MLM Issues

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.

1.Front-end loading

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 justpurchasinga 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

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About Dave Robison

Now Appearing in an Extended Engagement! Join Dave Robison as he takes you into his world and his daily life of reviving a stand-up comedy career. Prepare for side trips exploring Public Relations, marketing and business ethics. Enjoy some frequent detours describing his observations on life. Read the exploits of this self-proclaimed Renaissance-man and blooming blogger as you go On The Road With Dave. From Mobile, Alabama comes Dave Robison, a confessed Internet-aholic, middle-aged-married-man, who's generally a nice guy--he just has one or two issues. Stand-Up Comedy by Dave Robison is available for corporate events, college campuses, and nightclubs.
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2 Responses to MLM Issues

  1. MBroderick says:

    Dave,

    I wanted to let you know I love your Blog. Its inspiring. Secondly.. About your comment on mlm. Here’s a determination that I make on what level my reps build a business. We put people into two basic business categories. Pro-sumer or business-builder. the clients and members who want to buy from their own stores are considered Pro-sumer. heres the difference between a pro-sumer and a con-sumer. Consumers spend money. Pro-sumers make money on what they spend. The analogy of buying from your own store makes perfect sense. Heres what I do in addition to the PV/BV volume quixtar offers. Take the retail price quixtar has listed. Subtract the wholesale difference, and pay yourself the retail difference. Thats like getting an extra commission and your PV/BV. If you put your commission in a separate account you have a nice little savings account that also earns you 4%. I have been doing this the last year religiously and I have put close to $10,000 in my “little” savings account allowing me to be able to go to our functions and fund my business. My PV/BV platinum check goes into my personal checking account. One book you should read that explains this concept in detail is by Bill Quain. He is the author if Pro-sumer power and this is what I hand out to my potential clients to read along with a Powerwave tape or CD that my upline puts out. The same concept can be applied to the piggly wiggly store. If your parents would pay the retail price like they normally would at other stores, they would be putting money back into their pockets as profit. Sorry for the long reply, but i thought id give you my two cents worth. Here is a link to Dr.BIll Quain’s Pro-sumer book. Its a quick read and it only costs $10bucks. He goes into an introduction about Quixtar as well.

    copy and paste this link into your browser.

    If you have any other questions, let me know

  2. Ty Tribble says:

    The difference between Aunt Polly and Uncle Barney is that they sold more than they bought and they bought at true wholesale. Most Quixtar IBO’s do not sell more than they buy and the products they buy are no bargain.

    If the average Quixtar IBO ran a Piggly Wiggly, they would have a sign on the door saying, “Gone Fishing”.

    They would then come back from fishing, fill their cart with stuff and head out the their second job in order to pay for the stuff they just bought from their store.

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