Although the terms sponsoring and recruiting are often used interchangeably, they are actually have two very different meanings. Recruiting is the act of searching and soliciting for new distributors for the downline sales organization of an existing distributor. Of course, the activity carries important responsibilities, such as compliance with company and statutory guidelines on earnings representations, product representations, and representations as to the business opportunity of the company.

Once a recruit has agreed to join the company, a recruiting distributor becomes a sponsor. Almost all company policies set forth very specific duties and responsibilities of a sponsor, including supervision, training, and communication with their downline sales organization. In addition, all companies have specific rules on cross-sponsoring and respectful relationships with other sponsors and distributors.

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Companies that claim to be partners with their consultants should walk the talk.

There are two issues that have surfaced in recent years: 1) social networking and 2) frequent migration of distributors between companies. With social networking concerns, companies have had to decide on positive protocol for consultants who socialize through technology and the internet. In terms of the migration of consultants, companies have often found themselves constantly revisiting policy that both protect the livelihood of all its distributors while also protecting the interest of the company. These issues are constantly under review. Most companies continue to revisit these issues multiple times.

Certainly, it’s not a good idea to make frequent changes to a compensation plan because it undermines faith in the company. Companies should also try and limit the number of changes in basic agreements and also be able to justify any of the changes being made. Companies that claim to be partners with their consultants should walk the talk. They should be saying that their interests lie in protecting distributors and consumers, not just the company. They have a responsibility to protect the livelihoods of thousands, or millions, of consultants who depend on income from the company. This is important because when companies disassemble, consultants who have spent all of their time building sales organizations only to find them stolen or taken elsewhere, are deeply hurt.

In the direct selling industry, the word change can send a certain group of people into orbit. Companies that are making adjustments or enhancements to their policies and procedures or compensation plan must carefully communicate those changes to sellers, especially to the leadership of the company. Leaders need to be prepared to deliver messages and to have the messages palatable to the rest of the sales force.

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Selling to your warm market is sometimes referred to as selling to your “sphere of influence.”

A warm market is loosely defined as a network of potential customers that you’ve had some previous contact or relationship with, including family, friends, co-workers, church members, club/group members, and neighbors. A cold market includes potential customers who you don’t know about you or your business such as someone you’ve met while waiting for your car to be cleaned. Selling to your warm market is sometimes referred to as selling to your “sphere of influence.”

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What do you do when you need answers on the go? MLM Legal now offers a free iTunes application.

MLMLegal.com is one of the most informative and reliable websites about network marketing on the web. MLM Legal provides educational articles answering common industry questions, such as:

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MLM Legal offers over 70 videos where MLM expert Jeff Babener discusses network marketing for both consultants and company owners. The website offers research assistance by providing over 700 MLM company profiles, a vendor and supplier directory, and the latest industry news. MLM Legal also offers free materials to those who qualify, including a free MLM Startup Manual, an insightful DVD, and newsletters.

MLM Legal is free and open to anyone, anytime. However, what do you do when you need answers on the go? MLM Legal now offers a free iTunes application. This application offers up-to-date information on the direct selling industry, news and headlines, frequently asked questions, MLM law in 50 states, hundreds of articles, notorious MLM cases, as well as legal news and articles written by Jeff Babener.

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What is most important is that a MLM company use its time with its distributors to demonstrate great products and great service.

It has long been recognized that there is high attrition rate among MLM distributors, perhaps as high as 80-90%. The vast majority of MLM consultants are part time and they join and leave for many reasons. The fault is not necessarily with the network marketing company. In fact, a MLM company is competing for the consultant’s time. Companies often compete with the PTA, little league, another part time job, family demands, shifting duties as work, etc.

What is most important is that a MLM company use its time with its distributors to demonstrate great products and great service. Surely, it is important to try to keep distributors active; but if they do go passive, hopefully they will continue to buy products and services in the same fashion as preferred customers. Whether or not that happens is dependent on whether the distributor has truly bonded with the quality of product and service. At that point, MLM companies should take a lead from online sellers such as Amazon to determine what drives customers to continue coming back again and again. And at some point in the future, when the time is right, the passive individual, who has a continuing positive experience, may well be back again as an active distributor.

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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.

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MLM companies with tangible personal property sales register to collect and remit sales and use tax. Services are generally not taxed, but more states are proceeding in this area. Your CPA will be able to track rates, classifications, and applicability, as well as handle registrations. He/she can also advise similarly on a few states that have been more aggressive, such Washington with its business and occupation tax, or Texas and Pennsylvania with their franchise tax.

For additional information about sales tax, please consult a MLM attorney, such as Jeff Babener.

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