15 October 2005

Compensation Plans - Stair Step Break Away - Continued

As I mentioned in the previous post, the Stair Step(SS) comp plan is the oldest compensation plan in use today. Most popularly utilized in companies like Amway and it's sister company, Quixtar, the Stair Step offers dynamic growth potential in it's pure form.

My personal experience in Network Marketing includes about five years in a Stair Step structure so, with that, I felt this would be a good place to begin.

The Stair Step rewards it's participants through an increasing tier percentage as the group sales volume increases. First tier percentage may pay 3% bonus on group volume produced at about $200 for total monthly volume, for example. There can be 5-10 tiers in the initial growth course for the independent business owner (IBO) and may cap at 25% bonus paid on that group's monthly business volume (BV).
Here is a crude example of how a Stair Step may be structured.
(First number equals total group BV with hypothetical percentage to be paid for that group.)

$200 / 3%
$500 / 6%
$1200 / 9%
$2000 / 12%
$4000 / 15%
$6000 / 18%
$10000 / 21%
$15000 / 25%

Keep in mind that while your group may reach the 25% qualification, these are group volume numbers. That means all qualified IBOs on your team and the respective percentages are paid through "downline bonuses". The proper structure of your group will greatly affect your personal earnings. By that I mean, the number of "legs" or personally "sponsored" that are producing business volume in your organization determines your potential profitability.

Consider this rule for building in this pay plan - Build width for profitability and build depth for stability. Width means the number of personally sponsored IBOs in your group and depth means the number of IBOs in those respective legs. This is a post subject onto itself.

Continuing through this compensation plan, once the participant has reached the top level, say the 25% bracket, this is where the "break away" occurs. At this point, downline group business volume is no longer directly calculated through the upline organization. As long as the upline maintains qualification, an override is paid on the BV produced from this spin-off group, usual about 3% or 4% on total business volume generated. This is where residual income kicks in and becomes the dynamic force of this pay plan. The more of these 25% groups that are produced within a person's organization, the greater the income potential.

There may be additional incentive bonuses paid based on the total number of 25% groups developed but this is specific to individual companies.

There are many subtleties and building strategies in the Stair Step Break Away compensation model. We'll look at some of these in an upcoming post.


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