You’re an Avon Lady Promoting an Unverified Product

by Martin Malden

A sales reportSince I’ve been an Independent Trivita Business Owner I’ve occasionally been surprised at the reaction I’ve got from people when they’ve found out.

They’ve ranged from me being told I’m promoting something illegal, to being called an Avon Lady promoting an unverified product.

At first it came as quite a shock, especially as those reactions came from people on my email list or people with whom I’m connected through one of my social media sites. People, in other words, with whom I had some form of connection.

I can only guess at the reasons for such vehement reactions. They may arise out of negative previous experiences of some kind or the fact that, for sure, there are some bad network-marketing companies around. Or simply being ignorant of the facts.

So let me first address some of the comments I’ve either received or heard and then go on to give some pointers for people interested in network marketing.

First some of the comments:

It’s a Pyramid scheme

Unfortunately the term ‘Pyramid Selling’ has attracted a strongly negative connotation, thanks to people like Bernie Madoff and others.

However, all organisation structures in commercial companies are shaped as a pyramid.

Even the administration of a country is in the shape of a pyramid – starting with the President or Prime Minister.

Any organisation that has a leader is going to be structured in the shape of a pyramid!

All publicly listed companies have CEO’s (or Managing Directors), who are at the top of the pyramid. They have a team of people reporting to them, who in turn each have a team of people reporting to them. So the width of an organisation spreads out as you move down, forming a pyramid.

In short, there’s nothing unusual about the structure of a business being shaped as a pyramid.

In the next section I’ll touch on what the FTC considers to be an ‘illegal pyramid scheme’.

It’s an illegal scam

This one is easy to deal with: as long as there are genuine customers at the bottom of the pyramid, who are buying a product that gives them genuine value, and who willingly buy it for their own use, it is not illegal.

An illegal pyramid scheme is where people are paid commission from the joining fees of new entrants for recruiting new people into the organisation, but where there is no product being sold, or value being delivered, to genuine customers.

Later in this article I’ve quoted from an FTC letter to the Direct Selling Association that re-emphasises this point but makes it clear that, to be legal, the majority of money earned by a network marketing company must come from product sales, not from joining fees paid by people coming into the organisation.

Those at the top make all the money

Again, this is easy to deal with: in any business (publicly listed or not) those at the top make all the money.

Sometimes they make as much in a day as the people at the bottom of the organisation make in a year. (Think CEO’s earning tens of millions of dollars a year).

However, in network marketing this is not necessarily the case: it’s quite possible for someone who joins either my organisation, or a different organisation within the same company, but who joins after me, to make more than me.

The beauty of network marketing is that the amount you make is genuinely down to the effort you put in – something which is definitely not the case in a ‘traditional’ employment situation.

To me that gives network marketing businesses the moral high ground because it’s a much fairer system than you find in ‘traditional’ businesses.

So are all network marketing or MLM businesses good?

Short, emphatic answer here: NO!

If you’re evaluating a network marketing opportunity you need to do the same due diligence as you would if you were interviewing for a job in a ‘traditional’ company.

Here are some things to think about:

The product

Without doubt the first thing to check is the product.

Is it good? Have you used it (and gained benefit from it)? Is it something you would be happy to sell to friends or family (not that you should chase them for sales, though)? Here’s an example of what I mean by using and gaining benefit from a product.

Is the product approved or listed by any government authorities? Is there a money-back guarantee?

And, as I mentioned earlier, is genuine value being delivered to willing customers?

The compensation plan

In some network marketing companies the compensation plan encourages greater focus on recruiting new members than it does on selling the product, so review the compensation plan carefully.

In line with my previous point, I strongly prefer plans that place the emphasis on selling the product. In fact, if the emphasis in the compensation plan is on recruiting new members I advise you to stay clear.

And, in any case, if the product delivers the value I talked about earlier that’s a much easier sell!

But, quite apart from that, selling a good product to willing customers is the basis of any good business.

A network marketing company that encourages greater focus on selling the product than it does on recruiting new members is a) confident in the quality of its products and b) has the right culture.

To back up that point, the FTC made the following statement to the Direct Selling Association in 2004:

“…The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture…”

In other words: the majority of income the company generates must come from product sales to people outside the company, not from the fees paid by people joining the organisation and product sales to them.

Or, even more simply: the focus must be on product sales, not on recruiting new members.

Financial investment

Following on from the previous point, not all network marketing companies require you to make an initial investment, so check whether the business you’re evaluating does and, if so, how much they require.

Is the investment in the form of a joining fee or do they require you to buy product that you then have to sell on?

If you have to buy product to sell on, do you buy it from the company or the person who recruited you?

Do you have to continue making payments each month and, again, is this a fee? Or is it for stock that you must sell? Or is it simply to buy product for your own use?

There’s a huge difference between those 3 options.

In particular, the option where you have to buy a fixed amount of product to sell on to customers has led to stories of people having a garage full of product that they’ve been unable to sell, and losing a lot of money in the process.

That, of course, does not necessarily mean the product is bad.

It may be that the individual in question simply didn’t do the work, or lacked sufficient sales skills to move the product.

So, if the business you’re evaluating requires you to buy a minimum amount of stock, be sure you can sell it! Be honest with yourself about your selling skills and the readiness of the market for whatever the product is.

And remember: not all network marketing companies require an initial investment. Trivita doesn’t, for example, which also means you do not get paid any commission for recruiting a new member – see the point above about the focus of the commission plan.

So do your due diligence! Be sure you’re clear on both the initial investment and the on-going commitment, as well as how you’re going to fund them.

Stock management

Related to the previous point, not all network marketing companies require you to buy and hold stock.

Some models involve you buying stock at a wholesale price, collecting it from the company and then selling it to your customers at a retail price. Of course, you also have to deliver it.

This involves time and hassle – particularly if you have to deal with returns.

But some companies not only handle the sales transaction and delivery without any involvement from you, they also handle any customer service queries.

You simply receive a commission on sales made through your membership ID. Again, this is how Trivita works.

One major advantage of this approach is that you’re not restricted to a territory: you can sell your product online globally (or, at least, in the territories where the company operates), since the company handles all fulfilment.

Affiliations or memberships

What (if any) organisations or associations is the company you’re evaluating a member of?

Look for any membership badges such as the Direct Selling Association or the Better Business Bureau and then look at those organisations to assess them.

Do they have a code of ethics? Do they publish the penalties for non-adherence to the code of ethics? Are they respected organisations?

Summary

There are a lot of misconceptions out there about network marketing (or Multi-Level-Marketing).

Doubtless some of it is genuinely earned by bad practices, and some comes from bad experiences in the past. But I’m also willing to bet that some of it comes from hearsay and ignorance of the facts.

There are, of course, bad MLM companies – just as there are bad ‘traditional’ companies. But network marketing is a well-established business model that’s been around since 1945 and, without doubt, is here to stay.

So do your due diligence on the company you’re thinking of joining. Find one with a great product, a compensation plan that focuses on product sales, a business model that suits you and the time you have available, and a financial commitment you’re comfortable meeting.

And then put in the work.

Cheers,

Martin

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Andrew May 23, 2013 at 12:00 pm

Hey Martin… I’ve heard the same as well.

I’m a doTerra Distributor, and as I learned a long time ago (and you know as well) it doesn’t matter what you do the ‘wage slave’ – “tell me what to do next boss” types will always have something to say about what us who refuse to follow the status quo and break the mold do.

It’s a defense mechanism of the lizard brain. It’s the ‘slave’ programming we have received all throughout childhood and school (find a good job, have loyalty to the company, work your way up the ladder, etc, etc).

Can’t help the ignorant and can’t let them drag us down to their level. I think about them while I am up til 2 or 3am every night and sleeping in til 9 or 10 every morning :-)

Long live the “Wage Slaves”… someone has to do it – better them than us!

Andrew

Martin Malden May 23, 2013 at 12:56 pm

Hi Andrew,

Good to hear from you – it’s been a while..!

Yes, absolutely: ‘Long Live the Wage Slaves..!’. Even when times have not been so good, and I’ve thought about getting back into a ‘steady job’, those thoughts only lasted a second or two. Just long enough for me to remember some of the stifling characteristics of being a corporate employee!

… And then I immediately put my head down and got working again!

I hope everything is going well for you!

Cheers,

Martin.

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