1. The Box Of Air
When you spend $300 downtown, you want to come home with a truck full of lumber or a trunk full of groceries. When you send $300 away to an online merchant, you want a box full of juice and vitamins or a couple dozen paperback books to arrive in your mailbox.
There are, however, many MLM companies who will send you back NOTHING in a bag, bottle, or box. They will tell you that this is the cost of setting you up in business – your licenses, your replicated website, your tracking software, your booking engine, your distributor support, your quack, quack, quack.
Don’t believe them. It should NOT cost you $300 to get set up in business. Legitimate MLM companies already have that infrastructure and support in place. Your part should be to start selling for them, and finding others to join you in selling for them.
This sham is The Excel Business Model. When we joined Excel in 1999, we spent $325 and received a leatherette binder in the mail. It’s a lovely binder and still looks good on the shelf, but it is NOT worth $325. With shipping and handling it might be worth $25, a reasonable cost for any distributor kit.
Although Excel capsized in 2004, their business model lives on in companies selling services like energy, travel, and communications. They will call your box of air many different things, but it’s still a box of air. What you have really bought for $300 is PERMISSION – permission to go out and find others like yourself who are willing to send away money for nothing in a bag, bottle or box.
So if we received nothing, where did our $300 go? The answer is in …
2. The Costly CAB Ride
CAB stands for ‘Customer Acquisition Bonus’, an amount of money paid not to you, but to your sponsor and upline for finding you and helping you gather customers.
Here is how Excel’s CAB worked. Alice sponsors Betty who gathers two customers in ninety days. As soon as those two customers had been confirmed, the CAB’s were triggered and checks were sent in the mail. Alice would be paid $100, Carol and Dave in the upline might receive $50 each, and Excel would hold back $100 for the next CAB when Betty gathered her fifth or tenth customer.
Now where did that money come from? Hmm … two customers had been confirmed, but so far they had not paid their $25 long distance bill. Even if they had, it would account for only $50 of revenue to Excel. Hmm … where did that money come from?
It had to come out of the $300 Betty sent in to Excel!
In legitimate companies, commissions are paid from the difference between wholesale and retail, all the way along the line from miner to manufacturer to shipper to jobber to wholesaler to retailer to you.
With the CAB, this is not so. CAB’s come straight out of the newbie’s pocket!
If you removed the messy clutter of the long distance or the travel or the energy or the video phones, you would have a more streamlined system where Betty could send in money for nothing, Alice and Carol and Dave and the company could take Betty’s money, and then Betty could go out with permission to find Ethel and Fred who are willing to send in their money for nothing in a bag bottle or box, and the cycle continues until it collapses and everyone goes to jail because it’s a PYRAMID!
In short, the CAB is a Fool Finder Fee!
(Skill Testing Question: If Betty fails to gather two customers, which is all too common, where does her $300 go? For a valuable free prize, please answer by commenting on this article.)
Here is what Rod Cook of MLM Watchdog has to say …
“The Customer Acquisition Bonus is used for companies that have low paying residual services (rarely products). This generational pay plan is used to create income flow for leaders … Within a year after Excel started, about seven Attorney Generals accused Excel of running a pyramid. Excel argued their way out of the pyramid charges by pointing out that other non-MLM telephone company competitors were paying brokers and even consumers a $100 (example) to switch to their telephone service. The $100 was out of the present and future cash flow generated by end user consumer customers paying their telephone bills. That is how this became a common MLM Compensation Pay Plan for low paying services.”
“Our lawsuit alleges that Fortune Hi-Tech Marketing lured more than 100,000 people in the U.S. and other countries into its “network” with promises of big pay checks and dreams of becoming millionaires. But our investigation shows what FHTM actually delivered was a massive alleged pyramid scheme that may have cost consumers hundreds of millions of dollars …
Records we received indicate consumers paid a $249 fee to join FHTM for the opportunity to sell a variety of products and services, including satellite television service, beauty products and home security systems. Unlike legitimate multi-level marketing programs, FHTM distributors had no incentive to sell products.
For example, an FHTM representative received pennies in commission for selling a three-year, $43 per month home security system. Meanwhile, representatives who attained a certain level within the company could receive $100 for every new member they signed up.
The emphasis on recruitment rather than sales makes this an alleged pyramid scheme.”
Check the compensation plans of these companies to see what Rod Cook and Jack Conway are talking about. You’ll find large bonuses for recruiting, and extremely low residual commissions from the actual sale of services. Excel’s back end residual commissions ranged from a ‘whopping’ 5% down to a ridiculous low of 1/4% on several levels, with an overall average of around 2%.
When Excel was collapsing in 2004, leaders admitted that 80% to 90% of their checks came from from CABs, i.e. straight out of the newbie’s pocket, i.e. a PYRAMID!
Just imagine yourself working for five or ten years in a company like Excel or Fortune, only to have it fall apart right before your eyes, crushing your hopes and dreams and goals and future. If you’d like to learn how to avoid costly MLM mistakes, start by reading about Big MLM Lies in our favorite book, Success In Ten Steps.
This article is based on Richard Dennis’ conversation with Bob and Anna Bassett. Click here for the full interview.