Pre-Paid Legal Earnings Plans

One of the first decision you make when signing up to be an Independent Associate of Pre-Paid Legal Services, Inc., is whether you'd like your earned commissions calculated over a one year or three year basis.

For those who have been in other MLMs, the idea of "advanced" commissions might be new to them and a bit confusing. I'm guessing that PPLSI realized that earning $2.80 a month on a sale wouldn't be very motivating and decided to advance the whole commission, let's say $100 for example, so that the Associate would have more funds with which to expand their business. Sound good? You betcha! Hey, I just sold a $26 a month plan and I got $100 deposited the next day in my personal checking account! Woo-hoo!

Oops. Rent was due or that money went to pay some other bill and the person you sold a Membership to decided to cancel it the following month after having made only two payments. Yeah, so what? Well, PPLSI is going to want the money back they advanced to you. Oh.

Folks, those "advanced" commissions are actually loans! Says so on the back of the Associate Application, the part hardly anyone reads. You have now incurred a "chargeback". Since you didn't earn much of what was advanced to you, you now owe the unearned portion back. Well, how much is that?

The two offered Earnings Plans, 1 year & 3 year, operate a little differently. What is the same is the amount that PPLSI advanced to you, which in our example is $100. In the one year plan you opted to "earn" your $100 commission over 12 equal installments, or $8.33 a month. So after 2 payments you have earned $16.66 and will be charged back $83.34.

The three year plan works similarly, only the monthly amount is one third as much, or $2.78. After two monthly payments you will have earned $5.56 and be charged back $47.22.

Huh? What happens to the other $47.22 (for total of $94.44) of the advanced, unearned commission?

Winner! You get to keep it! Your total earnings from that $100 advance commission are now $52.78. And you can spend it on whatever you want!

OK, so it's a no-brainer to take the 3 year earnings plan over the 1 year earnings plan, right? In fact, if the person you sold the membership to, or someone that anyone on your team for which you earn override bonuses, drops out in months 1-7, you earn more commission on the 3 year plan than the 1 year plan.

So where's the downside? Well, if most of the people for which you are earning a commission or override bonus stay in the program for longer than 7 months, your long-term commissions will be higher if they end up canceling their PPLSI membership before the 36th month. This is due to the fact that under the 1 year earnings plan you have earned your full commission after the 12th payment and there is no possibility of a chargeback at that point, but under the 3 year earnings plan you could incur a chargeback at any time up until the 36th month.

Just to muddy the water even more, there is another option: Opt to get paid on an "as-earned" basis. Send a request in writing to PPLSI and you will only be paid as you earn a commission and avoid chargebacks altogether. I was surprised to learn from a PPLSI Customer Service Rep that almost 50% of new Associates choose this option! I can see why I would consider it, but I'm not certain if there is a regulatory reason in some jurisdictions that might be the cause of such a high rate.

And a couple of other factors that relate to this choice: You can only change your earnings plan once in any 12 month period of time. (I haven't seen any documentation that indicates how such a change would impact existing memberships that you are earning on.) Also, once you reach the Executive Director level (which is the key level that all Associates should be striving to attain at a minimum) you incur only a 50% chargeback on even the 1 year earnings plan!

Why is PPLSI doing this? I think it's because they are aware of the massive dropout in MLMs during the first 3-6 months and figured out a way to ease the pain to their more active and favored Associates, the Executive Directors and higher ranks. In fact, it's a pretty sweet deal if you sign up a bunch of people who quit after 1-3 months! You are paid virtually all of the money that the quitting member paid to PPLSI and sometimes more. This IS the sweet spot in the compensation plan.

Example: You are an Executive Director and you sign up a new member for the $26 Extended Plan. They pay the $26 one time, along with the $10 fee, for a total of $36, then they cancel. You were paid $182.50 and are on the 1 year earnings plan. Your chargeback would be $182.50 x (11/12) / 2 = $83.65, meaning that you got to keep $98.85...and the member only paid $36!

I suspect that this is the reasoning behind my mom and my brother being told by Ryan that they should start off on the 3 year earnings plan and switch after 6 months, which makes sense if they have achieved Executive Director status by then. Silly me, I just like knowing the "why" behind the suggestion!

Of course, there is always the possibility that I'm mistaken, especially as I'm not yet a member or Associate and I don't have the full info packet yet.

And there are other considerations that come into the decision about earnings plans, like renewals.

I'll edit this post as necessary to reflect the most accurate info I can find.

Next up will be my examination of the $249 Fast Start option.