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Thread: Network Marketing

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    Network Marketing

    What legal requirements does a company have to conform to if they wish to promote their products/services via a network marketing module?

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    I don't really know

    Interesting question. I am new to this as well, don't even have a web site yet. Working on it.
    I would imagine being a proprietor initially, until for tax reasons one would consider registering a company. For a proprietor - I think you just has to register with the receiver and keep a set of accounts

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    Hi BruceHewit, Just of hand ... As far as I could determine a NM company must have a product or service of value, members should not earn only from the recruitment of new members and there must be a restriction on the levels (depth) of the network. Membership of DSA (Direct Selling Association) is preferred. They should know what the law says.

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    Hi PeterRich, So was I and believe me, it is exiting. It took me 8 months of day-and-night work to finally publish my main website. Now I am able to show people how to (do not want this to sound like an ad - so how can I put it) ... well ... be on the go in 21 days.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by HinvestA View Post
    ...there must be a restriction on the levels (depth) of the network.
    OK - that's news to me. Would you mind sharing the basis of that restriction.
    The trouble with opportunity is it normally comes dressed up as work.

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    Hi Dave,
    Like I said, that was just off hand. I think it has to do with an individuals ability to control his down-line. On the other hand a network as a whole will always be unlimited. Read somewhere about it but as soon as I come across it again I'll let you know unless someone else has the answer at hand. I might be wrong. As you can see by the time of this post, I'm quite busy. Very exited about HinvestA (already covers the first two pages on Google and haven't even advertised yet):-)

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    Have a look at the definition of Network Marketing from The Federal Trade Commission who regularly shuts down pyramid schemes... http://www.ftc.gov/speeches/other/dvimf16.shtm

    "Some people confuse pyramid and Ponzi schemes with legitimate multilevel marketing. Multilevel marketing programs are known as MLM's,(4) and unlike pyramid or Ponzi schemes, MLM's have a real product to sell. More importantly, MLM's actually sell their product to members of the general public, without requiring these consumers to pay anything extra or to join the MLM system. MLM's may pay commissions to a long string of distributors, but these commission are paid for real retail sales, not for new recruits."

    Regards,
    Jean le Roux
    Last edited by Dave A; 19-Mar-12 at 11:34 AM. Reason: advert link removed

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    Quote Originally Posted by Dave A View Post
    OK - that's news to me. Would you mind sharing the basis of that restriction.
    here's a (hopefully) simpler explanation of the restriction, Dave.
    A restriction is placed on the number of people that can earn commissions from any one sale. This is what separates a true MLM business from a Pyramid or Ponzi scheme. If you think about it, a company that would pay a 30-50% commission on a R100 sale to the immediate distributor would not be able to pay commissions to everyone on that distributor's upline. So depth reffers to the depth of your downline and I think what HinvestA is talking about is the restrictions on commissions based on the position of the sale in one's downline (e.g. you can only earn commissions on sales from first generation recruits to fourth generation).

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    Network Marketing

    Quote Originally Posted by Winnsor View Post
    here's a (hopefully) simpler explanation of the restriction, Dave.
    A restriction is placed on the number of people that can earn commissions from any one sale. This is what separates a true MLM business from a Pyramid or Ponzi scheme. If you think about it, a company that would pay a 30-50% commission on a R100 sale to the immediate distributor would not be able to pay commissions to everyone on that distributor's upline. So depth reffers to the depth of your downline and I think what HinvestA is talking about is the restrictions on commissions based on the position of the sale in one's downline (e.g. you can only earn commissions on sales from first generation recruits to fourth generation).
    Thanks Jean and Winnsor. The answer is coming out and it is encouraging to see that more than two people are talking about it. I'm waiting for a reply from someone at DSA and will give feedback as soon as I get something. We must also bear in mind that the product can also be a membership package with certain benefits. Awaiting your comments while we wait.
    To Success.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Winnsor View Post
    A restriction is placed on the number of people that can earn commissions from any one sale.
    If that is a legal restriction, then please point to it.

    However, if this is about the mathmatical viability of rewarding endless depth, then...

    I agree that the total % of sales income going towards commission is an indicator as to whether the commission structure is viable or not (and says something about whether it's a legitimate product based MLM or a thinly diguised ponzi scheme), but that doesn't really affect the depth issue.

    When the payment in depth is based on the differential between the rates of the marketer being measured and their downline (as example the AMWAY and GNLD way of calculation), depth is not a problem at all.

    Where it's a fixed percentage merely based on depth with no offset for payments to downline, I agree the scheme might well be headed for trouble if they've messed up their maths. However, it's still possible to have limitless depth.

    As example, if you pay 10% to the frontline, and the reward to each upline is 50% of their immediate frontline, you'll head towards a total commission payout on each sale tending towards 20% (but never quite reaching it).

    If that's not clear, I'll lay out the first few in the sequence:
    10%
    5%
    2.5%
    1.25%
    0.625%
    0.3125%
    and so on.
    The trouble with opportunity is it normally comes dressed up as work.

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