The Hallmarks of Legitimate Direct Selling/Network Marketing Companies

By Jeffrey Babener, © 2012 / 2013
7.        Buy-back Policy. Legitimate companies agree to buy back inventory and sales kit materials — for some
reasonable period of time — that are in resalable condition and are in the company’s current catalog. This policy is
especially directed at serving distributors who cancel their participation and do not wish to use or resell their
existing inventory at the time of their termination. This policy also benefits distributors who purchase inventory in
anticipation of making sales which then do not occur.

Retail Sales. Legitimate companies place an emphasis on retail selling to non-participants. Companies
promote retail selling in many ways, ranging from online, face-to-face, preferred customer programs, etc. They do
so to encourage a wider use of their product, and to have distributors benefit by building a customer base from
which they receive retail profit.

From time-to-time, there has been some tension between regulators and the industry as to whether distributor
personal use purchases should be accorded the same legal recognition as retail sales to nonparticipants. To help
clarify this point, many state network marketing statutes have specifically provided that purchases for personal
consumption in reasonable amounts by distributors and their families are equivalent to retail sales. Even the FTC
has recognized that distributor product purchases, in reasonable amounts, for personal use and at favorable
pricing, is one reason why many individuals sign up with network marketing companies.

 Independent Distributor Activity. In legitimate companies, members of the sales force perform bona fide
supervisory, distributive selling or soliciting functions to move the product to the consumer. This translates into
actively engaging in:

o        Retail selling,
o        Promoting the business opportunity, and/or
o        Managing — including communicating with, training and supervising — the members of their personal sales

Earnings Representations. Legitimate companies only make earnings representations that are based
on actual, verifiable prior performance by members of their sales force. Company literature can refer only to the
actual performance of distributors under the current compensation plan.

As with companies, distributors are also responsible for making truthful earnings representations and
representations of potential earnings which typically requires a disclosure of average earnings of company

Training. Legitimate companies offer solid training to their distributors, especially in the areas of selling
and presenting the business opportunity. Training is often in the form of one or more of the following:

o        Print materials.
o        Audio and audio visual materials.
o        One-on-one training by members of a distributor’s personal upline — especially his or her sponsor.
o        Company-sponsored events such as workshops and conferences.

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