The following is an excerpt from Jonathan’s new book for direct selling executives, Blastoff! Creating Growth in the Modern Direct Selling Company. Direct selling executives are invited to reserve a complimentary copy.
“Orbit Lesson #10: Take a Closer Look at Your Bonuses”
We mentioned in an earlier chapter the success of “Three & Free” and other bonus programs that have since led to a rush for many companies to jump on the bandwagon.
As usual, there are a few gotchas. In addition to potential legal issues, there may be practical reasons to reconsider them.
“Three & Free” bonuses are paid when, if you’re a customer for a company (not a distributor), and you refer three customers who buy, the company will give you the product for free or some other compensation in the form of product or a discount.
Kevin Larson, VP Sales at New Earth, believes the “Three & Free” bonus is actually counterproductive. “First, it sets up an expectation that the product is worth it to me…when it’s free. Suppose in a certain month one of my ‘three’ falls through and doesn’t purchase. Now I have to pay for the product I expected to receive gratis. In my frustration, maybe I decide I will not purchase either now that I am forced to. Now the guy above me has a problem, right?”
“These things eat themselves from the bottom up, simply because people begin to expect something for free forever. In a ‘relationship and trust’ business, free is a lousy reward, as it goads what could otherwise be preferred customers into joining for a promise—which rarely happens, and depends on treating other people as a means to an end.”
Another long-standing incentive for people who achieve a new rank-up is the “car bonus.”
Car programs have long been an important driver (sorry) of growth for many companies. It is sometimes the single biggest motivator in a comp plan.
The car is typically in the company’s name and the company covers the lease costs. It doesn’t cost the company anything—rather than pay cash bonuses, they pick up the car payments. This obviously can serve as good marketing for the company if consultants are driving around in a new Mercedes. People take notice and it piques interest. Happy rep, happy company, right?
Maybe for a little while. The problem with these bonuses is that, because they are so exciting to reps, companies over time tend to lower the bar for qualification requirements, and that gets a lot of everyday people into trouble.
Let’s say Joe is a recipient of a new car, but soon enough he falls down in rank and is forced to pick up the payments. If Joe leaves the company, he may not be able to carry the lease, which can go against him on his credit. Worse, if he can’t make the payments, the car can be (and often is) repossessed.
How does that look to Joe’s family and neighbors? Absolutely awful.
How does that look to Joe’s family and neighbors? Absolutely awful. You can just imagine his friends and family, many of whom incidentally Joe would have previously approached about joining the company): “Joe failed at that business, just like I told him he would. What a sham.”
A loss for Joe, no doubt. But also for the company. And the industry.
This will probably stir some debate, but the collective opinion of the folks interviewed for this book is the car bonus, unless safeguarded, is highly detrimental to not only the people who “earn” them but to the industry as a whole. People who make money in this business should be educated in managing it responsibly, rather than encouraged to buy more car than they can afford.
Yes, it is exciting for a rep to be able to win something as cool as a new car in return for their hard work. And yes, having thousands of people driving around in a new exotic automobile is great marketing for the company.
But the car bonus is a deleterious influence on the business and we should award them differently. Either reps actually earn a car (rather than the right to drive a leased car until a rough patch), or we figure out a more sustainable, authentic and honest reward.
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