an article queued up in my head about how I'm going to sue the university of tennessee. Because I was meeting with my coach when he was recruiting me, and he told me. He told me I could be a national champion. He says, you could be a national champion.

You could.

I could have. I believed him. But he didn't give me any disclosures. He didn't say, kevin, you have a one in a million shot that you need to be a little taller, you need to be a little stronger. He didn't give me any disclosures at all. And of course, I'm joking, because even though I didn't hit that goal, I had an amazing experience. And I had a lot of value from that experience. Technically, I'm a failure, perhaps. Although I did get all American honors in 2002.

Congratulations.

Thank you. But my Point is, I think if a kid understands, an 18 year old kid in that scenario understands that nothing is guaranteed. I assume that adults also understand that there are no guarantees for success, that it's not get rich quick, it's get rich, maybe get rich, possibly it's a shot, but it's not a guarantee. So I don't know what companies can do to make that percentage better. I think that's something that's just static in human beings. You're going to have some people that excel and do really well in an environment and some people that pay the gym membership and they don't go kind of thing. I don't know how it gets any better. So when people use that stat against the space, it confuses me.

I think companies can do a lot. I think they can do a lot to keep people engaged. They can do a lot by having the right systems, the right products, the right culture, the right mentoring environment, the compensation plan that motivates the right behaviors. I think there's a lot that can be done. But the reality is the average person that joins a direct selling company doesn't do anything. So there's a large percentage of a.

Follow or does very little and yet they're considered failures. So the issue is how can we cull those people out to where it doesn't affect the stats because those stats get abused?

Well, I can tell you interestingly, in the country of Canada, they have some rules concerning what they call the average participant. It's required in Canada, not in the United States, but in Canada to actually disclose what the average participant earns. And if you asked in Canada who is the average participant, it's a person that's recruited someone. So the average participant in Canada isn't average.

Right.

So I would say if we had the same type of regulations where we said we have to address what the average participant is and the average participant isn't average, we'd be good.

Well, on that note, I think we need to close it out. Thank you so much for doing this. I think we've got some good information out here. And also for you folks at home, Jay and I do the DSEdge conference about once every four or five months. The next one we're looking at doing late April and check it out. Dsedge.com and Jay, why don't you go ahead and give your contact information right here for your website.

Sure.

Our company is Sylvina Consulting and Our website is sylvina.coms as in Susan Y L V I N A like the woman's name is Sylvia, except there's an N before the A. And on our website are some free articles you can request on what is a good compensation plan and the 20 secrets of successful Direct Selling Companies. A direct Selling Edge conference, as Kevin mentioned@dsedge.com is a great place to go if you are thinking about or starting a new network marketing or party plan company. It is the best two day school.

You will ever go to. We've got rave reviews. It's our pleasure to put it on.

And we'll be putting on our eighth conference, as Kevin said, toward the end of April in 2014. Look forward to the opportunity to meet you there. And thanks for listening.

And I'm Kevin Thompson. You know how to reach me. That's it. Awesome. Oh crap. It wasn't recording.

Just kidding. That would be so.