You’ve seen the changes on the horizon – how do you plan to change your marketing now to be prepared?
If you’re involved in an MLM business or have friends who are, you may have seen information recently on the massive change that Advocare has made to it’s structure – they removed 100,000 distributors and are switching their focus on direct-to-consumer sales.
Advocare is NOT the only company who has made a switch in their structure recently.
Note: I am not a lawyer and none of this is legal advice – it is only information gathered and my own marketing advice.
First, a Bit of Background
A few years ago, the FTC fined Herbalife $200 million and demanded it restructure its business. That new focus is forcing MLM companies to
keep track of sales to customers outside the member networks to prove that most of their products are not just being bought by the company’s own salespeople.
That’s where the FTC has consistently used the term “driven my consumer demand” which is a key indicator where they are focusing.
But other businesses are also changing their strategy. Builderall is another that has recently changed their requirement that you have a paid account to sell in their affiliate structure which is no longer required, and changed from direct commissions on multiple levels of your “downline” to awarding “points” based on your direct sales.
Avon is also looking at changing up their model, since they were sold to Natura Cosmeticos, a Brazilian Company. Natura plans to use its vast distribution channels of 3.2k stores to sell Avon products throughout Latin America, Europe, and Asia.
These changes aren’t always driven by an investigation initiated by the FTC, but in fact are sometimes driven by the company asking questions to make sure they are compliant.
MLMs are Big Business
- The MLM industry has seen a 90% growth in the past 10 years
- 56 million people in the world who work for some type of direct-sales business
Note I’m not against MLMs personally – I have joined Shaklee and Builderall both because I personally use the products – not because I am trying to recruit others to see either one, and not because my goal is to actively earn additional income off of either.
Unlawful MLM Structures
In the FTC’s Koscot decision, they noted that an illegal MLM structure is characterized by the payment by participants of money to the company in return for which they receive:
(1) the right to sell a product and
(2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of the product to ultimate users.
So in a nutshell, they require a fee, for you to sell, and for you to recruit and make money off those recruits (apart from you selling the product).
This may also look like a “minimum monthly spend” amount to stay eligible as a distributor, whether this is purchases by the distributor or by their clients (and in a month when clients don’t meet that spend, the distributors personally make it up to maintain their status).
This and other great info here: https://www.ftc.gov/tips-advice/business-center/guidance/business-guidance-concerning-multi-level-marketing
There is a clear distinction between the scams/pyramid/Ponzi schemes and legit businesses that have chosen the direct sales, marketing, and distribution channel.
The clearest distinction between the scams and the legit businesses is in “the push” to sign on more “reps”, as well as the compensation to do so, as opposed to the actual selling of product.
Avoid These Things
These things are really what the MLM company itself needs to avoid, but also each of their representatives will need to as well. And if you see these things happening, it should be a red flag:
- Emphasis on recruiting rather than on direct sales – more compensation from direct sales rather than recruiting others
- Buy-in required – an enrollment package or paying a fee even if one-time or nominal (ie $10/mo) – there must be a free way to join (this doesn’t include something like maintenance fees)
- Promises of high return in short time
- No genuine product or service (such as something speculative that doesn’t exist yet)
- Complex commission structure
- Easy money or passive income
Involved in an MLM? Have Your Marketing Plan B
It appears that the business landscape for those involved in MLMs will be changing.
This means that your marketing strategy will also need to be changing.
You will want to either start changing your marketing focus now, or at a minimum have a solid Plan B in place so that you can be ready to make your moves if your MLM changes up how they do business.
At a very minimum, as I always recommend, you will want to work on building your own list or stable of clients and contacts and not rely solely upon the sales that your downline is doing. That way, if things change and you need to pivot your marketing focus to direct sales, you won’t be trying to move your business from zero to 60 and basically restarting from scratch. Instead, you will have a solid group of clients and prospects that you can continue to help without needing to rely on the recruits in your downline.
This is always good marketing advice – and good business.