What's wrong with retail sales requirements?

In the early, bad-old days of multi-level marketing, a common practice was to enable people to buy-in to a high level in the organization by purchasing a large inventory of product. When regulators started to look askance at such practices, mlm companies simply emphasized other financial incentives for distributors to buy product whether or not they actually had customers for it. And behind every financial incentive is a much stronger incentive: dreams.

With dream fulfillment as the ultimate incentive, distributors get hooked: instead of a large up-front fee, the cost to get in may be very reasonable. The catch is often that to stay in and remain eligible for commissions and bonuses, a minimum level of purchases may be required. The products purchased are supposed to be sold primarily to retail customers, not stockpiled or purchased for personal use. Yet, it is part of Nutrition For Life's plan description that distributors use the product themselves, even though states laws frequently prohibit mlm companies from requiring purchases for personal use.

But who is actually going to verify that the products purchased are being sold to retail customers? The distributor's sponsor, or upline, doesn't have any incentive to verify this, because those sales are helping to meet his sales goals.

Attempts to verify retail sales requirements are likely to occur only when the mlm company or a distributor's upline wants a way to pressure a distributor or an excuse to terminate a distributorship. Although there's nothing to legally prevent a distributor from meeting the retail sales requirements by selling products to friends and family at a loss, the sponsor or the mlm company could decide that such sales are not bonafide sales and use this an excuse for disciplining the distributor.

Even without this potential for abuse, retail sales requirements not only allow, but require participants to provide the company with consideration in the form of sales volume. Often, distributors will choose to use the products for personal use, without any pretense that retail sales occur. If the distributors attempt to make bona fide retail sales, they may find they are working many hours to generate the required sales volume, even to the point at which the cost of generating those sales exceeds the commissions received.

Bottom line on retail sales requirement

The retail sales requirements work against, not for, the distributor, by providing leverage that enables the upline to improperly pressure a distributor, potentially resulting in distributors buying products that they may not want (such as motivational tapes) for fear that they will lose bonuses or have their distributorship terminated.

Instead of relying on rules about retail sales requirements that are so easily circumvented, regulators should establish compensation plan guidelines ensuring that distributors get paid for the sales volume of their downline organization, without regard to their personal volume.

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