A while ago, I received an email from my mentor. He was telling a story about how one day, he found an entire downline genealogy of an existing MLM company for sale on the internet.

He knew the owners of the company, so he called them up and said “Hey! What’s going on? My gosh, your company is doing good, isn’t it?”

“Yeah. Company is doing great. But we couldn’t afford to buy the software, so we leased it. And part of the lease deal is, the software company owns the database.”

The software company decided it needed more money, so it sold the entire database to 10 third party MLM lead companies for $10,000 each, pocketing a nice $100,000 off the backs of the hard work of the distributors.

Can you imagine that?

You work hard to build a big organisation only for it to be sold to lead companies, who will sell those leads multiple times, and the next thing you know, you and your entire group is being pitched on all sorts of other deals.

A most prized asset…

A network marketing company’s operating system, which includes the database of distributors, the ordering system, the commission payment system and the software that manages all of this should at all times be one of, if not THE MOST closely guarded assets of the company.

It should be something the company has FULL control over by itself ONLY.

If it can’t create it’s own software, it must hire contractors to develop software exclusively for them from the ground up. It’s the only way they can make the software fit their business model.

For example, there’s a company based in Utah that operates a binary compensation plan, where you only have a maximum of two legs. A left leg, and a right leg.

In this binary plan, as with most (but not all) other binary plans, they only paid commissions on the weak leg volume.

They couldn’t get the software they leased to adapt to this pay plan. They tried for 6 months, at the expense of the distributors, and then they gave up all together!

The problem was, they couldn’t sort out the placements of new distributors. An existing distributor, who had a strong leg going, would be working very hard, spending money on ads, showing the plan and placing newly sponsored people in his weak leg… or so he thinks…

But alas, when he logged into his back office, to his shock, all of his newly sponsored distributors ended up in his strong leg! So he would have to call the company, to get them to manually move his new people from his strong leg to his weak leg at the cost of $10 each, for the company’s mistake!

The company got so overrun with distributors wanting to change their positions that they just gave up and said “We are not switching anybody anymore!”

Sell your soul to the Devil!

In network marketing, it’s very important that company management have had experience as successful distributors themselves. This is Pillar Number One of the The 5 Pillars. A company CEO who does not have experience as a successful distributor cannot empathize with what it takes to build a network marketing organization.

He or she won’t make decisions that are in the best interests of the distributors. Without distributors, there is NO network marketing company!

It’s equally important that the people who write the software for network marketing companies have experience as distributors, because only a distributor knows how to manage his or her downline.

Most third party MLM software providers don’t, and this is where most MLM companies lease their software from.

Most startup MLM companies can’t afford to buy their software and that’s understandable, because network marketing software can be very expensive.

They simply may not have the $2, $3, $4 million required to purchase the software upfront. Plus they know it’s a tough business and there’s a certain probability they may not be around after two years. So instead, they do the sensible thing and lease their software for about $10,000 a month.

Sensible, but they’ve sold their souls to the devil. Especially when the software company says in their contract that they own the database and are free to whatever they like with it.

If you are choosing an MLM company, make sure they own their own software!

Long term residual income is the big promise of MLM. It can’t achieved if you have to build it over and over again. It can only be achieved if you are in a company that will be here for the long haul.

There is a saying that goes “Lies, damn lies, and statistics”… I don’t know if this is true but I have heard that 90% of new network marketing companies will not last two years, and 90% of those remaining will not last for four years.

That’s a 99% failure rate for new network marketing companies in the first 4 years!

The recent iLearningGlobal termination of its MLM pay plan is a classic example. It did not last 2 years as a network marketing company, and it was one of the biggest companies in recent history to fail in such a short period of time.

Still think joining a ground floor opportunity is a good idea?…

So what makes an MLM company last the distance?

You may be surprised, but price markup is one of the most important factors in regards to company longevity.

Nearly all companies with longevity and high revenue all have one thing in common – their products all serve the same markets.

In September 2009, Direct Selling News published a list of the top network marketing / direct selling companies. Here are the top 10 MLM companies in terms of yearly revenue.

1. Avon – Est. 1886 – $10.9 Billion
2. Amway – Est. 1959 – $8.2 Billion
3. Vorwerk & Co. – Est. 1883 – $3.4 Billion
4. Mary Kay – Est. 1963 – $2.6 Billion
5. Herbalife – Est. 1980 – $2.4 Billion
6. Primerica Financial Services – Est. 1977 – $2.2 Billion
7. Tupperware – Est. 1946 – $2.2 Billion
8. Natura Cosmeticos – Est. 1969 – $1.9 Billion
9. Oriflame – Est. 1967 – $1.9 Billion
10. Forever Living – Est. 1978 – $1.7 Billion

With the exception of Primerica Financial Services, all of these companies sell mass produced consumable products to their distributors.

Eight of the 10 have cosmetics and skin care as a major part of the their product line, and three also specialize in weight loss and health products.

I’m not involved in any of these companies, nor do I necessarily endorse them. But I found it very interesting how these companies (the youngest of them being 30 years old) all have products that are very cheap to produce but sell for a premium price.

You’d be amazed at the markup from the cost of manufacturing their products to the prices they sell to their distributors. A 1000% – 5000% mark up would be very common place among these companies.

So inherently these are very profitable companies. And that’s why they’ve been around for a long time, and will be here for a long time to come.

And companies that have such high margins are able to pay out more money to the field.

One of the reasons why companies that sell health, weight loss and cosmetics dominate the network marketing industry is because they reward distributors better for their business building efforts.

So what of the companies who do not have very high margins on their products or services?

Invariably, companies with low margins on their products are very recruitment driven.

Recruitment driven companies are often marketed with a lot of hype, they typically don’t survive for the long term because it’s not a sustainable business model, and they also attract the attention of the law.

One of those companies was Excel Communications.

Had Excel not filed for bankruptcy in 2004 and terminated all distributors, it was going to get shut down by the Federal Government anyway because it was a pyramid scheme.

The product was cheap long distance phone calls.

Well, here’s a question… How many distributors or customers would be required to make a decent income if long distance calls are only charged at a few cents per minute? My guess is LOTS!!

Residual income from Excel was just crap. So to make up for it, they had a “coding bonus” that rewarded distributors for recruiting more reps.

I’m not against having a coding bonus if it’s based on products. But what Excel did was package up some training kits and manuals and sold them to distributors in order to pay out their coding bonuses.

Now, network marketing law clearly states that you cannot pay multi-level commissions on tools! Excel were paying out massive commissions on these tools.

If the recruiting stopped, the income stopped. This is what got Excel into trouble.

I know I’m going to upset people with this, but the same things are still going on today with the multitude of travel MLM companies who cannot possibly make money selling travel.

They make their money, and pay commissions by charging you for access to a travel booking website. A website is a tool!

Something very similar is also happening with a new company (less than 2 years old) selling collectible coins.

The product is numismatic gold and silver coins, but coding bonuses are paid out from a “Fast Start” pack that contains a training video and other ancillary items (however necessary they are) that can be considered as tools.

In such a market, it is difficult to sell these coins at a significant markup from the market value. There’s simply no way of injecting any significant cash into the pay plan for the distributors to earn residual income.

Therefore, the plan is geared toward recruiting, which is why it’s such a “hot” hyped up opportunity right now.

Recently I received an email from a visitor to my blog. He asked me about my opinion on his company, especially its compensation plan. I sent him some training material provided by Mentoring For Free that allowed him to do his own assessments of his company.

Here is part of his letter to me after he had gone through the training materials and saw for himself what he was in for…

Hi Wayne,

Thank you so much for your assistance. What an eye opener! Here I am wondering if the company has a good compensation plan when I should have been more concerned with how the company could discard me. Although I believe in the product, and the need for the product, I no longer believe in the company. Especially with clause X on page 2 of their “Terms and Conditions” policy, that’s about as straight forward and simple an “out clause” as you can get.

The information you are providing should be mandatory for anyone considering investing their time and money into any MLM offering. Hopefully as your word grows it will become increasingly difficult for crappy companies to con people into joining them. The public (myself definitely included) are way to trusting, or (like me) looking at the wrong thing. As you covered with your first recorded call, if the foundation is sand – my house will always be in trouble.

I thanked him for taking the time to absorb the training and taking action. He got something that most network marketers don’t. He was able to see beyond the emotion of the product and business opportunity and see what the company really is all about.

Here’s what Clause X of the Terms and Conditions says…

The COMPANY reserves the right to terminate all Distributor Agreements upon 30 days notice if the COMPANY elects to: (1) cease business operations; (2) dissolve as a business entity; or (3) terminate distribution of its products and/or services via direct selling channels.

Lo and behold, just a day later, on March 17 2010, iLearningGlobal, an MLM company which has the exact same clause in their Terms and Conditions, terminated its MLM compensation plan.

There’s a consensus that MLM companies pretty much all have the same set of policies and procedures. Don’t be fooled. This is not boilerplate stuff. Not all MLM companies have this easy exit clause in their contracts.

A company that has a long term vision will NEVER put something like this into their legally binding documents with their distributors.

If a company says this in their legally binding agreements, it means they are already know they’re not going to around for the long term and this will give them an easy way out. iLearningGlobal said they could pull the plug at any time, so it should come as no surprise that they did it.

How do you protect yourself against unexpected termination of your MLM business?

Well, there are a lot of attraction marketing experts on the internet talking about the “You Inc.” business model. “You Inc.” is essentially a three step process of…

1. Branding yourself and positioning yourself as a expert to build a list of subscribers.
2. You build a relationship with your list by giving them good, helpful content they could use to improve their own businesses.
3. Marketing to your list any offers you may have, from affiliate training products to your opportunity itself.

The idea of the “You Inc.” is insure yourself against company closures and termination of your contract with your MLM company. If a company decides to go out of business, you still have a list of people who you can offer a new MLM deal to, or an income source from the sale of affiliate products.

But my question is, “How is this working for most ‘self branded attraction marketers’ out there?”

Yes, building a list of good prospects for your business opportunity and establishing a relationship with the people on this list is very, very important. But why not choose a company that will be here for you in the long term?

Why take the risk of having to build it and rebuild it with companies that do not have a long term vision? Why would risk your long term future and put in all that hard work and dedication for a company that says it can change its business model whenever it wants to?

This is why it’s so important to read your company’s policies and procedures. You can gain a great understanding of a company’s integrity from these legally binding documents.

Autoship is a must!

Retail stores such as Walmart make their money from the small, regular purchases of their shoppers. Banks make a ton of money by charging you regular, hardly noticeable monthly fees. Utility companies, insurance companies, telecommunications companies all charge you by the month for their services. In fact, a business that relies on the custom of just one client is in a very risky situation.

Network marketing works exactly the same way, it is just a different form of distribution. In MLM, your money is not made from one hot shot who’s able to sell massive volumes of product. Your money is made by the regular, small efforts of your group of people.

MLM companies that sell consumable products such as nutritionals and personal care products have an advantage over MLM companies that sell other types of products. People will buy these products over and over again to replenish their supply.

A lot people have the wrong attitude when it comes to autoship. They are in network marketing to make money, not to spend money. And don’t like the idea of having to buy stuff on a monthly basis.

“Oh, do I have buy stuff every month?” they cry.

Well, how else are you going to make walk away residual income?

Most network marketing companies now have a monthly personal volume requirement for you to qualify for bonuses. That means if you don’t purchase a required amount of their stuff in the period of a month, you won’t receive any income from the efforts of your downline. The bonuses will “roll up” to your upline distributor who has reached those requirements.

To some, it sounds like extortion but it is in fact a very fair thing for the company to do, providing that the volume requirements are reasonable. This is a way of rewarding distributors who are active, rather than catering to those who just have a position and are expecting a downline to be built under them.

If a prospect has an objection to purchasing the company’s items on a monthly basis, perhaps that prospect shouldn’t be in your business. What’s the use of just sponsoring somebody? They have to be purchasing product for you to make a commission. A legal network marketing company cannot pay you for recruiting somebody. If it does, then it’s an illegal pyramid scheme.

If a person you sponsor will not go on autoship, this will duplicate down that line of sponsorship. The people he or she sponsors won’t go onto autoship either.

On the otherhand, a person who commits themselves to a reasonable monthly autoship program is generally someone who will also commit to building the business. And if you promote a culture of autoship within your organisation, your monthly residual income will steadily grow as your organisation grows.

Autoship programs should be reasonable. Nobody wants to buy excess product that they can’t use or sell. Nobody wants to stockpile product for the sake of qualifying for bonuses. In companies that have reasonable volume requirements, you should be able to consume most of your monthly autoship amount.

Unfortunately, there are companies that do have excessive autoship requirements that are out of reach for most part-time network marketers. Consider this carefully when choosing a network marketing company to build your future with.

On a recent training call, one of my mentors spoke of a gentleman whose business keeps falling apart. He builds it up, then it falls away. He builds it up, then it falls away. He was baffled as to why this was happening. The company had a great product, and he a great marketing and training system that allowed him to work with targeted prospects.

He couldn’t understand why the people who had dreams of become of being financially free would quit the business. So he picked up the phone and asked each of his former distributors about why they quit. The number one answer he got from his people was, the product is too expensive.

Hardly anybody in his downline could sell the product to end consumers, or break even on their own autoship orders. It’s pretty hard to retain people when they’re not making money. Understanding what the problem was, he expressed his concerns about the price of the product to the company.

The company didn’t listen. They arrogantly told him it was his fault. They told him it was the best product of its type on planet earth, every household should have it, its quality demanded a high asking price. They told him didn’t recruit enough people, didn’t train his downline properly.

Well, it’s no surprise that this company is falling apart. They are greedy, and they won’t listen to the concerns of their own distributors.

Some (not all) MLM industry trainers will tell you that price doesn’t matter. They say if you think your product is too expensive, you will project that reality onto everyone you share your product with, and they will think the product is expensive as well and therefore, won’t buy it. On the other hand, if you think your product is great value, despite its cost, you will attract customers who think that the product is great value too.

While there is an element of truth in that, I fundamentally have to disagree.

First of all, these “gurus” are not in the same market place as the vast majority of network marketers. Most network marketers are distributors for consumer goods and services, and many, many of those are in the health and wellness industry.

These top earners are distributors for companies who sell training programmes that cost thousands of dollars. It is difficult to measure and compare the tangible value of information products and therefore, that philosophy of “believing your product is great value” may work for these types of products.

However, for the vast majority of networkers who are distributing tangible products such as vitamins, health juices, skin care, energy drinks, mobile phone plans or legal services, it’s a different story.

As an example, let’s say MLM Company A and MLM Company B both sell nutritionals. They each have a product that’s almost identical in terms of the quanity and quality of the ingredients (probably came from the same manufacturer). Company A sells its product, at retail, for $120 for a one month supply. Company B sells its product, at retail, for $40 for a one month supply!

Who’s going to have a harder time selling the product to the end consumer? Distributors for Company A? Or Distributors for Company B? Which company is going to have people who buy the product more regularly?

You can have as much belief in the value of that product as you want, but there’s no denying that you’re going to have to justify why Company A’s product costs 3 times more than the competition. You’re going to have to spin it, so it sounds good. You’ll have to become a salesperson. (MLM is not a sales business, it’s a people business.)

Also, is there anybody in Company A retailing the product to end consumers who are not part of the business? Highly unlikely. Almost everybody in Company A is going to try to recruit their prospects into the deal so they can buy it at “wholesale.” That’s NOT a sustainable business strategy.

Moreover, if you’re working harder to try to recruit as many people into your deal and then having to contend with the high drop out rate (which is a common thing in recruitment driven companies) because your product costs 3 times more than the competition, is that your fault? Of course not.

Get this: Price DOES matter! Price has a very strong influence on your LONG TERM success.

Walmart figured this out a long time ago. It is absolutely no accident how Walmart became the biggest retailer of consumer goods in the world. If you hate Walmart, that’s okay, I’m not advocating it. But you can’t deny this mantra: whoever gets the same product to the end consumer at the best price, WINS.

Is it better to be a distributor for a publicly traded MLM company? Some people intuitively think so. Some companies like to spin the fact that they are a public company in their favour, touting their advantages over a privately held company. What’s the truth?

The truth is, being publicly traded does not mean anything if you don’t know how to assess a company. It’s is not a selling point. Your prospects don’t really care. The number one thing that prospects care about is who gave the presentation.

The bottomline is, if you want long term success, you first need to learn how to choose wisely. You need to not get caught up in the hype and see an opportunity for what it is. Once you are able distinguish between a good and a bad network marketing company, you need to choose one company and marry that company.

Some people think that because a company is publicly traded, it can’t be a scam. After all, it’s quite unimagineable that investors might buy into a scam, isn’t it?

Well, YTB International (Your Travel Biz), a publicly traded MLM company, was sued in early August 2008 by the Californian Attorney General for operating as a “Gigantic Pyramid Scheme”. In 2009, the Illinois Attorney General moved to shut down the company completely. That nightmare is not over yet.

In 2007, the FTC shutdown BurnLounge, another publicly traded company, because it was an endless chain recruiting pyramid scheme.

Now, a publicly traded company must report its earnings, along with other fundamental figures. And because of that, some people think that you can properly do your due diligence from the published figures. A privately held company doesn’t have to release any figures at all. Therefore a privately held company can lie, but a publicly traded company can’t lie, can it?

I wouldn’t be so confident on that either. In late 2001, ENRON filed one of the worst corporate bankruptcies in history. The audit revealed accounting fraud on a massive scale. It turned out ENRON hid billions of dollars of debt behind accounting loopholes and “special purpose entities.”

Companies can hire clever accountants to make their numbers look good, to entice investors to give them more money.

Public companies inherently have more overhead than privately held companies. Public companies need to hire special accountants and attornies, they need to have a public relations department, they need to hire graphic designers to make glossy annual reports, they often employ high flying CEO’s who command multi-million dollar salaries. All of these are extra expenses that a private company doesn’t have.

But the companies’ only source of revenue still comes from the hard work of distributors in the field. To pay for all of their extra overhead, public companies must price their products higher than their privately held counterparts, making it more difficult for the distributors to sell their products.

Finally, a publicly traded MLM company needs to look after its investors first. They must ensure that investors get their dividends. Otherwise, the investors will take their money elsewhere. The distributors, the people who build the company, come last.

Companies make stupid decisions and do dumb things and they can lose millions of dollars. When a publicly traded MLM company gets into financial trouble, it will always make decisions that favour its investors. More often than not, these decisions are detrimental to the hard working distributors in the field.

A common thing for a public company to do when it gets into financial strife is to stop paying its distributors through a compensation plan, and go to a direct sales model where the distributors are only paid commissions on the retail sales of the company’s product.

Therefore, all of the residual MLM income that would have been paid to the distributors, a substantial amount of money, now go to the company and its investors. Effectively, the company has just terminated all of its distributors. The years of hard work that distributors have put in to build the company and build themselves a steady residual income just dissappears.

It’s the distributors who will have to find a new home, and work hard to build it all again.

Publicly traded companies will often tell you if they might one day get rid of their compensation plan and go direct sales. They say it in their Policies and Procedures.

[Company] reserves the right to terminate this agreement, and all associated agreements (including, without limitation, the marketing incentive programs), upon 30 days written notice, with or without cause.

Body Electric, Heartbar in 2002, Excel Communications in 2004, XLER8 in 2010 are just a few examples of publicly traded MLM companies who decided to do away with their compensation plan and stop paying residual income to distributors when they got into trouble.

It seems like I’m having a hard go on publicly traded MLM companies. Look, there have been plently of privately held companies that have hurt their distributors too.

The point I want to make is, don’t just join a company just because someone said it’s a good idea. Learn to choose wisely and find a company that will be here for the long term so that you only have to build it once, build it right and build it big.

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It really angers me that some MLM companies have their entire legal ground covered without giving an inch to you, the hard working distributor who builds the company. There are very few companies that have policies that both protect the company are are fair to the distributor.

If an MLM company says in its policies and procedures that they can terminate you, for any reason, with or without cause, is there anything you can do if they decide to enforce that policy against you? Unfortunately for you, no. There is very little you can do if a company terminates for reasons that are totally unfair to you, because you agreed that they could do it when you signed your contract.

If they terminate you, can you take your downline with you? In most cases, no. The company gets to keep the downline that you worked hard to build with non-compete clauses saying you can’t talk to anybody about another business opportunity for 6 to 12 months. If you do, they can sue you, because again, you agreed to the policy.

So taking them to court for unfair dismissal would be a big waste of time and money. And some companies have themselves well covered there too. They are taking away your right to take them to court. They are just too clever for the unsuspecting distributor. That’s why you absolutely must know your rights before you sign up as distributor.

Here’s a clause that doesn’t sound so bad when you first read it, but let me tell you, your right of free speech, a sovereign right of all individuals in a free country, was just stolen from under your nose.

While the company welcomes constructive input, negative comments and remarks made in the field by Distributors about the company, its products, or compensation plan serve no purpose other than to sour the enthusiasm of other distributors. For this reason, and to set the proper example for their downline, Distributors must not disparage, demean, or make negative remarks about the company, other Distributors, our products, the Marketing and Compensation plan, or the company’s directors, officers, or employees.

With this above clause, the company can say anything about you they like, but you can’t just say anything you feel like about them. If your order was wrong, or your bonus check was a month late and you tell another distributor about your dissatisfaction, you have just violated this policy and could be terminated.

Any controversy or claim arising out of or relating to the Agreement, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Distributors waive all rights to trial by jury or to any court. All arbitration proceedings shall be held in the city of the head office of the Company.

This is a good one. What this means is if you feel a company has acted against you in an unfair manner, such as terminating you without warning after being with them for many years, you can’t take them to court. You’ve waived your rights to trial by court and jury.

Instead you must get on a plane and fly to their home city and tell your story to an arbitration panel of their choice! You just can’t have it your way.

Once a distributor is terminated, the Company shall have no obligation to maintain any content in the distributor’s account.

The lawyer who wrote this clause really earned his money that day.

Do you know what this means? This means the company can purge your account, they can delete record of your relationship with them. If they’ve wrongfully terminated you and you want to take them to court over it, there is nothing to challenge because there is no record of you ever being a distributor with them.

I hope throughout this series of articles on MLM policies and procedures, you’ve gained a valuable insights into the consequences of not reading your policies and procedures. The policies and procedures will reveal the true integrity of a company to you and whether they’ll look after you when situations get tough.

Thanks to MLM mentors, Bob and Anna Bassett for their work in uncovering MLM policies and procedures and inspiring this post.

For more insights, listen to Bob and Anna Bassett’s coaching call on MLM policies and procedures.

It never ceases to amaze me that some network marketing companies distrust their distributors so much that they want to control aspects of a distributor’s life that have nothing to do with the company. They want control that is far beyond reasonable.

They want to control their distributors far more than any employer would control their employees. Controlling your actions is not enough. Some MLM companies even want to control the actions of your family. It’s truly amazing – companies actually want to control people who are not even in the business.

Not only that, some of them want to control your actions after you have left them too! They actually have policies that govern your interactions with other distributors after you leave. They want to suppress your right of free speech. My question is WHY?! Why would you want to work with a company can limit your rights in such a way?

In order to maintain status as a distributor, the distributor, spouse, family, household member, or distributor’s business partner are required to not actively participate in any other network marketing or direct sales company.

I can’t help but laugh in disbelief when I read some of these clauses. Is this a dictatorship or what?

Picture this. You’ve worked hard to build an income that has allowed you to go from full time employment to part time employment. All of a sudden you get a call from a cousin who you haven’t seen for a year telling you she’s just joined XYZ MLM company.

You’re toast. You stand to lose your business because your cousin, who’s in your family, is participating in another network marketing company. Imagine telling her “Stop, you can’t do that, you better quit because I’m going to lose my business if you build that company.”

How about this one…

If a family member acts in a way that would violate policies if they were a representative, the company will regard such action as an action of the representative, and the representative will be subject to termination.

Hey, you have to get all of your family members to read and adhere to the policies and procedures too, even if they have nothing to do with the business! Absolutely ludicrous!

In keeping with the Company rule that a husband and wife cannot hold separate sponsorship positions, they must choose which one of them will transfer to the distributorship of the other, while leaving the transferring spouse’s sponsorship group behind. If for some reason a dispute should arise over the choice of sponsorship lines, the company reserves the right to decide each case independently.

What this company is saying is if you were to fall in love with another distributor, you can’t live together or get married. If you did get married, one of you would have to give up your entire downline. What if both of you had worked hard to build large successful businesses separately, before you were entangled in your fantasy whirl wind of romance?

According to this policy, you would only have two choices… 1) stop loving each other or 2) give up one of your businesses. What moral right does any company have in dictating these choices to you?

This is just another way for a company to steal a paycheck that a hard working distributor has built, and an evil way that is.

The distributor must fully, at all times, disclose the fact of ongoing income being received from any other network marketing or direct sales company.

When did your last employer ever ask you to disclose any income from a secondary job you were taking? Are you getting it yet? Some of these companies want to control you in ways that an employer would never imagine.

By the way, the only “entity” that can legally make you to disclose your income is your government tax department. No person, company, bank, real estate agent can make you do it – legally. Therefore, if this company is saying you have to do it, it is breaking the law.

Distributors are free to participate in other multilevel or network marketing business ventures or marketing opportunities (collectively “network marketing”). However, during the term of this Agreement, and for one year thereafter, regardless of the reason for termination or cancellation, Distributors may not recruit other [Company] Distributors or Customers for any other network marketing business.

The term “recruit” means actual or attempted solicitation, enrollment, encouragement, or effort to influence in any other way, either directly or through a third party, another [Company] Distributor or Customer to enroll or participate in another multilevel marketing, network marketing or direct sales opportunity. This conduct constitutes recruiting even if the Distributor’s actions are in response to an inquiry made by another Distributor or Customer. Distributors may not offer the [Company] opportunity, products or services to prospective or existing Customers or Distributors in conjunction with any non-[Company] approved program, opportunity, product or service. Distributors may not offer any non-[Company] approved opportunity, product or services at any [Company]-related meeting, seminar, convention, or immediately following such event.

See, companies even want to control you after you have left them!

It’s obvious why you would leave a company – you’re making no money. It’s natural to make permanent friendships with other distributors because this industry is about helping other people. Let’s say you go to another company and you’re beginning to have great success.

Well, if your friends from your old company ask you what you’re doing to make all the money that you couldn’t before, you can’t tell them! Not for an entire year after you left the company. If you do, the company can sue you. Ridiculous! Imagine trying to prove you didn’t have any contact with other distributors or customers about another business.

If a company has to put this in the policies and procedures, they know that they’re offering you a second rate opportunity. After all, why would you go to another company if you’re getting rewarded fairly for your business building efforts?

Thanks to MLM mentors, Bob and Anna Bassett for their work in uncovering MLM policies and procedures and inspiring this post.

For more insights, listen to Bob and Anna Bassett’s coaching call on MLM policies and procedures.

What’s your responsiblity as a network marketer? Our goal, long term residual income, is our reward for helping other people become financially independent. It’s the result of us developing leaders in our downline organisations who in turn, foster leaders in their own downline organisations.

Network marketing is a leadership driven business. As such, you can only succeed when you lead by example. You cannot make your downline members do anything, as they are not your employees – they are independent entrepreneurs of their own accord. You cannot motivate anybody. That has to come from within others themselves. But you can lead people by teaching other people how to play the game.

Your responsibility is to develop yourself into a leader and lead. Period. However, some MLM companies want you to be the babysitter. They don’t want to take on any responsibility in training their distributors or be accountable for their distributors’ actions so they put all of that responsibility on you. And if you don’t fully engage in your role as a babysitter, they can terminate you or steal your bonus check.

Again, the proof is in the policies and procedures. Many companies have the following clauses in their policies and procedures word verbatim. You’d think they all hired exactly the same lawyers to write their contracts. In fact, they do…

Any Distributor who enrolls another Distributor into [Company] must perform a bona fide assistance and training function to ensure that his or her downline is properly operating. Distributors must have ongoing contact and communication with the Distributors in their Downline Organizations. Examples of such contact and communication may include, but are not limited to: newsletters, written correspondence, personal meetings, telephone contact, voice mail, electronic mail, and the accompaniment of downline Distributors to [Company] meetings, training sessions, and other functions. Upline Distributors are also responsible to motivate and train new Distributors in [Company] product knowledge, effective sales techniques, the [Company] Compensation Plan, and compliance with Company Policies and Procedures.

While the above clause does not sound too sinister when you first read it, it really is quite a serious statement. It’s your job, not the company’s, to make sure that new distributors get the low-down on its products, comp plan, and rules on an ongoing basis. If you don’t do that, they can take away your distributorship and believe me, this has a happened.

On Bob and Anna Bassett’s coaching call on policies and procedures, you’ll hear a story of how a husband and wife team took some time out because the wife had fallen ill to cancer. She subsequently passed away. Three months after she passed on, the husband came back to continue building the business, only to find it had vanished because he didn’t maintain ongoing contact with his team.

Distributors must monitor the Distributors in their Downline Organizations to ensure that downline Distributors do not make improper product or business claims, or engage in any illegal or inappropriate conduct. Upon request, every Distributor should be able to provide documented evidence to [Company] of his or her ongoing fulfillment of the responsibilities of Distributor.

This clause means your responsibilities go way beyond being a leader. You are in fact now a compliance officer for your company and you’re responsible for the actions of your entire downline, no matter how large it is.

What this means is if one of your downline members sponsors a drug addict who then goes and robs a service station, you’re at fault because you didn’t ensure that your rogue downline distributor did not engage in illegal conduct.

Oh, and they can make you prove that you are in regular communication and are enforcing the policies.

As Distributors progress through the various levels of leadership, they will become more experienced in sales techniques, product knowledge, and understanding of the [Company] program. They will be called upon to share this knowledge with lesser experienced Distributors within their organization.

As you become more experienced in network marketing, you should pass down your skills to less experienced distributors. If you don’t, your downline won’t grow and your income won’t grow. But this should be your decision and done at your liberty.

The fact that this above clause says “They will be called upon…” means the company can call you up, at the most inconvenient time, to train your organisation. If you refuse, you can terminate you!

While you may be thinking that I’m showing these clauses from a very cynical viewpoint, the sad reality is you have to look at them in a cynical way, because all of these clauses can be used against you if a company decides to enforce them.

Companies don’t want to hurt their distributors, but they will if they have to. The companies who do not understand what MLM is about and just how important their distributors are, will always enforce their policies in their own best interest.

Thanks to MLM mentors, Bob and Anna Bassett for their work in uncovering MLM policies and procedures and inspiring this post.

You know, many network marketing companies, especially the old, large institutions all try to hook you with something like “the freedom of owning your own business.” Is this true? Do you really own your own business?

When you really delve into the opportunity and understand it, you’ll realise that you don’t own your own business at all. It again, comes down to the company’s policies and procedures – the legally binding contract between you, the distributor, and the company. These policies and procedures are living proof that you DO NOT own your own business.

If a network marketing company can terminate your distributorship for any reason, is that owning your own business? Of course not. If a network marketing company can choose not to renew your annual contract, is that owning your own company? Again, absolutely not.

So without further ado, let’s dig right into the “funky” termination and renewal clauses. Some of these are quite unbelievable… and entertaining… but it’s serious stuff!

Termination Clauses

[The Company] reserves the right to terminate or suspend any distributor at any time. Such termination or suspension shall be made by [The Company] at its sole discretion.

[The Company] may terminate your access to any part or all of the Service and any related service(s) at any time, with or without cause, with or without notice, effective immediately, for any reason whatsoever.

On a conference call, one of my mentors told a story about a lady who had become quite successful in a company that had one of these termination clauses. She was earning $30,000 per month and the company was flying her all over the country to train their other distributors.

When my mentor raised this objection, she replied… “The company is asking me to do all of their corporate training, they’re NEVER going to do that to me!”

Well, about a year later, lo and behold, she phoned my mentor to tell him that she had be terminated. Poof! $30,000 a month gone! And guess why this company terminated her? She was going through a divorce at the time, so the reason that the company gave for the termination was that her divorce was not a good image for the company.

Now what does her divorce, a private situation, have anything to with her network marketing business? Absolutely nothing, but it gave this company a convenient excuse to “steal” her healthy paycheck. And the saddest part of this story was she could do NOTHING about the termination. She could not sue the company because she agreed to the policy that she could be terminated at any time for any reason.

The question for you is, is this a risk that you want to take, to work hard and build your company a business that they can take away from you at any point in time? And then to have to rebuild it?

Renewal Clauses

This is a one year contract and must be renewed every year on the date of the anniversary

This is a clause that appears in almost every company where you have to pay an annual renewal fee. It’s a clause that many people glaze over and don’t give too much thought about.

But get this, as a contractor, with a one year contract, you can’t be a business owner! What this clause is telling you is that you’re just an independently contracted distributor of the company’s products and services. It effectively reduces you from a business builder to a contracted promoter.

At the end of contract, a company can do whatever they please with you. They can decide to renew your contract for another year or they can choose not to. And sometimes they clearly spell that out with clauses like these…

[The Company] reserves the right to reject any applications for a new Distributor or applications for renewal.

[The Company] may elect to not renew any distributorship for any reason it deems to be in the best interest of the Company, its customers and other distributors. These reasons may include, but are not limited to the following: Failure to use best efforts to promote [The Company’s] products and services, and actions that bring dishonor to or impute the reputation of [The Company].

I don’t know about you, but the clause above sounds pretty vague to me. And this vagueness allows the company, at its discretion, define what are “in the best interests of the company”, what are “best efforts to promote products and services” and “actions that bring dishonor.”

You want to build your home business once, and build it right, so you can enjoy your financial indepedence. If your company’s policies and procedures have any of the above clauses, there is a certain risk that you may have to build it more than once.

Thanks to MLM mentors, Bob and Anna Bassett for their work in uncovering MLM policies and procedures and inspiring this post.

For more insights, listen to Bob and Anna Bassett’s coaching call on MLM policies and procedures.