A good MLM company, seeking longevity in the marketplace, will put a lot of effort into training their distributors on how to manage and build their business. Businesses will provide online training, event training, and incentives.

Not every MLM company has the same opportunity, or compensation plan. There are many types of compensation plans and many variations on the original compensation plans (stairstep, unilevel, breakaway, matrix, binary). Each compensation plan and MLM company is unique in how it approaches consultant training.

Regardless of what compensation plan you’re using, there are common distributor training techniques among all companies and compensation plans. From a legal perspective, MLM companies must be realistic about their distributors’ statistics for success. It is not easy to become a MLM multimillionaire. Only a small percentage of distributors achieve such high success. Therefore, when legitimate direct selling companies present their training, management and support programs to encourage and train distributors they use some (or all) of the techniques in the list below.

If distributor training in your company sounds a little like this list, then it is likely looking good from a legal perspective. A MLM company opportunity should prioritize some or most of the following:

1. Enhance distributors’ self-image.
2. Enhance the image of the network marketing industry as a whole.
3. Educate distributors about the direct selling, MLM industry.
4. Create a realistic picture of what it takes to succeed in operating a network marketing business.
5. Help distributors understand the responsibility of being in business for themselves.
6. Make product education paramount in training programs.
7. Develop business management skills.
8. Help consultants understand the dynamics of people-interaction or person-to-person relationships.
9. Teach (or encourage the learning of) new business technology application to the business, such as computer software programs and website platforms.
10. Help distributors understand the basic concepts behind the network marketing method of distribution.
11. Create an appreciation of ethical standards.
12. Teach distributors how to run a small business, such as managing taxes, distributor networks and accounting.
13. Work on goal-setting and planning; develop one, two, and three plans, rather than promote unrealistic instant success schemes.
14. Develop the art of prospecting (finding and recruiting new distributors for your downline).
15. Help distributors understand the concept of commitment.
16. Learn to value the contribution of others in their home business.
17. Prepare to give effective presentations.
18. Learn how to deal with objections, rejections, and discouragement; helping distributors understand that an objection is nothing more than a question in disguise.
19. Develop an understanding of the legal issues impacting the network marketing industry and the individual distributor business owner.
20. Help distributors understand the art of duplication and the power of setting an example (in recruiting).
21. Help consultants understand that people are involved in network marketing for different reasons; allow those who are interested in the business opportunity to develop at their own pace and resist the urge to pressure satisfied consumers to engage in the business opportunity if they simply want to remain customers.

When MLM companies work to encourage their distributors to work hard, learn about the business, and have realistic expectations, then they are working to support a network of distributors that will last a long time.

If a direct selling company tells you that you’ll become a millionaire in a month then the chances are likely that they are not operating a legitimate business. Remember, if it’s too good to be true, then get out quick!

Would you like to learn more about distributor training, legal MLM compensation plans, or the MLM industry in general? Watch some of MLMLegal.com’s videos, presented by MLM Attorney, Jeff Babener. Visit MLMLegal.com for the most trusted MLM legal information on the web.

Visit us at www.mlmlegal.com to learn more.

– Promotions where the business opportunity is the product. If no legitimate product or service is being sold, but only the opportunity itself, chances are that the company is operating a pyramid scheme.

– Products are sold at inflated prices. Pyramid promoters try to mask their true intentions by selling a product. Often, the product will be vastly over-priced, and unlikely to generate much retail activity. This is a sure tip-off that the real “product” being sold is the compensation opportunity.

– Programs that require inventory “loading.” A legitimate network marketing opportunity doesn’t require you to buy unreasonable amounts of inventory to launch your business.

– Programs that require substantial initial cash investments. Many states consider $500 or more to be a “substantial” up-front investment. A multilevel (MLM) company requiring such a high investment is likely to attract the attention of law enforcement agencies.

– Programs that require the mandatory purchase of peripheral or accessory products or services. Some pyramids seek to hide their true face by charging a minimum price for a “startup” kit, but then compel the participant to buy more expensive items, such as training or demonstration materials. Legitimate network marketing companies sell their business startup kits and selling aids at their cost, or just slightly over their cost.

– Companies that don’t  offer a”buy-back” policy. Any company that does not agree in writing to repurchase a reasonable percentage of unsold inventory or unused sales materials from its distributors for a stated time after purchase should be avoided. This is often a sign of a pyramid scheme.

– Programs that pay fees for recruiting. A legitimate network marketing company bases compensation on product sales, not recruiting. If money is paid for signing up new distributors rather than for product sales, the business is likely to be a pyramid.

– Recruiters who misrepresent earnings. If the opportunity is sold as a “get-rich-quick” scheme, beware! The only people who do well in such companies are those who can sucker others into buying into a criminal confidence game.

– You give money, then have your friends give money, and so on. This is a sign of a ponzi scheme. When you give money to a company, it should be for a tangible product or service.

If you want to learn more about the warning signs of pyramid schemes in the direct selling industry, browse the vast collection of articles and videos at mlmlegal.com, such as this video: Jeff Babener explains the difference between a legal MLM company and a pyramid scheme:

Visit us at www.mlmlegal.com to learn more.

Some legal case authorities claim that if a consultant announces that they are going to join another MLM company on Facebook then it’s protected under freedom of expression by the First Amendment. Therefore, a company cannot accuse a consultant of raiding their downline for distributors. Other courts and cases have suggested that consultants separate out their Facebook downline from those of friends and family.

It is very common for consultants to have friends on their social media accounts who are friends and customers, or co-workers and friends, or family friends and work friends, as well as also being someone they know in their direct selling business as customers or sponsors. Since many consultants often sell to their warm market first, distributors often know their customers or sponsor as friends, relatives, or church members. This causes some issues to arise for the MLM company.

A common issue that the industry is grappling with right now occurs when a consultant leaves a network marketing company and joins another MLM company, then begins promoting the second company to their Facebook friends (or other social networks) and to the people who are in their downline organization from the first company. The question is often asked as to whether or not this is considered distributor raiding. The industry has not come to a consensus on this issue yet. Many MLM companies, however, do ask that consultants who leave their company and start selling for another company, not raid their sales organization because they’re damaging the livelihood of all of the other consultants left behind. The industry is working its way through this issue but has not come up with concrete solution to the problem yet.

There is conflicting legal case authority on the issue. Some legal case authorities claim that if a consultant announces that they are going to join another MLM company on Facebook then it’s protected under freedom of expression by the First Amendment. Therefore, a company cannot accuse a consultant of raiding their downline for distributors. Other courts and cases have suggested that consultants separate out their Facebook downline from those of friends and family. But, as we saw above, Facebook friends do not always fit into black and white categories. Often, your friend is also your co-worker. Your relative is also your customer. Your neighbor is also your friend. The courts have argued that Facebook is, in a way, simply a sophisticated means of sending emails because each post is like sending out a bulk email to several hundred people. From this prospective, deciding on whether or not there is a conflict is complex.

We will let you know if the courts come to a deciding factor anytime in the future. In the meantime, if you are in a similar position, we recommend that you read your company’s policies and procedures to see their specific policy on the topic of consultant raiding. You will also find hundreds of articles on our website(s) and blogs on the topic of distributor raiding.

Here are a few that may be of interest to you:

Why do MLM Companies Require Distributors to Use Replicated Websites Rather than Distributor-Created Websites?

Executive Interview by the DSWA – “Legal Hotspots for Direct Selling Companies” with Jeff Babener – Video

Can I and should I join multiple companies and establish multiple downlines?

MLM Company Policies on Social Networks and Distributor Raiding

How Have Raiding Rules Evolved in Direct Selling Contracts and Policies and Procedures? – Video

How Have Raiding Rules Evolved in Direct Selling Contracts and Policies and Procedures?

Has There Been Cases Won or Lost on the Topic of Social Media and Distributor Raiding?

If you are interested in attending the Starting and Running the Successful MLM Company conference visit our conference page, view our speaker list, or get more details. All executives/owners of direct selling companies are welcome to attend. Call 800-231-2162 to register.

Our next Starting and Running the Successful MLM Company Conference takes place October 22 and 23, 2015 in Las Vegas. View our conference flyer and speaker list online. Participate in our Innovation Campaign for your chance to receive TWO FREE TICKETS to attend our next conference.

If you’re reading this blog post and the conference dates above have passed, check our website for the current conference dates.

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What does the phrase “pay to play” mean?

The term “pay to play” is actually a negative phrase in the direct selling and MLM industry. It is used to reference a program which encourages independent distributors to make purchases to qualify for commissions and rank advancement. Obviously, personal use is not unusual in the direct selling industry. However, programs in which distributors are driven to purchase product or service, more by the desire to qualify than by a genuine desire to use the product for personal use, are sometimes referred to as “pay to play,” and this may suggest that the product or service does not stand on its own in the marketplace, potentially causing legal issues for the company.

And don’t forget to visit the rest of mlmlegal.com and mlmattorney.com for limitless information about the direct selling, network marketing, MLM, and party plan industries.

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Our next Starting and Running the Successful MLM Company Conference takes place October 24th & 25th, 2013 in Las Vegas. Call Charity before September 1st to receive a discount! 503-226-6600 or 800-231-2162.

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The Personal Use Issue in Pyramid Analysis; Who is an Ultimate User?

An excerpt from the article and link to the full article atwww.mlmlegal.com.  

Déjà vu, all over again … Yogi Berra

History repeats itself.

The 2012 billion dollar short seller attack on Herbalife, a 32 year old NYSE listed direct seller of nutritional products in 80 plus countries with annual sales in excess of $3 billion, is akin to a replay of seminal challenge to the MLM/Direct Selling model, won by Amway in 1979. In the Matter of Amway, 93 F.T.C. 618 (1979).

In the 1970’s FTC challenge, the criticism went to whether or not the core of the MLM referral selling model was a “deceptive” way to market. In the 2012 short seller attack, along with other criticisms, a principal complaint is that evidence of “substantial personal use and consumption” of company products by distributors themselves, renders an MLM/Direct Selling model inherently deceptive and an illegal pyramid scheme.

Memo to short sellers and algorithmic financial bloggers:

It may be time to reassess.

Some very salient facts and cases may well have been missed in the rush to challenge direct sellers.

1. A survey of FTC, SEC and Justice Department leading pyramid cases during the last two decades is instructive. Interestingly, in massive releases of the Herbalife short seller and the prolific financial blogging “call to action” that Herbalife is a pyramid that should and will be prosecuted by the FTC, NO ONE has bothered to actually examine the facts of leading FTC, SEC and Justice Department pyramid prosecutions of the last two decades… if they had done so, they might observe a significant chasm that exists between inherently deceptive and egregiously abusive pyramid schemes and the practices of leading direct selling companies.
2. They also may have missed the FTC’s own statements on personal use, as well as the trending legislation in more than a dozen states, recognizing the validity of personal use as a legitimate end destination of product.

For the full and detailed article “HERBALIFE: WHAT SHORT SELLERS MISSED ON THE WAY TO THE PRESS CONFERENCE…The Personal Use Issue in Pyramid Analysis Who is an Ultimate User?”

For more information, visit our websites at www.mlmlegal.com and www.mlmattorney.com. Or, visit our blogs at http://mlmlegal.com/MLMBlog/ and http://mlmattorney.com/blog/.

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And, as always, visit MLMLegal.com, the best MLM resource on the web. The next Starting and Running the Successful MLM Company Conference will be here before you know it! On May 16^th and 17^th, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 64^th annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. (Can’t make this event? Keep an eye out for our October and February conferences as well.)

Visit us at www.mlmlegal.com to learn more.

The Introduction of Expert MLM Attorney, Jeff Babener

Jeffrey Babener of Babener and Associates is a legal legend in network marketing for his representation of some of the biggest and best MLM companies in our industry, as well as for his contribution to the positive development of network marketing law.

His several books are viewed as cornerstones for understanding correct business practices in the direct selling industry. And, his quarterly seminars on how to launch and run an MLM company have served as the foundation for dozens of direct selling companies that have become network marketing success stories.

Mr. Jeffrey Babener, please introduce us to network marketing…

Mr. Jeff Babener: Unfortunately, we have many companies out there that are scams masquerading as legitimate multilevel marketing, direct selling companies. This has been a problem for the industry. There is often a fine line between legitimate and pyramid companies since the structure of all companies are in some pyramid format, but the courts and regulatory agencies have long established the difference between legitimate and illegitimate.

The bottom line is that we are looking for a product or a service that has a legitimate place in the consumer marketplace. When we look for a legitimate MLM company, we are looking for a variety of things. We’re looking for a product that is fairly priced and that gets used. We’re looking for a program that pays commissions only on products that are sold to the customer and are used. We are looking for a program that doesn’t involve inflated earnings claims or earnings exaggerations. We are particularly looking for a program that doesn’t involve high-cost investments or inventory loading.

We’re looking for programs that don’t involve overinflated pricing of products. We’re looking for programs that are intended for the long-run. And eventually, what is asked of the company by consumers, courts, regulatory agencies, etc. is if people are buying products or services from the company, what are they paying and why are they paying it?

If they are paying an exorbitant amount of money just to buy into the program and to qualify into what everyone refers to as “the deal,” it’s an illegitimate program. If they’re buying products and services because they want them, they intend to use them, and they have a market for them, then the business model probably will work. Always remember, there is always a fine line.

For more information on the difference between a legal and illegal direct selling, network marketing, MLM company, visit the following links:

Is This a Pyramid or a Legitimate MLM? Article

From a Legal Perspective: The Difference Between a Pyramid Scheme and Legitimate MLM Video

What Makes a Pyramid Scheme? Video

Not all Direct Selling Companies are Pyramid Schemes Video

Where can I find a legitimate direct selling company to join? Article

Identifying Illegal Pyramid Schemes Article

How to Tell if a Company is a Pyramid or a Legitimate MLM Video

Read our blog posts on relevant topics:

Interview with MLM Attorney On The Difference Between a Pyramid Scheme and Legitimate MLM

Are you Starting a MLM Company?

The Hallmarks of Legitimate Direct Selling/Network Marketing Companies

What Differentiates a Legitimate Direct Selling/Network Marketing Company from an Illegal Pyramid Scheme?

February 2013 MLM Startup Conference in Las Vegas

ZeekRewards.com Shut Down by SEC for Ponzi Activity

Are the Claims that Corporate America has Discovered MLM “Real” or “Off the Wall?”

Is Your Product Real? The Shoe Test…

There Must be Good Value in MLM

Personal Use by Distributors… Your Questions Answered

FTC v. BurnLounge: Lessons Learned for MLM/Direct Selling

Offshore MLM Pirates and Zealot Regulators

The Legitimate MLM Checklist

Steering Clear of Illegal Scams: “Red Flags” to Look Out for

21 Aspects of a Legal Direct Selling Company

How do I Check if an MLM Company is Legal?

Paying Commissions on Sales Tools, Sales Kits, and Training Materials……No!

MLM/Direct Selling/Network Marketing: A Validated Channel of Distribution

The Origin of State Regulation and the Current Direction of State Regulation

And the Leaves that are Green Turn to Brown – MLM Penny Auctions

The Inevitable Question: Is This a “Real” Business

D-Day: Direct Selling v. FTC

Stock Plunge on Internal Consumption: Whose Fault?

Make sure to visit our blogs for the latest information on the direct selling industry: MLMLegal Blog Home and MLM Attorney Blog Home

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And, as always, visit MLMLegal.com, the best MLM resource on the web.The next Starting and Running the Successful MLM Company Conference is quickly approaching! On February 21^st and 22^nd, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 63nd annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. (Can’t make this event? Keep an eye out for our May and October conferences as well.)

Visit us at www.mlmlegal.com to learn more.

Interview with Expert Attorney – Are Earnings Calculators Legal?

Interviewer: Jeff, talk to us about earnings calculators because there are a lot of consultants out in the field who want to know is if there is an appropriate way to demonstrate earnings with a calculator.

Jeff Babener: Kris, we’ve had some problems in the direct selling industry in the past, particularly with the Federal Trade Commission and Attorneys General regarding earnings claims. Problems have risen when companies come up with assumptions and make claims about earnings potential.

Let’s assume you’re going to find five people, and they are going to do so much volume, and they’re going to find five people, who are also going to do so much volume… The claim is then made; if you recruit so many, and make so much in volume, then you’ll be making $10,000 a month. Now, that has been a problem in the absence of some disclosures of average earnings of distributors, average number of active distributors, what people can expect to make, etc.

But earnings claims are a different issue than earnings calculators. The issue that arises with earnings calculators is really an extension of what we used to see when potential distributors would go to a meeting and companies would say to them, “We want to show you how our compensation plan works, how it pays differently at different levels. We aren’t going to tell you what our hypothetical expectations are of what you can do, rather we are going to give you a piece of paper that shows how many people you think you could sponsor at this level, how many at this level, and so on. How many people do you think you can sponsor? What do you think their volume or production could be?” You make the assumptions and then you have a piece of paper and a chalkboard that shows you that that allows you to multiply and guess what you would make. You’re to make the calculations.

Today’s modern earnings calculator is doing nothing other than doing the calculation for you based on your expectations. Obviously there are some underlying assumptions, not of your productivity, or of your sponsoring ability, but of very basic things, for instance that a particular product sells for so many dollars. Those are basic assumptions which are incontrovertible. The earnings calculator then asks you, “What do you think you can do by way of production, by way of recruitment, what do you think your sales organization can do?” and then it helps you. It merely calculates what you would earn based on your assumptions.

Interviewer: So, if I were sitting at a seminar or sitting down with someone one-on-one, the important thing for me to know is that I’m not throwing hypothetical’s out there for them. I am saying that you have to answer these questions so that this device can help put out the results based on your situation and I’m not going to do any “winking,” leading you along, or encouraging you to put certain numbers in to boost your results. It’s got to be 100 percent about the person I’m talking to and what their goals are. And, that would be the appropriate way of using that tool?

Jeff Babener: That would be the credible way. Now someday, with every company, as they progress, they develop a large mass of statistics which indicates how people do, what percentage of people who join the company are active in making money, what is the average earnings are of people in the business. If the company would like to indicate: here’s how you might earn 5k in one month, the company has statistics to disclose what percentage of people actually earn that amount. But at an early point in time, it is difficult for companies to do that, so the earnings calculator is really the way to go. Someday, the company, having made these disclosures, will be able to actually present its own hypothetical’s.

For more information on earnings calculators, visit the following links:

Interview with Expert MLM Attorney – How to Handle Compliance Discussions with your Distributors

6 New Videos: Q&A Interview with Expert MLM Attorney, Jeffrey Babener

New Video: Earnings Claims and Consumer Protection Laws

Major Corporations have Adopted Network Marketing

The Difference Between MLM Earnings Calculators and Earnings Claims – Video

Distributor Training – Two Common Questions

The Hallmarks of Legitimate Direct Selling/Network Marketing Companies

What Differentiates a Legitimate Direct Selling/Network Marketing Company from an Illegal Pyramid Scheme?

Make sure to visit our blogs for the latest information on the direct selling industry: MLMLegal Blog Home and MLM Attorney Blog Home

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And, as always, visit MLMLegal.com, the best MLM resource on the web.The next Starting and Running the Successful MLM Company Conference is quickly approaching! On February 21^st and 22^nd, 2013 we are hosting the MLM Conference for the 25^th year! This is now our 63nd annual conference (held almost consistently three times per year over the last 24 years). All executives/owners of MLM, direct selling, network marking, and party plan companies are welcome to attend. This is the original MLM Startup Conference, hosted and perfected by direct selling industry expert, MLM Attorney Jeff Babener. Call 503-226-6600 or 800-231-2162 to register. Ask Charity how to get a discount! (Can’t make this event? Keep an eye out for our May and October conferences as well.)

Visit us at www.mlmlegal.com to learn more.