How to Effectively Test Commission Plans

by Devry Anderson & Matt Barros

One of the most important steps in designing a commission plan is testing that plan. It is has traditionally been one of the most overlooked steps because of the difficulty of testing a plan properly. Advances in multi-level commissioning software allow a company to test a compensation plan before they launch. Why is it important to test commission plans? How can you properly set up such a test? What will you learn from a properly executed test plan?

Why is it important to test commission plans?

Over the last 20 years, commission plans have added innovations in many areas such as creative use of pool bonuses, modifications in compression and infinity bonuses. Commission qualifications also have become more complex. One example is reducing qualifications if a distributor is on an Autoship program. A company should insure that their commission plan does not allow a distributor's downline sales volume to be increasing, and the distributor's commission be stagnate or (even worse) decreasing. However, in some commission plans these "flat spots" happen. They only way to avoid these "flat spots" from becoming "blind spots" is to test the commission plan against test data.

If you don't know how much of a role you expect your distributors to play in your intellectual distribution strategy, it will be difficult to decide how much of a sales commission they need to earn for fulfilling that role. A commission plan should naturally flow from these important decisions.

How do I properly set up a test?

1. Test data must mirror expected organizational structure.
To accurately test, it is important to build the test environment so that the downline structure and ordering patterns are suitable for the qualifications of the commission plan that is being tested. Many companies try to test commissions using the same downline for every commission. That will not work. If a commission plan rewards building wide, then the test data must have many first level distributors. If a commission plan rewards building deep, then the test data must have fewer first levels and deeper organizations.

2. Set up product orders based on rewards for sales.
It is important to base test data on the patterns that the commission plan is likely to produce. For example, if the plan is to encourage retail sales, then more retail orders need to be approximated in the data. If the plan is to encourage personal product consumption, then this will determine the number and quantity of these kinds of test orders.

3. Run with an adequate number of distributors and orders.
A company typically needs several thousand distributors in a test downline with orders. It may be necessary to must run commissions for several months in order to evaluate certain multi-period qualification commissions. The key is to set up tests that show whether the commission plan is meeting the objectives of the company.

What are the benefits a company can expect to receive?

1. Assuring rewards for the expected behavior.
Knowing that a commission plan does what you expect is crucial. It is amazing the number of network marketing companies that have created great momentum and lost it, never to get it back, because their commission plan did not do what they expected.

2. Finding the "flat spots".
One important benefit is to find any "flat spots", or other unexpected behaviors. Once they are found, then you can prepare distributors with training for how to handle these times.

3. Tuning the plan.
With advance understanding of trends in a compensation structure, the company can fine-tune a plan for example, by adding a small pool bonus or adjusting qualifications. These adjustments can be made before distributors receive checks. This allows a company to provide a consistent reward system so that distributors can learn to work the plan.

4. Training company employees.
Distributor support is crucial. We live in a consumer driven market. Each time the distributor calls into the company, the support people need to be able to answer questions on product, training, procedures and the compensation plan. The more you know in advance, the easier it is to train.

Comparing a Unigen and a Stairstep

For the purpose of this article, we ran a test for a single month. Some commission types will require evaluation over several consecutive months.

The data used for this test includes 8075 distributors with 100 PV each. There are eight ranks with rank 4 being the "breakaway" rank.

The stairstep plan has its differential percents set at 5, 10, 15, and 20 on ranks 1 - 4+. The unigen plan has its differential percentages set at 10, 5, and 5 for all ranks.

Both plans have the qualified director bonus set at 5-10% depending on the GV. The stairstep plan uses retro generational volume. The unilevel uses on-the-fly generational volume. Both plans have simple generation and infinity bonuses.

This test to make the total payout roughly equal. Both plans ended up paying out about 47%.

In this example, what can you learn?

Number of Checks
The biggest difference is the number of checks generated. The number of checks in the stairstep is double that of the unigen. Although the stairstep sends out double the number of checks, the number of checks above the 15.00 range for both plans are about the same.
The stairstep plan paid more rank 1 people.

Who Makes More?
Another interesting note is that the stairstep plan, on average, paid the highest earners more money. The unigen pays the mid range people more.

Unfortunately, we only had 1000 words to show the differences in compensation plans. This is just the beginning of what can be accomplished by comparing two plans before you launch. Depending on the objectives of your commission strategy, you can use such a test to determine which plan is going to better meet your needs.