Distributors working for MLM companies earn income slightly differently than a typical employee. Here are two basic ways that distributors earn income in MLM:

1. Retailing – They buy products from their companies at wholesale prices, sell them at retail prices, and keep the difference. Or, they simply take orders and receive commissions. This is basically the same compensation offered by conventional marketing companies, except that independent distributors for network marketing companies are not merely employees. Instead, they are their own bosses – the owners of their own business.

2. Sponsoring – For sharing the marketing opportunity with others, distributors build their own sales organizations and receive bonuses or override commissions on the sales of the distributors in their organizations. Network marketers can multiply their earning potential by creating their own sales forces and helping the distributors within their networks do the same.

What’s the Difference Between Sponsoring and Recruiting? Watch this video to learn more.

Learn more about how compensation plans operate at mlmlegal.com.

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Have you seen or heard a direct selling company say something like, “Make $10,000 a month!” or “Guaranteed income of $2,000 weekly!”? Well, these are a couple of examples of unauthorized earnings claims. So, what is legal to tell your distributors about how much income they’ll make? Read (or watch!) what expert MLM Attorney Jeff Babener has to say in this video:

MLM companies and direct sellers are among the biggest sellers of health and cosmetics products in the world. Some of the largest companies are traded on the NYSE. Because of concerns about safety of its customers, as well as FDA and FTC regulatory scrutiny of labeling and product claims, MLM companies expend tremendous financial and professional resources to remain compliant with rules promulgated by the FDA for marketing of health, cosmetic and personal care products. The FDA publishes extensive guidelines for product claims. In the dietary supplement area, Congress has instructed the FDA on such guidelines with DSHEA, the Dietary Supplement Health Education Act of 1994. And, even, with DSHEA exemptions for substantiated “structure function claims”, any claims in the nature of therapeutic treatment of actual medical conditions, are prohibited. And if such claims are made, the products may be removed from the over the counter market as unapproved “drugs”. In addition, the FTC and most states, under deceptive claims laws, prohibit unsubstantiated or misleading claims about products.   MLM companies, in turn, publish extensive compliance guidelines for distributors as to what may be represented or prohibited, by way of “unauthorized product claims” in the marketing of products. Companies take this issue quite seriously, as inappropriate product claims that trigger regulatory action create a risk for the opportunities of all distributors as well as companies.

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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?

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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.)

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