STAIR STEP BREAK-AWAY;
THE ORIGINAL

A Compensation Plan Analysis, by Steven Burke

Having seen the plan outlined it is immediately apparent from where the Stair Step portion of the name is derived. New distributors work their way up the 'stairs' with each 'step' representing a new position. Positions are either temporary or permanent and come with a higher wholesale "discount" on products which the distributor purchases for the purpose of resale or personal consumption. Sounds simple enough doesn't it? Hold on, there's a little more to it!

Sales volumes required to qualify for positions are an accumulation of the personal volumes of you and your group (group volume) as seen below;

In the above illustration the Distributor reached the Direct position
with the help of three sponsored Dealers.

Distributors basically earn income three ways; Retail, Wholesale and Overrides. Retail profits are earned on the difference from the wholesale or distributor cost and the retail price.

Wholesale profits are earned on;

• the difference or spread between the sponsors discount % and the discount % of people in their downline
• products purchased for 'resale' or "retailing"

The wholesale 'discount' or 'rebate' is paid back to the deserving Direct distributor a month after the purchases were made. Dealers then rely on their 'upline Direct' to pay them any discounts which they are owed! This is a strong reason for working toward reaching the Direct position quickly thereby qualifying to purchase and receive payment directly from the MLM company. Overrides are earnings created from the sales of distributors in your group and are earned regardless if those distributors are at a lower, the same or even higher position in the plan.

Below is a chart showing Wholesale Discounts and Overrides earned at the different positions in the above diagrammed compensation plan;

The way in which discounts and overrides are calculated aren't similar. Wholesale Discounts (or Rebates) are calculated on the "spread" where as Overrides may be 'combined'.

For example; (see diagram) You (U) sponsor A who in turn sponsors B. Lets say that currently you are a Sr. Direct, A is a Direct and B is a dealer. A earns 25% of the wholesale purchases made by B. You earn (wholesale) 10%, the difference between 35% and 25%, of all purchases made by A and B. At the same time you also earn a 3% override of all purchases or volume in A's entire group! When you become an Executive your Override earnings double to 6%. You would earn 9%, a combination of the 3 and 6, of anyone you sponsor and their group until the distributor you sponsored becomes a Direct and qualifies to earn 3%. You would then permanently earn 6%, as long as you continue to re-qualify, from them and their entire group.

Mandatory purchase requirements would not be in compliance with the law. However, sales quota's are legitimate and provide for the creation of wealth in NetWork Marketing and more traditional Marketing (such as franchising). Stair Step programs can be difficult for the average individual and the part timer if the sales quota's required to qualify are to high.

Most plans have personal (PV) and group volume (PGV) requirements. Before a distributor qualifies for a permanent position in the plan they not only have to reach a total group volume but must also achieve a personal volume requirement (usually in the same month). In the case where distributors do not achieve the personal volume (PV) requirements they would not qualify to earn overrides on their group and, in some cases, wholesale discounts on any personal purchases.

Qualifying for Executive Overrides often carries a higher quota. In order to receive the 6% Override a distributor may be required to double their Personal Volume (PV). If this requirement was not met they would only receive 3% as if they were a Direct. Depending on the plan this often applies to the Wholesale discounts as well. It is very important to understand all the intricacies of your compensation plan. Skipping your home work in this area could cost money and severely hurt your morale.

This is the most significant part of the compensation plan. Once a distributor reaches the Break-Away level the income potential begins to get serious. The term "Break-Away" means that a distributor no longer counts as part of the Group (PGV) Volume of their sponsor or upline. Let me say this another way, volumes required for PGV qualification do not include any downline who have broken away. The structure of this style of plan is such that distributors use the volumes of their open, non break-away, group to "push" them to the break-away level. Sometimes with this plan distributors advance much faster reaching the Executive level and breaking-away before their upline! If this happened in your downline, believe me, you'd find it very demoralizing.

In 1990 a relative of mine was involved in a Stair Step program in my downline. Bruce was very busy at work and had just recently become involved with the woman who is now his wife (she also kept him busy!). At the time he was a Sr. Direct and needed $25,000 to reach the Executive level. This particular plan allowed distributors to reach the Executive level if they developed one new Executive and in addition did $10,000 in Personal Volume (PV). In order to qualify for the 3% override a distributor needed only $5,000 in PV. Well, sure enough, a Direct in our downline did $25,000. Bruce spent all his spare time helping the Direct and had no time available to qualify personally! In hind sight it occurred to me that he should have at least purchased his $5,000 qualification, if not the $10,000. Let's examine why:

A reasonable investment?

Instead of opting for option 1 or 2 he did nothing, earned zero and dropped out of the program!

Recently, several new ideas have developed about the Stair Step Compensation Plan. The original plan required volumes for positioning to be done in a calendar month. The new concept is one where the volumes are cumulative, meaning it doesn't matter how long it takes to get there. This is much easier for the part timer.

Further, the story I just described could not have happened! Bruce, a Senior Direct having already achieved $15,000 in group volume, would not have to create another $25,000 to reach the Executive position. Instead he only had to achieve $25,000 in total or another $10,000 in group volume. This style of plan, like the "Original", has a personal purchase volume (PV) requirement. In this way distributors can not achieve the break-away levels purely on the efforts of others. Typically the PV is set at $1,000.

In an Accumulative Plan Bruce would have had to purchase $1,000 and would have earned:

In the diagram showing you (U) sponsoring A, who sponsored B:

• A represents the 1st generation
• B represents a 2nd generation

Depending on a distributors position in the plan Overrides are paid 'down' a specific number of qualified (PV & PGV) generations. Example;

As you can see there are 2 (or more) levels, with accompanying rewards, to work toward after breaking-away.

In some plans overrides can be earned on as many as 9 generations!

In a Stair Step plan new distributors start as a dealer or 'position' themselves higher in the plan. This is done by purchasing enough product to qualify for the level they wish to start at. Why would anyone want to do that you wonder? At the higher positions distributors receive a greater 'wholesale' discount therefore earning more as they begin to sponsor new distributors.

Of course anyone positioning themselves this way is left with an inventory which, in order to recoup their investment, will have to be retailed. Retailing 50, 100 or more inventoried products requires a plan which should be in place before making this kind of investment.

* Reprinted from the "Network Marketing News" Newsletter