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
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.
The payment is required to become eligible to receive payments
under that program.
The "upline" receives a portion of that payment.
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:
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 new distributor must be eligible for the same level
of earnings regardless of their enrollment in the management
Distributors must never present the management services program
without making it clear that the program is not a requirement
to become an Excel representative.
Neither Excel nor distributors should ever represent that
the management services program constitutes a practical
necessity to operate a successful Excel business.
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.
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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