You hear it all the time from distributors. “Opportunity.” What opportunity? What are consultants referring to specifically?

Watch the video to see what expert MLM Attorney Jeff Babener has to say.

The word “opportunity” is a generic term for the chance to advance, better one’s economic state, health, social position.

However, in the context of direct selling, “opportunity”, in addition to the chance to make money, is a

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MLMLegal.com’s most requested FAQ this month answered in a video by MLM expert Attorney, Jeff Babener: How Many Level Deep (in the compensation plan) is it Legal to Go?

The issue of depth of levels seemed to be a major focus prior to the internet and other non-postal (mail) means of communication. In the late 1980’s, the U.S. Postal service examined the numbers of compensation plan levels to make a determination, whether or not, in its opinion, the depth of levels created a “lottery” element under U.S. Postal lottery laws, that forbid payment based on chance.

Various cases and consents sorted out a safe harbor (at least from the U.S. Postal Office standpoint) for at least four levels (not necessarily agreed to by the direct selling industry). Separately, the Postal Service looked for evidence of “supervisory requirements.” Most companies adopted specific supervisory requirements of sponsors to demonstrate some managerial activity by distributors.

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MLMAttorney’s most requested video of the month: What Is the U.S. and International Trend in Recognizing the Validity of Personal Use by Distributors in
Pyramid Cases?

In short, is it legal to motivate distributors to buy products in order for them to qualify for the compensation plan rewards as opposed to purchasing product/services for their own personal use or for resale? This question greatly impacts direct selling companies and their owners/executives. Read the recent Burnlounge decision on our website.

In the last 10 years, distributor personal use, as a legitimate end-destination for product/service has been increasingly recognized by courts, legislatures and regulators. In 2013 and 2014, two European Union tribunals; now counting more than a dozen U.S. states have amended MLM statutes. In 2004, an FTC advisory opinion applauded efficiencies of

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Absolutely! Incentives increase sales. However, sales incentives go by many names and shapes and sizes. Obviously, the understood and expected incentives are bonuses and commissions. Since companies are trying to incentivize different types of behavior, the compensation plans of companies are often complex and multi-task to provide incentives for retail selling, preferred recurring customers, building wide, building deep, working with immediate downline and deep into a downline, time sensitive personal and group sales production, personal and group sales, longevity,

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This Video Explains Which Statement is True: Celebrity Endorsements Improve Marketing or Celebrity Endorsements are a Double-Edged Sword.

In the conventional advertising world, celebrity endorsement is very effective. Among the factors for effectiveness includes the fame of the celebrity, the connection with the product or service, whether or not the celebrity is a user and whether or not the statements of the celebrity appear as truly authentic or merely a “pay for endorsement.”

The use of celebrity endorsement is far less successful in the direct selling industry. In fact, the advertising model for MLM is quite different than conventional advertising. In conventional distribution, such as retail stores, internet or broadcast media, companies pay advertising dollars and endorsement fees to promote the brand. However, in direct selling, the commissions and rewards paid to distributors are effectively the advertising

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The MLM industry has, during the last 20 years, developed positive working relationships with regulatory agencies such as attorneys general and the FTC (Federal Trade Commission). There was a time, however, back in the 1970s, when the FTC challenged the legitimacy of the direct selling industry as being a pyramid scheme. They accused Amway of operating illegally and Amway prevailed in a very famous 1979 case [below] where it was held that the network marketing industry is a legitimate business model and the business opportunity is not a pyramid scheme.

No legal ruling has been more impactful on the direct sales industry than The Landmark Amway Case.

Afterwards, regulatory agencies and the industry went quiet until the 1990s when it was questioned whether or not product-using consultants were a legitimate end-destination for products or whether consultants were simply retail customers. There has been an ongoing tug of war between the MLM industry and the FTC in terms of determining whether or not personal use should have an impact on a company’s legitimate operations. The industry, with the cooperation of attorneys generals in more than a dozen states, were able to amend legislation in those states to recognize that personal use of product by distributors is a legitimate end-destination, just as if it were a retail sale.

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One common question that we hear is in regards to event sales; such as fairs, kiosks, vending machines, and other alternative means of sales, am I authorized to sell my company’s products at such places and events?

Most companies would prohibit sales in flea markets, swap meets, vending machines, or garage sales. It is generally viewed that such locations dilute the value of the company’s products and opportunities. Companies typically prohibit sales in retail stores, but the purpose for this rule is to avoid the appearance of the company being in competition with the direct selling channel of its distributors, a model that is really based on person-to-person marketing.

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A post on Facebook is really no different than a mass email, by www.mlmattorney.com.

A post on Facebook is really no different than a mass email.

Clearly, while consultants are with a company they are asked not to get involved in raiding activity. Network marketing companies have mixed opinions on post-termination behavior. Most companies ask that consultants not raid the downline for a certain period of time after they stop consulting for the company. Companies that ask this of their consultants argue that the consultant’s Facebook profile is basically an email list; a post on Facebook is really no different than a mass email. Not many companies specifically outline post-termination rules in their policies and procedures; however, most companys’ position on the issue is effectively the same as if you started sending emails to everyone in your downline once you left the company.

Several approaches have been noted, including the drafting of agreements where companies and distributors have bifurcating social media pages. Basically, consultants would have a personal and professional Facebook page. This causes a bit of a dilemma because many consultants will make close friends with those in their downline. Perhaps not everyone fits into a personal or professional-only account. Companies look at it as more black and white. Companies see it as a consultant holding a lengthy email list, whether it be on Facebook or Twitter, etc., and once they’ve sent our an announcement saying “come join me at my new company…” then it is just as if they are sending a mass email to their downline. Both perspectives are understandable, and so far, there is no industry-wide solution to the problem.

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Every business should be concerned about market saturation. The direct selling industry is no different.

The direct selling industry thrives on marketplace competition in order to continue to deliver high-quality goods and services, especially as the population grows and consumer demands change.

In one significant legal case, regulators argued that a direct selling company was bound for failure by the prospect of saturation in the marketplace, both for product, as well as for distributor recruitment. In that landmark case, the court took notice of the concept of “saturation,” but it rejected the concept as an obstacle to success of the particular direct selling company involved. The court took note of a large market for particular products and explained that the direct selling company was merely taking its place in the competitive marketplace.

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Front loading generally refers to a process in which a MLM company, or a sponsoring distributor, encourages a new distributor to purchase far more product than is commercially reasonable under the circumstances. Often the “push” is explained to the recruit as necessary to qualify in the plan. This is an unacceptable practice is often one indicia of a pyramid scheme.

On the other hand, virtually all regulatory agencies recognize that a purchase of an “at cost” sales kit is an acceptable practice in the mainstream of leading direct selling companies. Such mandated kits are typically in the $50-$100 range. They generally entail “hard copy” or online supply of sales and marketing materials as well as ongoing sales and marketing materials updates for a year. Typically the mandated sales kit does not include product and generally a company offers an optional deluxe kit that may include product. Such an optional kit, which is often referred to as a “fast start” kit, may contain several hundred dollars of product. This is not unusual. Although the same regulatory standards on

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