Let’s make one thing very clear; monthly training and service fees are not a bad thing as long as these are not being used to beef up the compensation plan of a company. In all other scenarios, it’s only an attempt to support an ailing business model that’s on crutches and operating with meagre 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 major action against the company that’s not going to go down that well for sure.
If you’re wondering what “beef up the compensation plan” is, let us clarify. Imagine a scenario wherein the company is charging a monthly fee, for example, $39 per month, or a one-time training fee, let’s say $499, from each member in order 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, the moment 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 the fact that 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 Network Marketing industry are too wary of such companies. Rightly so too, as such transactions can only be viewed as a money transfer from new members to the older ones. Burnlounge was one of the classic examples of this and was shut down by the FTC for exactly the same reason – their commission structure was fuelled by the usage fees coughed up new members and unfortunately, there was no real product or service on offer.
The old MLM saying: “Companies should never pay commission on sales aids” stays true to this very day. “Service fees” or “membership fees,” when there’s no real market for the fee outside of the member base, falls very much in line with this.
[wbcr_text_snippet id=”636″ title=”Common signature for all EN posts”]