One year ago, I went to a Las Vegas event hosted by a friend and HUGE name in the network marketing world.
It was a mastermind exclusively for 6- and 7-figure earners and several hundred people came.
During the event, we discussed everything—including secrets top earners usually don’t share with their downline reps.
At one point, my friend & host started getting “real” with people and talking about the changes needed in our industry, so that…
- We can all become more legitimate in the eyes of the public
- We can avoid scrutiny from “three-letter” agencies inside the government
Why are these 2 things so important?
Because, in the past, the Network Marketing industry has operated with impunity.
Many companies (not all, but many) have done things that are borderline-illegal, shady, and plain unethical.
And right now, in the wake of the settlement between the FTC and Herbalife—an iconic Network Marketing company—the government may have just radically changed the business model of network marketing.
And mark my words…
This will have far-reaching implications for your business in the near future.
(Note: I'm not in Herbalife nor do I have any direct relationship with the company – as a distributor nor customer. This is purely an assessment on business practices, as I've observed them over the years, which have been all positive.)
How the Herbalife fallout affects everyone…
Traditionally, a common practice for network marketing companies to quickly spur growth is by requiring their distributors to enroll in something called “autoship.”
This is when distributors pay a recurring fee to receive a quantity of product at a regular (typically monthly) interval.
The controversial part is that many companies have made this a requirement to qualify for commissions or certain bonuses.
Now, if you’ve been around the industry for any length of time…
You might have seen a company or two go through a phase of “hypergrowth.”
In most cases, those companies are entirely recruitment based, because volume is being produced by default, via the ‘mandatory autoship.'
And here’s the thing…
Technically, in network marketing, we are not compensated to recruit people.
We’re compensated for selling product volume.
That’s theoretically the case, anyway.
However, for many years, and still to this day, there are many network marketing companies where…
The majority of product volume is not being purchased by the general public…
But by the distributors themselves, which presents some potential legal issues.
There’s a BIG problem with this business practice and there are some red flags to watch out for…
First…
Companies that “hype” you into joining the business, talking about all the money you can make…
Without asking you to acquire product customers.
These companies mostly train you to recruit other people, which means focusing on signing up new distributors on autoship.
And the fact is…
A lot of top earners in these companies get rich through recruiting alone—getting a few hundred or thousand people in their organization on autoship, who aren’t actually serving any product customers (or too few), but are continually consuming product themselves.
In the opinion of the FTC…
This is a thinly-veiled pyramid scheme!
And I 100% agree.
This is what Herbalife was falsely accused of being 2 years ago…
Bill Ackman, a hedge fund manager, publicly attacked Herbalife with these false and misleading accusations and shorted the company’s stock.
This action created a battle between Ackman and another investor named Carl Icahn, who sided with Herbalife.
And while they were publicly battling it out in the media over whether the company was a pyramid scheme…
The FTC started looking into the Herbalife’s dealings and filed a complaint in US District Court, ‘Federal Trade Commission v. Herbalife International of America, Inc'.
In the end, Ackman basically forced the U.S. Government, specifically the Federal Trade Commission, to investigate Herbalife for 2 full years, which is unprecedented and disturbing, in and of itself.
And when the company finally reached a settlement with the FTC in mid-July 2016…
The results shocked a lot of people!
It was shocking to attorneys, who are experienced in a network marketing space.
And it was especially shocking to distributors, especially to top earners who employ the autoship recruiting strategy I described above.
Perhaps not surprisingly…
This autoship strategy is what my friend, and other top-earner friends of mine in the industry, were specifically warning against.
They were warning against solely recruiting people…
By focusing on the making money part of the business, with little emphasis on retail and serving customers.
The irony of this whole situation is that…
Herbalife, in my opinion, is actually one of the “good” companies
(Note: I'm not in Herbalife nor do I have any direct relationship with the company – as a distributor nor customer. This is purely an assessment on business practices, as I've observed them over the years, which have been all positive.)
They actually stress retail sales to the point where distributors are literally opening physical stores to retail products.
My cousins happen to be very successful distributors for the company, so I've seen the heavy emphasis on retailing first hand.
Quite honestly…
Herbalife is one of the most retail-focused businesses in our industry….
Which is probably why they accepted the terms of the FTC agreement.
My theory is that they accepted these terms because:
- a.) they believe they can stay in compliance…
- b.) because they don't believe most network marketing companies will be able to survive under those same restrictions and…
It's a risky gamble, but there is a caveat as it relates to your company.
Now, what are those terms?
And what do they mean to our industry?
Great questions!
And that’s exactly what we’re about to explore.
What you’ll learn today are the three main points that came out of the ‘FTC v. Herbalife' settlement, which are most relevant to YOU…
And why they are a WARNING to our entire industry.
Let’s begin!
Per the settlement, as I understood it, Herbalife distributors are now required to have 66% of all their organizational product volume come from retail sales.
Also, Herbalife distributors must now track how much of their volume is going to distributors, and how much of that volume is going to retail customers, as reported by individual distributors.
Which has never been required of any network marketing company or it's distributors!
Think about what 66% of organizational volume means for a moment…
Let’s say I just started at Herbalife, then in order to get my check, I basically need to be selling product to two other people who are consuming twice as much as I am, personally.
Likewise, if I’m a big leader with a hundred, five hundred, or a thousand people in my team, that means 66% of the volume produced by my downline also has to be going to retail customers.
Failing to comply will result in the cancellation of commissions for any distributor who's organization doesn't meet this requirement.
That’s a HUGE restriction!
In fact, if that restriction was put on most network marketing companies, they would fail miserably!
This is because the short-sighted recruitment-based (not retail) strategy I described above.
Essentially, if these new rules became law for the entire industry, then according to the FTC, these recruitment-based companies would be illegal pyramid schemes.
We’ll talk about this further in a moment…
The next settlement result was no more autoship.
Basically distributors can no longer be required to enroll in a autoship for product every single month.
And let’s be perfectly honest for a moment…
Autoship is an essential part of many companies’ business model.
That’s done.
I’m not sure exactly how this is going to work, but as I understand it from looking over the settlement…
Autoship as a requirement for getting a check and being a part of of distributorship is simply not allowed anymore.
And again, if these stipulations became law…
The businesses that are based solely on recruiting and personal consumption, will no longer be able to leverage autoship.
Which will completely disrupt the recruitment-based business model, so that a business can no longer be built that way.
Today, the restriction on product volume and banning of mandatory autoship are only binding for Herbalife, NOT the entire industry.
So when we’re talking about these restrictions becoming laws, we’re only talking about a hypothetical future…
Right?
Well, maybe—but maybe not.
Many experienced legal experts believe these restrictions are a sign of things to come.
That these restrictions will eventually become not only the industry standard…
But legally binding, so that the entire industry must focus on retail sales.
Needless to say, this would be very damaging to a lot of companies.
If this happens, with the way most companies in the network marketing space operate, in my opinion, they’d be operating illegally and be at risk of getting shutdown.
That’s a LOUD statement, yet I know more top earners than I can count on 10 hands in many different companies…
And I'd say a majority of them focus on recruitment, not sales.
Their attitude for most of their careers has been, if their reps get a customer here or there—great!
But by and large, their volume has been produced by distributors via personal consumption.
I’ve always insisted this is the definition of a pyramid scheme
Now, the FTC thinks so too.
So give this some serious thought…
Herbalife — which, remember, is one of the biggest network marketing companies in the world — accepted the terms laid out by the FTC.
And you know the implications of this move?
Well, it essentially means that they, for all intents and purposes, agree with the FTC’s definition of a pyramid scheme.
And now they intend to demonstrate that they are not a pyramid scheme on the basis of their massive volume of retail sales (because they already do a ton of retail) and they will allow the FTC to stamp out their competition in the US.
Think about that for a moment, and then ask yourself…
“So What’s Next for My Business?”
How are you going to respond to these 3 major changes to our industry, if this applies to your commission check?
Because even if you are not affected today, you need to be thinking of the near-future.
So to start with, you need to ask yourself…
- How is your company teaching you to build?
- How is your upline teaching you to build?
- And how are you actually building your organization?
Because if you’re building in a way that resembles the FTC's definition of a pyramid scheme—meaning that retailing product isn’t the foundation of your strategy—then you’ve got to address the very-real reality of the situation, and have an honest talk with yourself to decide your best move.
Allow me to make a suggestion…
How to Build an Opportunity Prospect List Online
The key advantage to having built my business online is that for the past 10 years, I've attracted all my prospects, customers, new business builders using the online methods, passively in a big way.
As a result, I've built a massive list of over 100,000 home business owners, who know, like and trust me.
But even when my list was only 600 strong in 2007, that was enough for me to build a full-time income from home, so don't let the big number scare you.
Here's my point tho…
Essentially, I secured my business from the beginning by building a following and brand, of people in my organization and outside of my organization and company.
Okay, let’s say something happens to your network marketing company—and heaven forbid, it goes away (as happens from time to time) or the FTC says your company isn't compliant and your commission check disappears…
Well, if you've followed my branding strategy, that’s not a problem!
Now, some of your followers will be on your team, but I've found that the majority of my list (95% or so) and community members are people that trust me, but whatever reason, didn't join my opportunity, but they still wanted to be connected, because they reaped value from my generic training.
Because after all, you are going to learn A LOT about building a networking business as you grow and succeed, so why not build a community and some “security” by helping others learn what you've figured out.
With a list like this and by doing things right, all of your followers will see you as a business person that can teach them things that will help them in their business, whatever it may be.
And maybe if you announce that you're making a big move in the future…
Well, you'll be announcing this to a big list of people who love this industry and love you and might love to join you in your new venture!
That’s why you build a list, a following and brand, using “Attraction Marketing.”
How to Build a Product Prospect List Online
And speaking of customers, many top earners have actually built massive lists, followings and brands, that are designed to introduce your online prospects to your product FIRST!
For instance, you can build a brand around…
- Health and wellness
- Fitness
- Nutrition, and
- Specialty diets
You can build a brand around being some sort of a niche expert within the larger health field.
And I know people who have built brands around being…
- Essential oils experts
- Weight loss experts
- Peak fitness experts
- Holistic health and nutrition experts
- Financial services
And the list goes on.
By building a brand and a marketing strategy around one of those type of niches, you’re actually…
Positioning yourself perfectly to comply with the potential FTC rules
And everything to do with providing real value to people’s lives.
Everything I've described is what “attraction marketing” is all about.
The definition of attraction marketing is as follows:
“To attract people to you, because you can help them solve their problems.”
To solve their…
- Money Problems
- Health Problems
- Debt Problems
- Energy Problems
…you get the idea.
If you become somebody who can solve someone else’s problems, in any market or niche, whether inside of or outside of network marketing…
Then you’ve positioned yourself beautifully to actually…
Have a REAL business and long-term security…
…regardless of what happens to your network marketing company.
Using attraction marketing strategies means creating the ultimate security against anything that happens with the FTC or your network marketing company and the ability to attract endless product customers to you as well, if that's what you desire.
Today, I generate 300-500 red hot prospects per day, 30-50 new customers per day, and 80-100 business builders join my organization per month… AND I show you how I do it here.
Click Here to Download a Free Online Recruiting Bootcamp to Get Started.
You'll be empowered to build a product prospect list, opportunity prospect list, or a list of people interested in joining you in any niche you want.
You just need the vision and the belief, and I can provide you the know-how.
‘Til next time!
Sincerely,
Ferny Ceballos
Author of the Attraction Marketing Formula
CMO, Elite Marketing Pro
P.P.S I'd also like to thank highly respected Direct Sales Attorney, Kevin Thompson for helping me make sense of this issue via his website here
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- Three Proven Ways to Grow Your Business Using the Internet - March 15, 2020
- How to Build Your Business Online in Three Strategic Steps - March 14, 2020
- Attraction Marketing: The Roadmap to Building an Online Brand - March 14, 2020
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