Income disclosure statements can help you to evaluate the Hempworx business opportunity. An income disclosure analysis is just one piece of a big puzzle. Costs and Expenses The My Daily Choice (aka Hempworx) disclosure statement gives a list of expected expenses and the results of […]
In January of 2018, the FTC released business practice guidance to multi-level marketing companies. As part of this guidance, the FTC described illegal mlm compensation structures. “Pyramid scheme” is another term for this type of illegal MLM. The “unlawful MLM structure” description comes from court […]
A closed system is when sales are within the company participants or to new recruits, rather than the general public.
Participants themselves may make most of the purchases. Distributors at closed system companies may also sell products to cooperating family members. Retail sales to people truly unaffiliated with the company are rare. A trivial or small portion of retail sales outside the network still indicates a closed system.
Closed system companies should be viewed as a red flag.
A closed system is an indication that an MLM or network marketing company may be an illegal pyramid scheme.
It’s from science!
The term “closed system” is actually from science. It means that there is no transfer of various things (heat, energy, etc) in or out of the system. Learn more here.
In the case of these companies, there is no transfer money IN from the general public or product OUT. Instead, the money is only coming in from new recruits, and the product stays with the system. This is why it is often an indicator of an illegal pyramid scheme.
Income disclosure statements help explain how much money It Works pays people enrolled with the company as Distributors. These are released by the company, and don’t tell they whole story. However, they can give some important information to help evaluate the business opportunity. In October […]
Income disclosure statements also known as earnings disclosure statements help to understand the business opportunity selling Young Living. In 2017 Young Living released an income disclosure statement about the commissions and bonuses earned by Young Living members. Usually, when people think about a good business […]
Stories about participants in MLMs getting into debt are pretty common. We took a look and found lots of information. We learned how common debt is for MLM participants, why people turn to borrowing, and that it’s not a good idea.
In a survey of over one thousand participants, more than 30% reported using credit card debt to pay for multi-level marketing program expenses and inventory. Around 10% used a personal loan, and finally 20% borrowed money from friends or family.
Why is debt so common?
Distributors often join multi-level marketing companies in order to make ends meet, earn extra money, or otherwise earn money. Because people are looking to earn money from MLMs they often look to borrow (with credit cards or loans) to cover up front and operating costs.
There is usually a requirement that distributors purchase or sell an amount of product each month to maintain their rank. This is referred to as the personal volume requirement. Leaders will also have volume requirements for their team. This leads to leaders (uplines) pressuring their team to purchase even more. To make these purchases and meet these requirements people will often use debt and credit cards with the hope they will be able to eventually sell the products. These costs can lead to a spiral of debt.
Some uplines will encourage distributors to purchase extra products on credit because there’s no risk. Usually, they are talking about a company’s buy back policy. Be sure to read this policy carefully. They are often complicated and strictly enforced. Most companies will not pay back 100% of the cost. Policies will often have time limits and strict product condition requirements. They also may be subject to change.
MLMs commonly encourage participants to purchase excess inventory by using their credit cards or borrowing money. This inventory loading said to be good for the distributor but is really only good for uplines, or it’s unsustainable bonus buying. Avoid borrowing to purchase extra inventory or starter kits.
Bonus buying is purchasing products that a consultant doesn’t need, for themselves or to resell in the short term (30 days or so), in order to maintain or increase their rank. The consultant might also be buying in order to get a one time cash […]
In January of 2018, the Federal Trade Commission of the United States released guidance on how multi-level marketing companies and participants should talk about business opportunities. The FTC is one of the government agencies which regulates all kinds of businesses, including multi-level marketing companies. Why […]
Inventory loading is when distributors purchase extra inventory in order to participate in a program, meet personal volume requirements, receive commission checks or other bonuses.
Front-end loading is meeting monthly purchase requirements or personal volume requirements at the beginning of a month. Similarly, back-end loading is buying extra inventory later in the month. Often this is to gain position or to maximize bonuses.
The FTC explains inventory loading is one sign that a company’s incentive program actually is a pyramid scheme. “The people at the bottom make excessive payments for inventory that simply accumulates in their basements.”
See also: bonus buying
Costs to get started To get started a new consultant needs to purchase a starter kit. These include marketing materials, 35-200 pieces of jewelry, and “business tools.” The lowest priced kit is $99. Inventory costs The Paparazzi model encourages buying inventory for you to sell. […]