The Stair Step Compensation Plan

This is a typical stair step compensation plan. Starting from the bottom and working up you find the following ranks:

• Agent
• Emerald
• Ruby
• Sapphire
• Diamond
• Crown

As members are promoted their income potential increases. In this example the compensation is as follows:

The first three ranks in this example will receive differential commission of up to 45% depending on rank.

Agent
An agent receives 25% discount off the retail price. He then sells the items at full retail and thereby generates a profit.

Emerald
An emerald is the first rank to receive over-riding commission. In this example the emerald is on a sliding scale and depending on a combination of personal and group sales will receive up to 35% on all personal sales and up to 10% on sales made by his team

Ruby
A ruby receives 45% on personal sales, between 10% and 15% on all ruby sales and 20% on all agent sales.

Breakaway (see definitions)
One of the big draw backs of the stair step model is the elimination of profits due to downline promotion. Simply put: If I am a Ruby and I have a downline member who becomes a ruby then we will both be receiving the same discount. This means there is no differential and I will earn nothing from my downline ruby’s sales. To overcome this problem, the breakaway concept was created.

This is not an easy concept to deal with as it varies vastly from company to company. In this example however the ruby is earning maximum discount. His upline is no longer earning from him so he is deemed to be a breakaway. To prevent the upline’s income from disappearing altogether a royalty is paid on his breakaway volume up to 3 levels of breakaway deep.

Sapphire
In addition to their ruby commission a sapphire receives and additional 2% royalty on volume generated by rubies in their team.

Diamond
In addition to their ruby commission a diamond receives and additional 4% royalty on volume generated by rubies and 2% on volume generated by sapphires in their team.

Crown
In addition to their ruby commission a crown receives and additional 6% royalty on volume generated by rubies, 4% on volume generated by sapphires and 2% on volume generated by diamonds in their team.

Promotion and compensation qualification
The stair step model is governed by qualification requirements. In this example they are as follows:

Agent to emerald

• R10,000 total group volume for 3 consecutive months
• R1000 personal sales volume for 3 consecutive months

Emerald to Ruby

• R40,000 total group volume for 3 consecutive months.
• R10,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Ruby to sapphire

• R200,000 R40,000 total group volume for 3 consecutive months
• R25,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Sapphire to diamond

• 800,000 R40,000 total group volume for 3 consecutive months
• R25,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Diamond to crows

• R2000,000 R40,000 total group volume for 3 consecutive months
• R25,000 personal group volume for three consecutive months
• R1000 personal sales volume for 3 consecutive months

Demotions form an integral part of this plan and are triggered when any member falls below 80% of their qualifying bonus for three consecutive months.

Breakage
Regardless of the rank members reach, they are paid on the level that they qualify for. For example: Any member who does not achieve R1000 in personal sales will receive no differential or over-riding commission at all. These commissions are retained by the company.

There are inherent strengths and weaknesses in a plan of this nature.

Strengths

• A new member is able to generate a substantial and consistent income from day one. The 25% discount allows them to set up presentations and to make sales.
• Members can generate an income without recruiting a single person. There are many people who would rather sell than recruit.
• Team leader are able to generate substantial income from agents due to the massive differential commission of 20%.
• There is a strong focus on sales. A small motivated team can achieve tremendous volumes

Weaknesses

• The team requires substantial and ongoing training to achieve consistent sales
• The team requires constant motivating
• Growth is slow due to the focus on sales
• There is a high attrition rate
• Leaders are likely to experience massive income dips due to downline promotion.

As you can see by the graph, every time a downline member is promoted, the upline leadership looses a large portion of their income. This only needs to happen once or twice before the leader quits the business.

If your main aim is to develop a sales team then this is not a bad option.