Here’s an excellent article by Barbara Seale of Direct Selling News called Car Bonus Programs: The Ultimate Recognition:
Americans love new cars. We bought more than a million of them every month in 2012 – the highest number in four years – and that number is growing this year. For many direct sellers, that’s just more proof that having a car program is a great investment in their business. They make that investment in a variety of ways and at varying points in their distributors’ careers. Some companies offer a single luxury vehicle that represents a high level of distributor skill and success. Others dangle the car carrot early and often.
And that’s the problem. If it’s too easy to get the car, it’s too easy to lose it.
While cars are traditionally viewed as an incentive reserved for the company’s highest-ranking distributors, companies who want to offer a car bonus often think outside that box. Some offer a progression of car bonuses that can be earned as early as the distributor’s first career promotion.
First and foremost, the programs drive sales by providing a wonderfully tangible feel-good incentive to distributors to continue building their businesses. Additionally, the car is a literal ‘message in the driveway’ about what’s possible in pursuing the opportunity. It’s a conversation-starter with potential recruits, and positive branding for the company. Car bonus program ROI is measured in a variety of ways, and the five companies in this story say that program benefits reverberate within the company and its community, as well as externally.
Certainly, car bonuses make sense in many ways. They act as an incentive, provide great theater at conventions, make alluring eye candy on Facebook, and act as rolling promos for the distributor and the company. But a car bonus with your first or second promotion?
Let’s take a closer look:
[Company] had been in business for two years when it launched its Bimmer Club, which provides a car bonus to distributors who achieve the rank of regional director, their second promotion level, and then help six team members achieve director status.
Company exectutives say:
Driving their [Company]-provided BMW demonstrates that the regional directors are doing more than finding people to join the [Company] Challenge. They’re also developing the necessary recruiting and mentoring skills to help others build a business. Earning a BMW is a giant belief builder in themselves and their ability to have success in [Company] … It redefines their paradigm. Our goal is to let them do that at a relatively fast pace. We want to give cars to our part-time loyalists who want to use the car to make more money and eventually go full time.
Barbara Seale quotes the numbers:
Lots of [Company] directors, which the company refers to as promoters, receive the car bonus. More than 15,000 people have qualified since the program’s inception, putting thousands of rolling billboards on the road, all driven by brand enthusiasts.
Compare this with Wikipedia’s report on Mary Kay’s Pink Cadillacs:
Since the program’s inception , more than 100,000 Independent sales force members have qualified for the use of a Career Car or elected the cash compensation option. It is not known how many Directors select the cash option in lieu of the car, but GM estimates that it has built 100,000 pink Cadillacs for Mary Kay.
The earliest online mention we can find of the BMW program is 2009. That means that in four years, 15,000 people have qualified. That’s an average of 15000/4 = about 4000 people per year. For Mary Kay, the average is 100000/50 = 2000 per year. That means it’s twice as easy to earn a Black BMW than a Pink Cadillac.
That’s good, right? Wait a minute! Let’s do some math here …
In the BMW Club, you must be a Regional Director with $12500 per month in group volume. According to the compensation plan which shows commissions of 5%, that volume would bring you $12500 x 5% or just $625 per month. Let’s be generous and call it $1000 per month.
Most people we know who are earning an extra $1000 per month are paying off credit cards, reducing mortgages, sending kids to college, taking care of parents or relatives in need, buying better clothes, helping to put a new roof on the church, maybe fixing that rusty spot on the van … certainly not buying a BMW.
Now what happens when the company offers $500 to $1000 per month for a BMW? Note that they do not GIVE you a BMW, nor do they PAY for a BMW. What they do is send you off to your local BMW dealer to arrange a lease or purchase of a BMW. It’s all between you and the dealer.
Here are some clauses in the Company BMW Program Guidelines, capitalized with the title IMPORTANT PROGRAM ADVISORY:
The contract you execute will be between you and the Dealership/BMW Financial. This agreement is strictly between you and the seller/lessor.
[Company] urges you not to enter a lease or purchase agreement with which you are not fully comfortable financially. We want you and your family to be completely prepared for the responsibility of the care and payments required before entering any agreement.
The Full BMW bonus is $600/month for as long as you maintain possession of a qualifying black BMW and MAINTAIN [our emphasis] the rank of Regional Director or above.
For each month you complete as a fully qualified Regional Director or above, you will receive your full $600 bonus.
If during your first 12 months since starting full bonus eligibility you do not qualify as a Regional Director but your GQV (Group Qualification Volume) is $6,250 or higher, you will receive a bonus payment in the amount of $300.
If your GQV is less than $6,250, you will not receive a bonus for that month’s production.
Because not everybody has the need, desire, or means to acquire a BMW right away, we offer a $300 cash bonus option for qualifying Regional Directors without a car.
Let’s say you decide to opt for the BMW and pass up the $300 per month option. You lease your BMW complete with company branding, including a Paid For By [Company] licence frame, a TOLDUSO licence insert and a [Company] Silver Emblem for the left rear of your vehicle. The company presents you with the car at convention, the crowd goes wild, promo pictures are taken and you drive offstage with your new Black BMW.
Let’s recap. You became Regional Director with a volume of $12500 and are now earning $600 to $1000 per month. You’ve signed a lease for a car you may not have always wanted, but it will add more value to your business than that puny $300 you would have received if you had not taken the car. You are proud and happy to drive around town with that tolduso attitude and prospecting posture.
Now back to the real world. Any experienced networker knows that the lines on the graph don’t always go up. Businesses will explode for a month or two, and then, more often than not, they will shrink. What happens to you and your Black BMW?
If your business shrinks below $12500, but stays above $6250, your car bonus shrinks from $600 to $300. That means you move from $1000 per month plus $600 car bonus to perhaps $800 per month and a $300 car bonus. Hmm …
If your BMW lease is $600, you now need to make up that $300 out of your $800 company check. That means you are making $800 – $300 = $500 per month!
If your team begins to hear of other leaders having problems keeping up their lease payments, this may have some effect on morale, momentum and enthusiasm. The Black BMW may no longer be the incentive it used to be. As enthusiasm drops, so does volume, and it would not be unheard of to have your volume drop below $6250 as attrition kicks in.
Below $6250 volume at 5%, you might be earning $300 to $400 per month. Your BMW lease is still $600 per month, which leaves you in the red to the tune of $200 to $300.
So now you are earning nothing overall from your business, and it’s costing you to have that message in the driveway which you think twice about driving around because the license plate frame and insert should now read “Join Me And Get Deeper In Debt!”
If you decide to cancel the lease with the dealership, you can usually expect to take a big loss, and if you have to default on the lease, you can expect a giant blow to your credit rating. Not good for you or your family or your future. Your Black BMW has become Crimson Christine.
(A friend of ours earned a Porsche way too early in a startup that went belly up. Not only was he stuck with the lease, but the company was no longer around to provide the extra income he was counting on. He came close to losing his house. Ouch.)
Hmm … that $300 option is starting to look pretty good, no?
As a leader, it’s probably a good idea for you to learn more about the good, the bad and the ugly in compensation plans. Not just for yourself but for your team. Not just for your team, but for your family. The best place to start learning how to avoid costly MLM mistakes is Big MLM Lies in our favorite book, Success In Ten Steps.
This article is based on Richard Dennis’ conversation with Bob and Anna Bassett. Click here for the full interview.