Be Careful if Your MLM Company Is Charging You a Monthly Training and Service Fee

Let’s make one thing very clear; monthly training and service fees are not nasty as long as these are not being used to beef up a company’s compensation plan. In all other scenarios, it’s only an attempt to support an ailing business model that’s on crutches and operating with meager margins. It’s not much of an issue with most direct sellers in the company; however, when a regulator takes note of it, it will only fuel a significant action against the company that will not go down well.

Let us clarify if you’re wondering what “beef up the compensation plan” is. Imagine a scenario wherein the company charges a monthly fee, for example, $39 per month, or a one-time training fee, say $499, from each member for them to be counted as active and eligible for earning commissions. For this fee, the member would get back-office support, wholesale pricing on products and services in most cases, and training. It’s all well and good till now. However, when these fees are injected into the commission pot by the company, we have a problem. If the distributors start getting a portion of these fees for each and every personally enrolled member in their downline, then that’s just beefing up the compensation plan and not a good sign.

The main issue here is that the monthly fees as part of a compensation plan can only be accessed with continual recruiting of new members, akin to any of the classic pyramid schemes, and the regulators of the Network Marketing industry are too wary of such companies. Rightly so, as such transactions can only be viewed as a money transfer from new members to older ones. Burnlounge was one of the classic examples of this and was shut down by the FTC for precisely the same reason – their commission structure was fuelled by the usage fees that coughed up new members. Unfortunately, there was no actual product or service on offer.

The old MLM saying: “Companies should never pay commission on sales aids,” stays true to this day. “Service fees” or “membership fees,” when there’s no real market for the fee outside of the member base, fall very much in line with this.

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