Cagey Consumer

Forbes labels multi-level marketing plans pyramids


What Forbes actually did was to refer to Excel Communications marketing plan as a pyramid sales plan. Although this is a correct description of Excel's program (as explained in our mlm glossary), usage of such terms is likely to arouse the ire of many mlm proponents, who steer as far away as possible from using the word pyramid when describing multi-level marketing plans, whether or not those plans violate the law.

The real revelation in the Forbes article was not that Excel was a pyramid sales plan, but the assertion that Excel had a $195 recruiting fee.

Does Excel really have a recruiting fee?

Recruiting fees should raise a red flag for individuals looking at an mlm, and they are typically illegal under state anti-pyramid laws. Because of this, most mlm's are careful to avoid having an explicit recruiting fee. But just what is a recruiting fee?

A payment made to become a distributor in a multi-level marketing program may be construed to constitute a recruiting fee if it meets the following conditions:

Excel presumably avoids violating these rules by calling its enrollment fee a "management services fee" that pays for materials, accounting services, and a newsletter subscription, while offering to allow people to sign up for a refundable $50 fee without enrolling in the management services program.

However, the rule against the upline receiving a portion of the payment will "kick in" even if that payment is indirect. Even if the upline does not receive a specific portion of the payment, the upline would be considered to receive a portion of the payment if recruitment at the higher fee makes the upline eligible for higher compensation.

Because Excel does offer such financial incentives to the upline when the new distributor signs up for the management services program, Excel needs to comply with the following additional rules to avoid violating anti-pyramid laws:

  1. The new distributor must be eligible for the same level of earnings regardless of their enrollment in the management services program.
  2. Distributors must never present the management services program without making it clear that the program is not a requirement to become an Excel representative.
  3. Neither Excel nor distributors should ever represent that the management services program constitutes a practical necessity to operate a successful Excel business.
To be a Managing Rep, a distributor has to enroll in the management services program. Otherwise, they can become an Independent Rep with a $50 payment. Although being a managing rep presumably offers no additional bonuses or commissions, many reps are reluctant to sign up anybody as a rep who doesn't enroll in the management services program, apparently in the belief that such enrollment is necessary to be a successful Excel rep.

The more important that the management services program is made to appear to be, the more likely it is to be viewed as a practical necessity for the new distributor.

A Suggestion for Excel

Excel has made the jump to legitimacy in a way that no other multi-level marketing company has ever done, but the present form of the management services program leaves them vulnerable.

Excel needs to fix this problem on its own. The results of such changes may make some people unhappy, but waiting for a complaint from some state's Attorney General's office will create a situation that is much worse.

Related links:
Million Man Sales Force (Forbes) [Wayback archive]
Excel Being Sued by Agents (Discount Long Distance Digest)
Pennsylvania Reaches Agreement with Excel (Pennsylvania Attorney General, 3/27/1998)


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