The Disguise of Direct Selling


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The element of the MLM “income opportunity” is the claim of profit from retail sales by MLM sales representatives to consumers. The retail sales opportunity is the basis for the industry’s claim that it is a form of “direct selling.” Additionally, the retail sales potential is held up as a defense against pyramid scheme charges since the payments to the upline are based on the product purchases of new recruits, not chiefly on entry or membership fees.

 

MLM companies have numerous ways to obscure the fact that most are non-retailing operations disguised as “direct selling” companies:

 

â–² Some MLM companies calculate total purchases of sales representatives and then project an average “retail profit” without verifying if any products are actually retailed or not, what price they were resold for or whom they were sold to. While retailing to consumers is publicized and claimed, internally the companies’ pay plans are based entirely upon wholesaling only to the distributor recruits. Whether any retail sales ever occur or not, the upline recruiters are paid rebates only on the downline’s wholesale purchases, never on retail pricing charged to the end-user.

 

â–² Some companies claim they “require” retailing by their distributors, but no systematic

method is used to audit retailing activity. That a company would have to “require” selling  by its salespeople reveals the inherent flaw in the MLM model and its tendency toward operating as a pyramid recruitment scheme.

 

â–² Some MLM companies actually advertise their total sales volume based on unfounded retail projections, even reporting these mythical numbers to the Securities and Exchange Commission and promoting them to shareholders.

 

 


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