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Best Practices

Understanding Override Commission

[Sponsor]

1 [X] [X] [X]
2 [X] [X] [X] [X] [X]
3 [X] [X] [X] [YOU] [X] [X] [X]

1 [O] [O] [O] [O] [O] [O] [O]
2 [O] [O] [O] [O] [O] [O] [O] [O] [O]
3 [O] [O] [O] [O] [O] [O] [O] [O] [O] [O] [O]

As an example of override pay (considered the base pay commission) we have some X’s and O’s.

In any multi-level plan commissions are paid on Sales Volume. In the above example, the X’s created $40,000 in Sales Volume and the O’s created $60,000 in Sales Volume. If the override commission is 3.5% of retail (Gross) Sales Volume the Sponsor would make $1,400 in override and you would make $2,100 in override for the pay period.

In our particular plan (Stairstep Breakaway Plan) a Distributor would be paid:

  • Retail
  • Wholesale
  • Override
  • Leadership
  • Pay Period Production Bonuses and Trips

As you can see, because of exponential growth (multiplication) most of the $1,400 and $2,100 in override comes from the third level. If a person is building the business correctly then most of the commission coming from the third level would be the desired result. Why? Because that’s how the compensation plan and normal building of the business is designed!

The company pays the last three commission categories so that the Distributor will take an active role in recruiting, teaching, and training other Distributors. In return, both the Company and Distributor benefits from the exponential Sales Volume Growth. Wholesale commissions are really just discounted sales that the Company would deduct from Gross Sales to arrive at their Net Sales figure. Also, the company (in our example) would send the difference from a higher discount to a lower downline discount to the Distributor (Sponsor). Suggested Retail less your discount level (actual cost) would determine the retail profit made on a retail sale.

The advantage of the business model for the company is exactly the same as for the Distributor (Exponential Sales Volume Growth). As you can see, the multi-level business model is designed to efficiently market products through word-of-mouth marketing, and is not just retailing and wholesaling products.

Some people, for various reasons, give this direct sales model a negative connotation. That’s all Multi-level sales is–a business model. It’s no different from other Direct Sales Models in many respects.

To illustrate, let’s convert the people blocks into geography blocks and change the Distributor to the name Sales Representative (Mfg. Rep.). The Sponsor works for XYZ Corporation and the [X’s] represent companies in the state of Oklahoma and the [O’s] represent companies in the state of Texas. XYZ Corp. gives the Sponsor a protected territory–the state of Oklahoma. Let’s say that a person in one of the X companies really likes our products, and refers (word-of-mouth) another X company directly to XYZ Corp. The Sponsor doesn’t even know that particular X company even exists. At the end of the pay period, XYZ Corp. sends the Sponsor of the X companies a commission for a Company he didn’t even know existed. These kinds of business model examples could go on and on (termed: Free Enterprise System).

As you can see, the X Team Sponsor makes less in the two week pay period than You (the O Team Sponsor).

If you will study industry financial statements you will find that many companies pay commissions at approximately 40% (or less) of Net Sales. Therefore, the more Distributors that are recruited the larger the company Net Sales. Even if the bottom level Distributor in the company (so to speak) is the best producer and makes the largest individual sales commission.

That’s how some Distributors (even at the lowest levels) make more than the CEO of the company or their upline Sponsors. Often the oldest Distributors make more commission than the newer Distributors because of the difference in “Time Invested” in the opportunity. It takes “Time” to build a business and earn “Residual Income.”

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Discussion

One thought on “Understanding Override Commission

  1. Friend,

    I have been in Networking for over 12 years, this is some great info! Most networkers spend years trying to grow a group for their network marketing company and have little or no success and give up after a short period of time. This is largely due to lack of knowledge or training from their upline.

    I will be checking back here often and will try to contribute to this community on a regular basis. Thank you for all the hard work you do!

    Posted by Chaz Rockwell | October 11, 2011, 2:12 pm

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