As part of my writing here at BehindMLM I find myself sifting through mountains of MLM related information on a daily basis. One topic I find that pops up on a consistent basis is the debate over the importance (or lack thereof) of retail sales by an MLM company.
By using the term “retail sales” in MLM one is of course referring to sales of a product or service (not a third-party offering) by an MLM company to non-affiliates. Non-affiliates can be referred to as non-participants or any other name that denotes them as not participating in the compensation plan and earn commissions.
Some MLM companies attempt to muddy the clear definition of a retail customer by claiming that affiliates who do not recruit are retail customers. It is important to note that the failure to recruit new affiliates does not preclude an affiliate from generating commissions (typically by selling the company’s products), and as such they simply cannot be defined as retail customers (who simply cannot generate commissions no matter what they do or don’t do).
Here at BehindMLM it’s no secret the vital important I place on retail sales in my company reviews. The existence of retail sales and its viability is one of the key indicators I use in my analysis of an MLM company’s compensation plan and business model.
Adopting a common-sense approach to retail sales in MLM, I use a benchmark of around 50%, figuring that if a company can demonstrate that at least 50% of its revenue is from retail sales then they’re well-clear of being a pyramid scheme.
I mean, selling products to retail customers is what MLM is supposed to be about right? So is expecting a company to be at least 50% engaged in this unreasonable?
According to some MLM proponents, very much so.
One common assertion I see used time and time again is the insistence that US regulators do not care if products are being sold to retail customers or affiliates.
‘A product sale is a product sale and so long it is being purchased on the merit of the value of the product itself and not just to generate commissions‘, or some derivative is the common reasoning used.
The problem with that is of course that you then wind up companies operating in a loophole, ignoring retail altogether and focusing on generating recruitment commissions via product sales, with an inflation in product cost masking what would otherwise be a blatant recruitment incentive.
That however is conveniently ignored.