Friday, April 26, 2013

Waiting for a company to turn legit? The initial "recruiting reps" rush

A hen chicken (Gallus gallus)
A hen chicken (Gallus gallus) (Photo credit: Wikipedia)
This is sort of a follow-up to the previous day's topic... The "chicken and the egg", or "afffiliates and customers" which come first?

In the MLM case, you need affiliates to sell to customers, but you recruit affiliates FROM customers. You can't have one without the other, it seems.

So what a lot of MLM companies do, in their "launch phase", is to come up with some sort of a plan where the affiliates pay to join up and buy a starter kit of some sort, and have the affiliates go out and recruit more affiliates, who also buy starter kit.

The problem is... that's illegal. There are no real customers. It's just affiliates recruiting affiliates, and that's a pyramid scheme.

The "apologists" complained that MLM have to start by acquiring a lot of affiliates, i.e. "building a sales team" in order to reach the customers. Once a certain threshold had been reached, then the affiliates will go recruit customers, instead of reps.

The problem is the MLM system DISCOURAGES doing that. It makes NO SENSE.

One of MLM's most attractive quality is the promise of "passive income"... Develop a sales team (i.e. downlines) and let them make money for you. To do that, you recruit affiliates.

If a company did NOT emphasize retail from the very beginning, it will likely NEVER be able to enforce the "retail requirement" on the affiliates. People do what they already do: recruit affiliates. When everybody recruit affiliates (who buy just enough stuff through auto-ship) there is no true retail, and the whole thing turns into a pyramid scheme.

Some MLMs, namely those who follow the Amway safeguard rules, have retail requirements, but those can be usually be met through some personal consumption and some sales to friends and family (or even given away). Some MLM didn't even bother to audit such. A signed statement from the affiliate promising to do retail is enough for the company, and that was NOT acceptable to the FTC. (See Omnitrition)

Sales tactics are very different when you tried to sell to a customer, vs. recruiting a prospective downline. Most people just consume. Very few people can sell effectively. By treating all prospective sales targets as a potential affiliate (with mixed role as a "self-consumer non-retail affiliate") the MLMer has simplified his or her job, but turned the company into a mixed mess that's quasi-legal, in a gray zone between legal and illegal.

And that's just wrong.

Most MLMs separate the affiliate and the customer by introducing something called a "preferred customer" class. They buy stuff, and enjoy a discount almost as much as an affiliate, but they cannot recruit downlines, and thus CANNOT earn commission on downline sales. And in fact, they are usually NOT allowed to resell their stuff. This makes it VERY clear that preferred customer is a CONSUMER, NOT an affiliate.

When a MLM makes NO distinction between customer, and affiliate, it will likely slip over the edge into a pyramid scheme without realizing it, because it doesn't know how many customers they really have, and what sort of retail was done.

Frankly, customers should significantly outnumber the affiliates. And I mean "steady" customers. Take the Amway "10 retail sales rule", you should have at last TEN different retail customers per affiliates. When you consider that perhaps not every customer buy something every month, that number should be even HIGHER. Probably closer to 15 customers per affiliate.

When your product is good, even when you start new, your first reps will sell them and pick out a few customers to help them become downline associates, and the things will spread virally.

So why an initial rush to recruit affiliates? When there are no customers? When you have affiliates recruiting affiliates, instead of doing it right (finding customers, then pick out maybe 1 in 10 as a potential downline) you usually end up with a pyramid scheme, and that's no good to the business or its affiliates.

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