Tuesday, August 22, 2017

MLM Basics: Why do so many MLM noobs don't understand "referral sales" is illegal?

It seems an MLM noob is very fond of her comp plan, which she described as
... I can find 3 people who also want sustainable <item> my order is then FREE
She doesn't realize that this is ILLEGAL. Yes, I said it. It is ILLEGAL.

This is called "referral sales", and it can be described as

  1. Seller offer to prospective buyer a consideration (discount / rebate / commission, etc.) 
  2. for a sale (or lease) of item from seller to buyer
  3. the buyer must provide sellers list of potential customers
  4. the consideration (see 1) is contingent on seller be able to make additional sales/lease to one or more of the potential customers (see 3)

And all four elements are in the quote found earlier. Let's check it again, with the elements highlighted.
... I can find 3 people (3) who also want sustainable <item>(4) my order (2) is then FREE (1)
And yes, this is ILLEGAL. In all 50 states of the US, and in all European countries, and Australia, and so on and so forth.

And you'd be surprised how many companies engage in this ILLEGAL behavior, and its affiliates are completely unaware they are being defrauded.

Here's a member trying to defend such a practice, even after he was told it's illegal:
...I would not look at it as getting a discount. I would look at it as getting a commission for selling a product. Why would it matter if you’re buying/using that product as well?
Except the law was clear... ANY consideration makes this referral sales, and thus illegal, if you were a customer first.

After being reminded AGAIN it's potentially illegal, he tried special pleading ("we can't be that, but I can't explain why") and emotional appeal ("You obviously don't like network marketing").

Let's be very clear:

Network marketing is NOT (supposed to be) referral selling.

Network marketing (if done correctly), does NOT require you to buy things first (that's why "starter kits" are heavily frowned upon in modern MLM, when anything can be delivered in a day or two), unless you need it for your demonstrations and actual retail, and that's why there's refund policy in place.

If you are buying stuff FOR YOURSELF, and you are trying to find people who are also buying which gives you discount / commission on your order, you are essentially doing referral selling... WHICH IS ILLEGAL!

The same also applies to membership fees. Refer 3 people and your membership fee is waived. Oh, really? That's referral sales! Illegal! Yet people are persistently ignoring such warnings signs, with statements such as
The 3 and FREE or 5 and FREE or what ever and FREE are also industry standards and does not constitute a Pyramid.
The "3 and FREE" plan is "refer 3 people and your own membership fee is waived". When asked why this is not referral selling (illegal), all the guy can say is "well, I've seen it before, and it's launched by MLM veterans, so they must know what they are doing".

In other words, he had no clue why what he described is not illegal, he simply trusts that it is not, even when shown the law, as explained by MLM lawyers, that it is illegal.

Trusting fellow, ain't he?

NOTE: All quotes are taken from public comments on behindmlm.com for illustrative purposes only. Names have been removed to protect the innocent (and potentially stupid).


  1. I wasn't sure where you were heading with this in the beginning but see that by promoting education about holistic wellness that is back by science, allows the oils and products (or whatever you sell) to do the rest of the work. If you feel as if it would be sleezy it probably is and you should not run you r business that way. People are to be respected and we are there to helo them find comfot in their lives with essential oils.

    1. I have not mentioned ANYTHING about wellness or holistic anything. Are you sure you're commenting to the right place?