Month: November 2016

Helping more new distributors find success

We’re coming up on a new year, and with that, tens of thousands of people associated with Direct Selling companies will recommit to their businesses and jump into activity.  These Distributors will recruit hundreds of thousands of new recruits to join them in their businesses.  If history is any indication, however, more than 90% of those new recruits will not be successful in their new business venture.

Our research has found that new Distributors at the vast majority of U.S. direct selling companies have an “activation” period of 90-120 days.  During this period, the activities of new recruits and the outcomes from those activities will either set the foundation for their success or pave the path for their exit from their new business.

Most companies have a number of programs and incentives designed to help the new recruit succeed.  As you enter the new year, consider what such programs look like at your company.  Here are some tips from our research to help support new Distributors through a successful activation period:

  • Resist the temptation to drive to too much early activity. Our research and experience has shown that activation periods can vary significantly from company to company.  Depending on your product, business methods, and compensation, it can take anywhere between three and six months to learn the business, become articulate about the product, and become comfortable sharing the opportunity with others.  Expecting too much from an Activation program participant too soon can overwhelm distributors and ultimately undermine the intent of the program.
  • Reward more people than just the new registrant. This typically means involving at least one upline level of distributor in the Activation program.  We’ve found that programs that incentivize “replication,” or rewarding upline distributors for their new recruits’ success can increase Activation rates by between 4 and 17%.
  • Avoid spreading rewards like peanut butter. You’ll be more successful if a narrower group of highly-motivated recruits achieve the top goals of your program. By concentrating rewards on those who excel, the company can provide much more motivational bonus payouts and benefits.  This, in turn, helps build more firmly established habits with your most productive recruits.
  • Simplify and streamline the information provided to new distributors. While there’s some inherent complexity in a compensation plan or a broad product portfolio, these complexities are only exacerbated when sales, product marketing, and training provide materials to new recruits.  It’s critical to take the new distributor’s perspective, and to prioritize what must be communicated, unifying around a single, focused message in the early months.  Less is more.
  • Use technology to break down goals into finite tasks that link action to result. The basic concepts that underlie any motivation program are Action –> Results –> Rewards.  It’s all too common that programs focus too narrowly on results and rewards.  Suggesting a set of discrete, simple actions that build up toward an end result has been proven to be an effective means of training or changing behavior.  For example, signing up a first recruit (the result) is difficult for many people, but walking a distributor through the actions required to recruit, like building a target list, prioritizing it, tailoring a “pitch,” and learning the aspects of the opportunity necessary for a conversation makes it seem achievable.

Mobile technology has given direct sellers a powerful tool to help new recruits manage their way through their new business.  New mobile apps have helped accelerate habit-building, the real focus of all Fast Start programs.  Mobile is ubiquitous, and more than 85% of U.S. direct sellers transact using an Apple device.   Mobile is particularly well suited to breaking down the Activation period into digestible actions and goals, enabling immediate recognition and rewards.

Virtually all our clients have mobile apps that support basic direct selling transactions, including order processing, new customer/consultant registration, etc.  But a mobile presence also can place the full business opportunity front and center for new distributors.  It can provide for real time reminders, progress updates, and rewards.

How we can help

A well-designed Activation program helps new Distributors get what they want from their new business.  It provides structure to pace their activities, offers rewards in a planned and strategic way, and uses tools to bridge Action to Result to Reward cycle.  We’ve worked with companies to understand their unique businesses, innovate truly original and effective activation programs, and implement them with proven success.  We’re particularly excited about using mobile tools to enable more consistent habit-building during the activation period.  Our relationships with key technology partners enables us to design, develop, and implement enabling technology in less than 90 days.  Without the headaches associated with typical systems integration challenges.  We can show you how to make 25-50% of your new recruits more successful by using mobile tools to improve habit-building during their first three months.

Happy Holidays!

FTC Guidance: A path to higher growth

Federal Trade Commission (FTC) Chairwoman Edith Ramirez presented at the Conference, committing that revised guidance from her agency is imminent.  She also shared a framework that will form the basis of the FTC’s oversight of our industry.  She clearly defined four (4) criteria that a Direct Seller’s operating model must meet in order to pass FTC muster.

In her words, a Direct Seller must:

  1. Focus on “real” customers
  2. Demonstrate that sales are profitable and verifiable
  3. Operate a plan with targets that cannot be met by self-consumption alone
  4. Pay compensation based on retail sales to customers

After Chairwoman Ramirez outlined these criteria, she committed that formal guidance is forthcoming, and that these four points should be a valid preview of that guidance.

Most direct selling businesses already comply, to some degree, with these guidelines.  We’ve helped many clients set strategy to enhance their focus on retail customers over the years.

We believe that coming FTC guidance that would enhance the focus on customers is just good business.  We have seen an enhanced customer focus generate very material increases in the earnings of the field salesforce – and increase growth rates for direct selling companies.

Let’s look at each of the four structural test the FTC will likely focus on.

1) Focus on Real Customers

“Focusing” on customers is critical in any industry, as the last decade has seen a meteoric rise in “customer centric” businesses and the analytical capabilities that enable that focus.  We see customer focus in Direct Selling as resting on three pillars:

  • Role definition that’s clear and simple
  • Matching of roles to desired benefits in a synergistic and clear way, and
  • A product assortment that powers customer acquisition and loyalty

Defining customer, preferred customer, hostess, distributor and other roles that are distinct, free of arbitrage opportunities, and supported by well-understood business rules is where this begins.  Some Direct Sellers still struggle with a field largely comprised of distributors that joined primarily for discount product access.  These individuals are registered as distributors, but behave like customers.  Our research over the years has shown that fewer than 1% of distributors who initially behave as customers typically go on to build a business.  Aligning these individuals as customers from the beginning helps focus marketing efforts and supports stronger earning opportunities for business-building distributors.

Matching distributor and customers to the benefits they’re seeking in a way that benefits the distributor is essential.  Crafting preferred customer programs, hostess programs, and compensation plans that motivate acquisition and loyalty isn’t enough.  These plans must work together to create incentives to slot each stakeholder into the right role at the right time, and extend the length of their involvement.  Distributors must have incentives to enroll prospects as customers, and customers must get the discounts, recognition, pride of affiliation, and rewards they seek.  Our clients that have implemented or updated a well-designed Preferred Customer program have seen immediate increases in sales—even if the count of distributors was not growing.  Focusing on the customer helps a direct seller build sustainable growth.

A Direct Seller must offer a fresh, relevant product assortment that customers want to buy and distributors can sell.  This means a metered flow of new products to the marketplace, developed by a process that includes retail and direct selling competitive knowledge, pricing acumen, input from customers and distributors, and points of difference that will justify their price points.  Furthermore, those products must hit the market on time and at a cost that supports profitability.

2) Demonstrate that sales are profitable and verifiable

Direct Selling companies are rarely unprofitable, so the core of this requirement is to assure that each type of sale to a customer is commercially reasonable and that sales can be attributed to specific customers.

In order to produce evidence of an end consumer other than a distributor, a Direct Seller will need to document a transaction that took place directly with the customer.  Many companies in the industry have policies in place requiring distributors to have a certain number of customers each period and some require individual receipts to be issued and maintained for each customer sale.  The mere existence of these policies, however, may not meet the “verifiable” standard.  We have found that many leading companies are already equipping distributors with tools and technology that allow them to sell to customers when and where they want to buy.  These tools connect customers to their distributors, and the company, in a simple and intuitive way.

Facilitating sales by distributors on a technology platform has benefits that go well beyond being able to produce evidence for regulations.  It can help form a more durable connection between the customer, their distributor, and the company.  It also generates priceless data about customer behavior that can power continuous improvement in compensation, sales methods, and product configuration.

3) Operate a plan with targets that cannot be met by self-consumption alone -AND-  4) Pay compensation based on Retail Sales to Customers

We’ve combined these last two points because they really go hand-in-hand.  Compensation plan features all need to work together, so we’ll look at these two structural criteria together.

Effective Compensation Plans:

  • Are easy to learn and explain, with simple math and a focused set of possible bonus types – If your field jokes that your plan is “called a ‘comp’ plan because it’s complicated,” you need to change it. That’s true regardless of what the FTC says, so let’s get that one out of the way.
  • Fit with the various roles involved in the opportunity – To keep things clear, the bar has to be set high enough to delineate between customer and distributor roles. To power a model where customers and distributors fit together effectively, the plan must include targets that go above and beyond self-consumption.  These don’t have to be strict monthly minimums or overly burdensome hurdles, but they need to be firm enough to let in only those interested in retailing and/or recruiting.  Not only will this support compliance, it’ll protect distributor earnings by boosting productivity and simplifying recruitment discussions.
  • Have a clear “career path” in mind, with specific behaviors and rewards at each level – When designing a clean-sheet plan or an adjustment to an existing plan, the expected performance and pay for that performance at each level needs to be carefully thought out. More often than not, the “career path” begins with a distributor learning more about the product and demonstrating success in selling it.  Later, distributors go on to develop teams and mentor others, but it is important that no-one in the field lose sight of selling.  This supports stable earnings throughout the lineage, which in turn boosts retention and the top line.

Coming back to FTC guidance, a plan that requires and rewards a balanced mix of selling and recruitment should easily satisfy these guidelines.  Setting FTC guidance aside, these plans are good for business.  They provide lucrative initial retail earnings, and they set distributors up for long-term success through customer retention and high productivity of downline team members.

One important note here–in light of the Herbalife settlement, we don’t expect that the FTC will prohibit compensation on product sales to distributors.  With Herbalife, the FTC has required that less than 1/3rd of compensation be paid on wholesale or distributor self-consumption orders.  That does not mean that no more than 1/3rd of the company’s sales can come from distributor self-consumption, starter kits, or business supplies.  It means that the payout against those types of sales must be limited.

How we can help

We believe the FTC’s increased focus on customers will provide one more reason for direct sellers to renew their efforts to connect with more long-term customers.  We have been advocates of building a  stronger customer base for nearly 20 years.  We have changed compensation and incentive programs to better align the company and field salesforce’s focus on customers.  Our firm has implemented and enhanced preferred customer programs to support long-term customer engagement.  We have worked with companies to realign their internal processes, from concept to market – and across R&D, Product Development, Marketing, Sales, and Customer Service – to enhance the lifetime value of their customers.  We have found that a focus on the end consumer has consistently led to profitable growth.