Your success in network marketing is dependent on many factors. Deciding on which direct selling company you want to join is just the beginning of the process. Of equal importance, you must be open to new ideas and company developments in order to achieve success in the multi-level marketing (MLM) industry.

Here is a brief list of what it takes in order to achieve success in the network marketing industry:

1) Sell a Product that You Enjoy

The most successful consultants are people who like the product and are passionate about the products they sell.

2) Don’t Sell a Product That You Don’t Like

If you sell something that you consider redundant or ineffective it will make you an unconvincing salesperson. Consumers today have many options to choose from when deciding on what to purchase. You have to show consumers why your product is better than your competitors’ products.

3) Do Some Research

Start by researching network marketing publications and choose a product or service that you feel comfortable selling. If you skip this step then your chances of building a successful downline will be substantially diminished.

4) Keep Yourself Educated

Use the industry’s network marketing publications to educate yourself about new trends, and how to improve the way you promote yourself and your product.

5) Keep Up-To-Date on the Niche Areas of Network Marketing

Network marketing is constantly evolving. To be successful in the MLM business, you must to be open to new technologies and methods of selling. For instance, the internet is exceptionally hot today. But tomorrow there could be a completely different technology or development that redefines the basic rules of success in network marketing. Be open to change and continue to read and learn.

6) Familiarize Yourself with Internet Marketing

Internet marketing provides great opportunities for MLM experts. Investing some time into internet marketing is relatively inexpensive and it will guarantee excellent results every time. Online promotion enables you to access an audience you may not otherwise be able to address due to the limits of your geographical location. It’s easy! Build a website that advertises your network marketing business, then promote it using the power of social networking.

Even if you refrain from selling products online, you can use internet resources to communicate with potential product buyers and people who might be interested in joining your network.

7) Learn from the Best

Network marketing publications are great for improving your professional skills. You should also learn and apply the strategies and techniques used by other network marketing professionals.

Learning from the most productive and successful members of the MLM industry can give you access to some great techniques to success. Ask questions. Good network marketing businesses have excellent support structures that allow new members to learn the specifics of MLM activities from the best sellers.

Network marketing is a great opportunity, whether you want to get additional income or you are interested in a full-time job. Unfortunately, many consultants aren’t successful. There are many reasons this can happen. These people can lack the motivation, marketing skills, and the belief in the product. Make sure that you are joining the MLM company that is right for you and make sure that you are passionate about the opportunity.

For more encouraging words to achieve success in network marketing, visit Attorney Jeff Babener’s websites: www.mlmlegal.com and www.mlmattorney.com.

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

It’s always a good idea as a MLM distributor to keep yourself encouraged and engaged in your career by participating in company-offered training events. Company training events are meant to enhance your sales skills and increase your motivation. Enthusiastic network marketing companies will offer their distributors tools and seminars to help you improve and grow your business. Many MLM companies offer training tools in an online, back-office environment, while others will host elaborate in-person events in select cities.

You can always find ways to improve your sales and business skills online, either through your company’s training materials or by performing your own online research. Articles, business and sales books, and blogs written by successful distributors are great places to start.

MLM company seminars are particularly encouraging for MLM distributors. At company events, you’ll be able to meet other like-minded, goal-oriented distributors who will inspire you. Networking at company training events will empower you to meet other distributors within the company.

When you attend a distributor recognition or training event, shake plenty of hands and ask a lot of questions. We suggest a few starter tips for networking at company-sponsored events:

• What is your motivation story? Successful distributors will share motivational stories and tips for successful selling and recruiting. Have you ever wondered how top distributors earn incomes in the $10,000, $50,000 or even $100,000 range? At your company’s training event, successful distributors will share their stories of how they became successful as MLM consultants.
• How do you use social media? There are top distributors who have mastered networking and sales through social media. Be sure to meet people who have creative ideas on how to use social networking sites, like Facebook and Twitter, to sell bucket-loads of products/services.
• Who do you sell to? Do you feel like you’ve exhausted your friends, family, neighbors, and acquaintances? Company events are a great place to hear the secrets of how top-earning distributors have reached outside of their social circle and sold to the rest of the world.
• Why are your customers eager to make purchases from you? It’s not magic, but tricks do exist in selling and creating memorable introductions to potential customers. Make sure to ask how top distributors are engaging with their customers. What makes them good at selling? Perhaps you too can learn a few tricks to help you in your business?

Try to attend as many company events as possible. Take advantage of these events, meet people, and soak in the knowledge offered by the company and its top distributors. A MLM company training event is the absolute best place to learn how to grow your own business. If at all possible, use these events to find yourself a mentor or sponsor who will support you in your sales goals and teach you how to sell, where to sell, and how to meet your sales goals.

Being around people who are pursuing similar goals can help you stay focused and work harder to attain professional success. MLM company events will help you get excited about what you’re doing, and give you the extra boost you need to set your goals a little higher than before.

And always, with hard work and dedication, you may find yourself mentoring new distributors or starting your own direct selling business some day!

MLMLegal.com is bursting with educational content for direct sellers and startup/existing MLM companies! Be sure to visit us often!

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.

Sign up for the MLM News Global newsletter for top headlines, news stories, scam alerts, videos, articles, and more information on the network marketing industry.

Want to learn more? Watch these videos by MLM expert attorney, Jeff Babener.

What Are the Most Important Things to Remember When You Host a Distributor Recognition Event?

If I’m a New Distributor Then Should I Focus My Selling In Areas Where Other Distributors Are Successful Or Should I Focus On Untouched Territory?

What Do I Do with Distributors Who Go Passive (for MLM Distributors)?

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

1. You must be able to meet people! This is a people business. The only way you’ll find recruits and customers is by getting out there and marketing! If you’re not a people person, this business likely isn’t for you!

2. Do you believe in the products you’re selling? You must be excited about the product you are selling. If you don’t believe in the product it will impact your sales results. You must be the type of person who gets enthusiastic about sharing your product with others. Excitement plays an important role in a purchase decision in the network marketing business!

3. Have patience. It takes time to grow your business, as it does with any other business. Give yourself at least two years to succeed. Try. Try. And try again. Create goals lists. Take small goals and turn them into huge goals. It make be slow, but you can grow!

4. Attend company training programs. Network marketing / MLM companies often offer training programs to help you succeed in recruiting and training new consultants. Take advantage of the training programs your company offers. Don’t let those valuable networking opportunities go to waste either!

5. Work with your sponsor, and work with those you sponsor. You should soak up as much experience as you can from your sponsor and pass that knowledge down to those that you sponsor. A successful sales organization has successful distributors. If you’re not willing to help others and be helped, this business is not for you.

6. Think positively. Remember, the MLM business will subject you to a lot of motivational speakers, sales and promotional materials. Some of it will be useless, while some of it won’t. When things don’t go smoothly keep yourself in a positive frame of mind. On average, you’ll have to make ten presentations to make just one sale! You need to be able to positively deal with rejection. Maintaining a positive attitude will go a long way in keeping you motivated and encouraged to succeed!

7. Get organized. Set aside a place in your home that is used just for business. Make good use of the incredible amount of free computer software and apps. Keep a daily planner. Keep track of customers, prospective customers, etc. Send out those emails and reminders. Stay organized!

8. Be loyal. Don’t become a “multilevel junkie!” Some distributors fail because they bounce from one network marketing opportunity to another – again and again. This is a prescription for failure! While many successful distributors may be involved in promoting two or three direct selling product lines at once, the most successful distributors are those who focus on promoting the products or services of a single network marketing / MLM / direct sales company over a long period of time. Find the right company for you, and then stick with it! Loyalty pays.

9. Work hard! Network marketing is not a quick, easy path to a lifetime of prosperity. Nor is it a free ride to wealth that requires absolutely no effort on your part. It doesn’t work that way. In fact, it doesn’t work at all unless you do! You have to devote time and effort to it especially in the very beginning. It can pay out huge rewards. But regardless of what everyone tells you, you must work for those payoffs! Work as hard as your competition is working – then harder!

Want to learn more?

MLMLegal.com has tons of resources to help and motivate successful distributors. Here are just a couple of videos out of the Video Library that you may find helpful!

What is the Benefit of Recruiting Experienced Distributors?

Tips to be a Successful Network Marketing Distributor

What do I do with Distributors who go “Passive?”

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

1) In your first year, what is your objective as a distributor? It is important to establish long-term goals and remind yourself of them frequently. If your objective is to sponsor 25 distributors in the first year, then you must recruit an average of two people each month. Once you develop long-term goals it is easier to see, and therefore reach, the short term goals.

2) How many people are you going to need in your organization? If your answer to the first question is monetary, then you will need to determine how many people you will need to recruit in order to meet your sales goals. Be sure to study the company’s compensation plan to understand what you need to do in order to succeed.

3) How much time do you feel it will require each week? Depending on your objectives, you may decide to spend ten hours a week or 30 hours a week recruiting, advertising, and selling. Keep in mind that most companies state that home parties average around 1.5 hours. 

4) What strengths do you have that will assist you in reaching this objective? Whether you are part of a community group or church or are great at approaching people, realizing your strengths will contribute to your success.

5) What weaknesses do you have that might inhibit you from success? Knowing your weaknesses are just as important as knowing your strengths. If you are honest to yourself about your weaknesses then you will be able to improve on them. Late-risers wake up earlier, the unorganized get organized, and the shy become speakers, for instance.

6) Do you have realistic objectives? If you plan to make $100,000 the first year and don’t know any people that may be willing to attend a party, then is a $100k sales goal realistic? Be realistic and start with goals you know you are capable of achieving.

7) Ask yourself how you would feel if you failed to reach your goal? It’s okay to fail; the key is to restructure your objective list and retry until you’re successful.

8 ) Vividly imagine yourself reaching your objective? How does it feel? Remind yourself regularly of that feeling.

9) Are you going to need the assistance of significant others in your life? What steps can you take to ensure their assistance? Remember to consider each individual’s strengths when you answer this question.

10) What will you need to invest in sales aids and inventory to do business? Be sure to budget sales aids, inventory, office space, gas, travel, and other expenses into your overall budget.*

* This is an excerpt from the book The Network Marketer’s Guide to Success available to order here.

Watch the related video by expert MLM Attorney Jeff Babener: Do You Have Some Tips to Become a Successful Network Marketing Distributor?

Visit www.mlmlegal.com for the most reliable, credible legal information about the MLM industry.

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.

Sign up for the MLM News Global newsletter for top headlines, news stories, scam alerts, videos, articles, and more information on the network marketing industry.

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

In this case, an enroller is a sponsor that places a downline distributor into the downline, but not frontline.

Most modern direct selling plans offer enroller coding bonuses. Historically, a sponsor enrolled a new distributor frontline and was deemed the sponsor. Commissions flowed from this relationship.

However, as sponsors became busier and busier, companies concluded that it was beneficial to all parties to allow a sponsor to place a newly-sponsored distributor into the downline, but not necessarily frontline to the sponsor.

This approach allowed top distributors to recruit, but assign the new distributors to downlines that would be better able to work with the new recruit. In addition, this approach allowed a top distributor to reward individuals in their sales organization with some of the benefits of top distributor’s recruitment efforts.

And thus the concept of an enroller developed. In this case, an enroller is a sponsor that places a downline distributor into the downline, but not frontline. The sponsored individual is placed underneath a “sponsor” and is tied and coded to an enroller or “code sponsor,” with the enroller or “code sponsor” receiving a specific “coding bonus” which is associated with sales volume of an enrollee or “coded sponsoree.” This “bifurcation” of commissions allows for a reward to the efforts of both the “enroller” and the support efforts of the downline distributor who becomes a sponsor.

For more information on any topic on network marketing that comes to mind, please visit www.mlmlegal.com and www.mlmattorney.com.

MLMLegal.com is bustling with educational content for direct sellers and startup/existing MLM companies! Be sure to visit us often!

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 27 and 28, 2016 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.

Sign up for the MLM News Global newsletter for top headlines, news stories, scam alerts, videos, articles, and more information on the network marketing industry.

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

© 2013

http://www.mlmlegal.com

Like the pine trees lining the winding road, I got a name… Jim Croce

And That Name Is Not “Pyramid”

So says a Belgian Appeal Court about American direct selling/network marketing company, Herbalife, a company with thousands of distributors in more than 80 countries.

In a ruling, December 2, 2013, the Court of Appeal in Brussels, came down like a sledge hammer on a lower court ruling of November, 2011 by the Brussels Commercial Court.** (Test-Aankoop v. Herbalife International Belgium NV, A.R. 2004/7787). The Appeal Court categorically reversed a lower court finding that Herbalife was a pyramid. To the contrary, it found the company to be in compliance with Belgian law and non-binding guidance that it referenced from the European Directive on direct selling.

**See a translated copy of the actual Belgian Court of Appeal Herbalife ruling.

Although a European court ruling, the core issue of “recognition of validity of personal use by direct selling distributors” has dominated discussion about the legitimacy of direct selling companies in the U.S. and internationally for two decades, and the import of this case and its discussion cannot be underestimated in its potential impact on future U.S. and international cases which distinguish legitimate direct selling from pyramid schemes.

The Belgian Lawsuit and the Lower Court Ruling

Based on a lawsuit brought by a nonprofit group, Test-Aankoop, in 2004, the lower court held Herbalife to be violative of Belgian law prohibiting pyramid schemes, the WMPC, the Belgian Law on Unfair Commercial Practices. The applicable pyramid law, as described by the Belgian Court of Appeal is as follows:

Article 91, 14° of the WMPC (Law of April 6, 2010, on market practices and consumer protection) provides that under all circumstances the following commercial practice shall be regarded as unfair:  

establishing, managing or promoting a pyramid scheme in which a consumer or an enterprise, after payment, is likely to receive a compensation that is derived primarily from the introduction of new consumers in the scheme rather than from the sale or consumption of products.

Herbalife argued that many downline distributors joined Herbalife to purchase product for personal use and, therefore, were end consumers. However, the lower court rejected that purchases by Herbalife downline distributors for personal use should be recognized as sales to end consumers, opining that they were really just merchants purchasing within the sales force system, and therefore Herbalife violated Belgian law and was a pyramid.

Rejecting that distributor purchases could constitute sales to end consumers, the lower court dismissed the Herbalife explanation of its system:

Contrary to what Herbalife contends, it has not been proven that the distributors sell to end consumers.

And that was the end of the story… at least for the lower court.

The Belgian Appeal Court:  Herbalife Is Not a Pyramid

After a two-year appeal period, the Belgian Court of Appeal ruled that the lower court had it “all wrong.” The Appeal Court ruling was unequivocal and unambiguous that Herbalife is a legitimate direct selling/network marketing/multilevel marketing business and that it is not a pyramid.

At the core of the decision was the Court of Appeal’s recognition of the legitimacy of personal use by distributors as a legitimate destination for product and basis for payment of direct sales commissions and indirect or override commissions on purchases by downline distributors.

A fundamental finding by the Court of Appeal was that commissions were, in fact, paid on product destined for end consumers, even if some of those consumers were distributors themselves. And the Court found that product, which was not sold to customers or used, was subject to return or buyback and that Herbalife adopted a clawback or reversal of commissions on returned product to make sure commissions were not paid on product that was not sold to customers or used by distributors. In other words, all product was accounted for, either as resold to customers, used for personal use or returned to the company, subject to a “clawback” of commissions.

As a result, the Court of Appeal held that the lower court was wrong in holding that commissions were not paid on sale or consumption of product. At several points in its decision, the Belgian Appeal Court reiterated multiple times its finding that “personal use” of product by distributors is a legitimate destination for product and payment of commissions:

The law requires therefore that it is not a question of own sales, so that the circumstance that the compensation is obtained on the grounds of the sale of products by other participants in the network, namely ‘downline’ distributors, does not form any infringement of the legal provision.

Nor does the law stipulate that the compensation may be obtained only from sales to a consumer who is not a distributor. 

As far as use is concerned, finally, the law does not stipulate that it is a question of the use by a non-distributor.

Under such circumstances it cannot be argued that the system of the appellant makes it possible that her products wander about endlessly and never find their way to the consumer. All products that are bought by a distributor from the appellant, are either resold to a consumer, or are used by himself, or are returned by him to the appellant.

A distributor who sponsors may also obtain indirect profit from the sales or from own use of these products by means of his/her ‘downline.’  Also this indirect profit, which is subject to a quid pro quo, must be considered a compensation that comes from the sale or use of products as referred to in Articles 91, 14° and 99 of the WMPC. The obtaining of this compensation and therefore the possibility to obtain this form of indirect profit does not therefore indicate the existence of the forbidden pyramid system.

Consequently, it cannot therefore be claimed that it is a question of the forbidden pyramid sales for the reason that the distributor could obtain additional profit from the indirect distribution of profit, ‘royalty overrides’ and production bonuses, calculated on the sale of products by the distributors ranked below him/her in the network, rather than from the direct sales to consumers.  As such, it is not forbidden for a distributor to aim for a network that is as broad as possible of ‘downliners’ in order to make as much profit as possible, as long as he/she is compensated on the basis of the purchase of products for selling on or for own use and not merely on the basis of the recruitment of new distributors.

From all previous determinations and considerations, it follows that it has not been shown that the sales system employed by the appellant can be considered as a system whereby the consumer/an enterprise, by means of a payment, receives a chance to a compensation which mainly flows from the establishment of new consumers/new enterprises in the system, than from the sale or consumption of products.

In conclusion, no infringement is shown to article 91, 14°, nor to article 99 of the WMPC.

Some Other Applause by the Court of Appeals for the Herbalife Business

Although the holding on “recognition of personal use” is at the core of the Belgian Appeal Court decision, the Court went on to note several salutary observations of Herbalife’s business:

1. From market research, which the appellant has carried out in August 2012 in Belgium, it showed that only 8% of the consumers of Herbalife were also distributors thereof. This shows that these products most definitely are being sold to ordinary consumers and are not only bought and sold within the system, and contradicts that they wander around endlessly within the system.

2. According to the figures communicated by Appellant, that are not contested, 85% of the distributors decide not to sponsor and opt therefore to sell the products directly to third parties or use them themselves.

3. From the aforementioned market study, it also shows that more than 50% of the respondents have already heard about the brand name Herbalife, and that 87% of the respondent have not bought any Herbalife products and that 88% of those who have already used the products, are of the intention to keep buying and using these products. Furthermore it concerns products that are used on a regular basis and not goods that are bought only once. As a result, as the number of buyers of these products increases, the demand for additional products will also increase.

4. The Court also noted that Herbalife has adopted and implemented the famous “Amway” consumer safeguard rules for its Supervisor-level distributors, which have been recognized over three decades of court cases, offering a buyback of product from terminating distributors, and providing a condition for receipt of commissions that those Supervisor-level distributors sell at least 70% of purchased product and have made monthly sales to each of ten customers.

5. The Court pointed out avoidance of an inventory loading incentive by implementing a “clawback” of upline commissions for returned product.

6. The opinion observed the offering of an entry level business kit and ongoing administrative fees that are commercially justified in price by the value provided, such that the payments are not to be viewed as “fees” for the right to recruit.

7. It noted that distributors are not mandated to buy product on an ongoing basis.

8. In addition the Court remarked on the lack of complaints: “Moreover, the respondent fails to submit any kind of documentation from which it would show that a Belgian distributor has filed a complaint about the alleged fact that he was being stuck with too largean inventory of products.”

The Next Chapter in Personal Use

The issue of recognition of distributor personal use, and its impact on legitimacy, has ebbed and flowed for two decades, since the 1990’s.

In fact, the Belgian lower court’s rejection of personal use and its decision that Herbalife was a pyramid, was an evidentiary poster child for hedge fund short sale critics who claimed, in 2012, that Herbalife stock was destined to be valueless. Obviously, the Appeal Court decision might require some rethinking on this point.

The Belgian Appeal Court decision seems to continue a legal trend toward recognition of personal use in legal cases which differentiate legitimate direct selling from pyramid schemes. The original precedent discussion of “end user” in pyramid cases dates to a 1975 FTC ruling involving a cosmetics company named Koscot, where it appeared that distributors were loaded with inventory and taught to find other distributors to do the same. In re Koscot Interplanetary Inc, 86 F.T.C. 1106 (1975).  The program was held to be a pyramid. The Koscot analysis test for pyramid schemes (which is not that significantly different than the Belgian law in the Herbalife case) is that pyramid schemes: “are 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 sale of the product to ultimate users.”

A cloud over the direct selling industry appeared when a gratuitous statement in a 1996 Ninth Circuit U.S. Court of Appeals decision, Webster v. Omnitrition, 79 F.3d 776, called into question whether sales to distributors should fulfill the Koscot standard of sales to ultimate users, i.e., perhaps only sales to non-distributor retail customers should count, as opposed to personal use by distributors.

Industry observers observed that the Omnitrition comment should not be accorded “weight” as the statement was “dicta” (unnecessary to reach the decision) and that the case was really about whether or not Omnitrition implemented safeguards to avoid “inventory loading” which were so clear that a trial would be necessary to determine Omnitrition was not a pyramid. (In reality, the decision did not involve a review of the merits of a trial court decision, but rather an appeal of a summary judgment in favor of Omnitrition.) Nevertheless, the language in Omnitrition created confusion in enforcement, in cases and in discussions by the legal and financial press. On various occasions and in various cases, the FTC argued that “personal use” should be excluded in a pyramid analysis, and that only sales outside the sales network should be considered, for purposes of pyramid vs. legitimate.

To address this confusion, more than a dozen states amended pyramid legislation to recognize the validity of personal use as an end destination of product. And the FTC issued a 2004 Advisory Opinion which accepted personal use in direct selling companies:

Internal Consumption

Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme, 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.

It is important to distinguish an illegal pyramid scheme from a legitimate buyers club.  A buyers club confers the right to purchase goods and services at a discount. If a buyers club is organized as a multi-level reward system, the purchase of goods and services by one’s downline could defray the cost of one’s own purchases (i.e., the greater the downline purchases, the greater the volume discounts that the club receives from its suppliers, the greater the discount that can be apportioned to participants through the multi-level system). The purchase of goods and services within such a system can, therefore, be distinguished from a pyramid scheme on two grounds. First, purchases by the club’s members can actually reduce costs for everyone (the goal of the club in the first place). Second, the purchase of goods and services is not merely incidental to the right to participate in a money-making venture, but rather the very reason participants join the program. Therefore, the plan does not simply transfer money from winners to losers, leaving the majority of participants with financial losses.

Notwithstanding this clarification, and court reasoning in opinions in several subsequent cases (WholeLiving, BurnLounge) the FTC, from time to time, offered inconsistent positions about personal use in briefs and proposed judgment orders. So, some real confusion continues. And this confusion, in addition to the Belgian lower court decision, was exploited by short seller hedge funds in their criticism of the direct selling industry.

The industry continues to look for clarity both in court cases and even possible remedial legislation along the lines of legislation adopted by many states. For this reason, every court case becomes important.  And for this reason, the unambiguous statements of the Belgian Court of Appeal in the Herbalife case, cannot be underestimated.

Although the Koscot test (sales to the ultimate user) and the Belgian Court of Appeal analysis of its statute (product does not wander endlessly in the distributor system, but, in fact makes its way to the consumer) are not necessarily identical, the issues explored are so strikingly similar that the Belgian case will likely be cited as precedent in U.S cases on the subject of recognition of the role of personal use in pyramid analysis.

In fact, the discussion here appears to come full circle to the original analysis in the 1979 famous landmark Amway case. Amway has traditionally recognized personal use of product for commission purposes and the FTC Amway decision specifically recognized what it meant by sales to the “ultimate user” in terms similar to the Belgian court’s reference to the “end consumer”:

 “….This multilevel wholesaling network ends with those distributors who have not sponsored any new distributors, and who make purchases from their sponsors solely for their own use or for resale to consumers…….(emphasis added)

…..Specifically, the Amway Plan is not a plan where participants purchase the right to earn profits by recruiting other participants, who themselves are interested in recruitment fees rather than the sale of products.”
The Potential Impact of the Belgian Herbalife Decision May be Very Significant.

In fact, the Herbalife Belgian Court of Appeal’s Ruling may well represent the next chapter in the court decisions on the issue of the validity of recognizing personal use as an end destination for product and for the basis of commissions for direct selling companies.

The Belgian Court will undoubtedly be cited in future court cases in Europe in that the Belgian law is pursuant to the European Directive’s definition of a pyramid scheme; that directive calls for full harmonization under which every country in the EU is required to adopt the same terminology.  As a result, this decision will be precedent throughout the EU as to how these statutes, in each member country, should be applied.

In addition, the decision will likely be cited in U.S. cases where a central issue continues to be recognition of personal use by the sales force.  It will also likely be recognized as probative by regulatory enforcement agencies and legislative bodies as the issue of pyramiding is addressed.  And, of course, it will be cited in the financial press on the issue of the legitimacy of the direct selling industry model, a discussion that involves billions of dollars by investors in publicly traded direct selling companies.

For more information on this subject and other important issues in the area of MLM, Direct Selling and Network Marketing, please visit http://www.mlmlegal.com.

Jeffrey A. Babener, of Portland, Oregon, is the principal attorney in the law firm of Babener & Associates. For more than 25 years, he has advised leading U.S. and foreign companies in the direct selling industry, including many members of the Direct Selling Association.  He has served as legal advisor to various NYSE direct selling companies, including Avon, Herbalife, USANA, NuSkin, etc.  He has lectured and published extensively on direct selling and many of his writings will be found at http://www.mlmlegal.com, of which he is Editor.  He is a graduate of the University of Southern California Law School, where he was an editor of the USC Law Review. Post USC Law, he served a one-year term appointment as a law clerk to Hon. David W. Williams, U.S. District Court, Central District of California. Mr. Babener is an active member of the State Bars of California and Oregon.

Read this article and related ones HERE.

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Some network marketing companies get creative with their consultant titles by calling them coaches, chocolatiers, guides, and ambassadors.

Generally, distributors, consultants, representatives, independent business owners (IBOs), member, etc. all describe a salesperson who sells products for a direct selling company. Although, it is common for party plan companies to use more artistic names such as stylist, artist, beauty consultant, etc.

In typical network marketing companies, IBOs are generally titled more generically, with titles such as distributors, associates, and independent sales representatives.

Party plan companies usually use a group (or party) selling approach, whereas network marketing companies use a person-to-person model. 

Some MLM companies get creative with their consultant titles by calling them coaches, chocolatiers, guides, and ambassadors.

The title of a distributor doesn’t really matter; although it is important, from a legal standpoint, to use the term “independent” in front of the title, to assure proper independent contractor status.

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1)      Are You Outgoing? Network marketing is a great industry for outgoing people. Those who are uncomfortable asking friends and family to purchase products, or are generally shy, may want to consider other ways to earn auxiliary income other than direct selling.

2)      Do You Love the MLM Company and its Products? Find a company with high-quality products that you can get excited about selling. Also, be sure to do a little research to ensure that the company you want to join has a good reputation. The Direct Selling Association provides a list of members who agree to abide by its Code of Ethics, which is a good place to start researching direct selling companies.

3)      How Much Does it Cost to be a Consultant? Make sure that you completely understand how much you will be paying for the startup kit and any ongoing costs/fees. Average startup kits range around $99 (according to the Direct Selling Association); however, the price range for startup kits can greatly vary. Be sure that you are aware of the company’s fine print.

4)      Do You Know all There is to Know? Ask as many questions as you can think to ask the company. Ms. Collamer suggests some examples:

1. a.      What are your annual sales?
2. b.      How much money did you make last year — your income and bonuses, less expenses?
3. c.       What percentage of your sales were made to distributors?
4. d.      How much did you spend on training and buying products last year?
5. e.      How much time did you spend on the business last year?
6. f.        How many people have you recruited?

If you are unable to get satisfactory responses to your questions then it may be that the company isn’t right for you. There are many other considerations potential consultants should keep in mind when searching for the right MLM company. The short list above isn’t exclusive.

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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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Hi, I’m Jeff Babener of MLMLegal.com and I would like to talk to you today about MLM business experience. Do you possess it already or should you buy it?

Multilevel marketing is not just any business. It is not retailing, franchising, e-commerce, the internet, or .com selling.

Multilevel marketing, under all its names: direct selling, network marketing, direct sales, party plan, and multilevel marketing, is a unique beast. To launch this business you must have a substantial background in direct selling and be well grounded.

There are written and unwritten principles. If you know your product and you have a passion to bring it to the public, but you lack industry experience, then you must buy that experience. You may hire key employees in such positions as CEO, COO, sales, marketing, customer service, and distributor relations, etc. The payroll will add up fast, and unless your capitalization can sustain the ongoing cost, you should seriously consider outsourcing the solutions for this type of expertise.

The first suggestion that I would make is for you to consult with you MLM attorney, who is familiar with the best resources in the business. Such established industry experts in areas of MLM startup implementation, compensation plan design and software selection are often invaluable assets to your business team. Above all, don’t launch your company without in-house or outsourced MLM business experience.

Wishing you the best in your MLM business, I’m Jeff Babener.

For additional information on gaining experience in the MLM industry visit www.mlmlegal.com and www.mlmattorney.com, or visit the following links:

MLM Corporate Startup Essentials: Part II of III

Experience Counts

How Much Does it Cost to Start a MLM Company?

Choosing the Right Product for Your Direct Selling Company

MLM Executives Must Raise Capital in Order to Recruit Key Distributors

MLM Pyramid Schemes – Everything You Need to Know All in One Place

Are you Starting a MLM Company?

Starting and Running the Successful MLM Company Conference – May 16th & 17th, 2013

Why You Should Trademark Your MLM Company Name

Creating Clear Agreements Between MLM Company Owners

Recruiting Advice from an Industry Expert – The MLM Fairytale “Network Marketing and Frogs”

Learn What is Needed to Recruit Top-Selling Distributors for Your MLM Company

Make sure to visit our blogs for the latest information on the direct selling industry: MLMLegal Blog Home and MLM Attorney Blog Home. HINT: Chose a category to narrow your search for discussion topics!

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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 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 a look out for the October and February conferences as well! Call our office to register today!)

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