Are They Worth It?



Pyramids and endless chains are illegal in the U.S. You cannot “pay to play.” That is why no company offering you an income opportunity with multi-level compensation can charge you anything to join, or can require you to purchase products or services to join. The only exception is that a requirement to purchase an at-cost, non-commissionable sales or starter kit is permitted. Another way to say this is that you cannot be charged for the right to recruit others. Such a “charge” is prohibited as an illegal “headhunting fee.”

In my view, the only legal basis a regulator can have to challenge commissions on personal consumption is to characterize the money paid for product purchases as money being paid for “headhunting” or “paying to play.” Another version of the same problem is the specific requirement in many laws that the company’s plan be “primarily” about moving products and services to consumers, rather than about recruiting more “participants.” But that issue brings us back to the same place – if the purchases are linked to recruiting, rather than to traditional marketplace supply and demand, then the money paid for the purchases will be deemed disguised “headhunting” fees. Now we are getting to the title: Are they worth it?

Nothing I have written above is new. The traditional methods of dealing with these concerns are the “ten customer rule,” “90 percent buy back protection,” and the “70 percent rule,” derived from the 1979 Amway decision. These protections and techniques all have their good points. Yet some regulators view them as inadequate, or subject to manipulation, going so far as requiring company verification of independent representative submissions. The following is a different (and I believe, complementary) “test,” attempting to focus more on substance than form.

Does the purchaser want/need the products or services and is the purchaser willing to buy them without the added incentive of an income opportunity?

The test is this: If the surrounding facts support the position that the goods are being purchased for their value, (Ask yourself – ARE THE WORTH IT?) then the purchases are not being made “to play the game.” The facts must counter the regulatory accusation that, but for the income opportunity, no one would buy the products. I also suggest that the status of the purchaser (specifically, a total outside consumer or some form of independent representative) should make no difference.

I believe sales defined in this manner (which is one approach, and not the only approach) directly address conduct that the anti-pyramid and endless chain laws seek to regulate. One way of stating the prohibited conduct is – the sale of products and services that no one will buy for their actual worth, but will only buy to participate in and further an illegal endless chain. When such circumstances surround such sales, the sales become disguised headhunting fees, specifically prohibited by the laws of most states.

Would you buy your company’s products, absent the income opportunity? Would anyone? The answer needs to be “yes.” If a company’s sales are “primarily because the products are worth it” I believe the company can withstand legal scrutiny.