If you have a regular 9-5 job, family, are trying to raise kids, following the war in Iraq, debating the merits of Farenheit 911, and are happily contemplating a debate between John Edwards and Dick Cheney; then the following entry won’t interest you.
But if you are doing all these things AND trying your hand at Multi-Level Marketing; then keep reading.
You have probably experienced some objections, tackled some important issues,and maybe even been subjected to a fair dose of criticism.
I normally am questioned about 3 major issues.
2.Can a MLM representative just be a “client” or customer?
3.Commission on Personal Purchases/Last Guy Makes No Money/Closed System Buyer’s Club
I’ll try to address each of these.
First: Front-end Loading is basically “buying your way to the top”. The practice is normally brought up because somebody, somewhere, knows somebody’s brother who has a garage full of products they were coerced into buying so they could achieve a “higher pin” in an MLM. They never sold the products, they quit, and they were left with this “useless” inventory
Front-end loading admittedly exists. The fine legal line is walked on daily in Direct Sales. It can be disguised in a Monthly order requirement, or your “best price” in getting started quickly. Maybe as a “Champion Pack” or “your first step in acquiring business credit”. But, yes it exists.
Denying it doesn’t make it go away. Now, legally there are remedies. Most Companies must buy back any unsold or unused products and sales aids thus offering a return of monies to reps that were persuaded or otherwise coerced into these purchases.
So, from a corporate standpoint, Direct Sales companies are covered legally. In the field, however, that’s another matter. Only holding reps to the fire of scrutiny will lessen this occurrence.
Second: Representatives or distributors as customers: MLM reps use their products. So they are also clients. If a person builds an organization of other MLM reps, those reps start out slowly, maybe just purchasing a few products to tryout. They begin simply as just clients purchasing their products at the “reps” price discount.
My Uncle Barney used to own a Piggly Wiggly (that’s a grocery store, in case you were wondering) in Sardis, MS.
Every night after closing, my Aunt Dolly (BTW, these are their real names, LOL) would shop the aisles, fill up her cart, and write out a ticket to be placed in the register. Now, I’m unsure as to how they rung it up, I know they probably didn’t have separate wholesale prices for themselves as some Direct Sales reps do, so I assume it was a ‘loss” against sales. But since they had already purchased the products from the jobbers and shippers, somebody got paid for the groceries.
So, if we as Direct Sales people, use our own products and purchase them at wholesale, and keep the proper records; then in my mind, a rep’s purchases can be counted as “sales” for any MLM company.
Third…and I know this is the big one: How do we justify this issue of commission on personal use? Why should a MLM rep be paid back a commission for his personal use of products or the use of products by those he signed up in his MLM?
Let’s look at some history.
In 1940, Frank Beverdrige, founder of Stanley Home products, is credited to starting the “party plan”. His reps used “hostesses” to invite friends over to buy Stanley Products. A barter arrangement was set up that paid the hostess in products. She had the expense of the party, but received products to offset her expenses. If she “ooed and ahhed” enough, her friends would buy more and she got more products.
In 1941, Casselberry and Mytinger decided to give reps in the California Vitamin Company an extra 3% discount wholesale if they sold over a certain amount. If they encouraged their reps to sell the same amount to receive this discount…then they would get a bigger discount. Thus the first MLM pay plan.
Both these plans took into consideration, that the hostess or the rep may also purchase some products themselves using the savings of the bigger discount or saving money on the free products bartered. Neither practice would actually earn money for the individual. In the case of the rep, only money came from the sale of products to retail customers. Anything he purchased for personal use, came out of those profits; and the money went to the company. (See Piggly-Wiggly example above). The only benefit came from the savings of wholesale pricing.
These personal use discounts along with retail profit were given back to the rep in the form of commission.
The problem begins when reps are no longer encouraged to sell products directly to the public. We established that a rep could be a customer of his own business; and most will say that the rep wouldn’t be a customer unless they were “sold” on being a rep in the first place. So many began pushing the opportunity of MLM as “simply buying from your own store” and making money. They view the rep as more client than business owner. This practice can encourage the new rep/customer to purchase more than he needs, and gives him the incentive to encourage others to do likewise. This is where the complaints about MLM “money-making” begins. You are correct. It does encourage the unethical to perpetuate this practice.
But, the flaw is not in the MLM pay plan, nor the MLM-compensation Direct Sales companies, but with individual reps that seek to tweak the plan in their favor.
But even now, legal remedies are in place to prevent the last man in from being left “holding the bag”. One of the litmus tests of whether a scheme is an illegal pyramid or not seems to be if the last guy in can make money, then it’s legitimate. In MLM, he can, if he sells something.
Rules are also in place to audit personal sales vs. retail sales. Independent reps may also set their own prices above or below suggested retail to increase cash flow or provide client incentives. Product return policies are also in place. Also, some companies provide their representatives with representation at the corporate level to insure policy changes do not adversely affect those workers in the field.
The industry has flaws. It does attract those that seem to want to tweak any compensation plan to their favor and to the detriment of others. Unethical business practices abound in society, in all areas.
In order to overcome these issues, practice the mantra;
Do your research.
Pick your business partners carefully.
Research your market.
Avoid the hype and exaggerated income claims.
And corny as it sounds, Do unto others as you would have them do to you