On Friday Advocare announced that it was dropping its multi-level marketing component as of July 17, 2019, and there are allegedly more than 100,000 Advocare distributors who will be impacted. Why are they doing this? Pressure from the Federal Trade Commission (FTC), it seems. The speculation is that the FTC took issue with how Advocare compensated its distributors.
All MLMs are careful to say “we don’t pay for recruiting.” They have to say that. Because paying for recruiting makes a company an illegal pyramid scheme. Instead, the companies pay commissions when distributors order products. It doesn’t matter if the products are sold to third party consumers or not. (Many of us would argue that the companies are de facto paying for recruiting when someone recruits a distributor and encourages them to buy an inventory package, without regard to whether they can actually sell those products.)
Here’s the old way of doing business at AdvoCare:
AdvoCare’s CEO Patrick Wright said: “Over the years, we have made many changes to the AdvoCare policies as the regulatory environment has shifted. Based on recent discussions, it became clear that this change is the only viable option.”
The company will now be single level, with compensation paid only on sales of products. Distributors and “preferred customers” buy products at a discount of 20% to 40% off suggested retail pricing. I have no idea whether they’re actually able to sell the products at suggested retail prices. I do know that AdvoCare likely won’t be around long. It’s no secret that MLM is all about recruiting and selling inventory packages to the recruits (frontloading). There isn’t nearly as much money in retailing products to actual customers because the sales are so low.
Does this mean that the FTC is taking abuse by MLMs more seriously? Possibly. But it’s been a very slow go. The high-profile case of Herbalife ended with what amounted to a slap on the wrist for the company.
What does this change by AdvocCare teach us about MLM?
- In MLM, you own nothing. You don’t even own the right to keep doing business the way the “business” was sold to you. If you built a team and you have recurring income from commissions on your downline’s activity, that’s over.
- There is a risk that the FTC will be cracking down on more MLMs and they will be forced (coerced?) into changing their business models.
- If you think “your” MLM is different from AdvoCare, you’re wrong. They all use the same barely legal techniques to appear that they’re legitimate business opportunities, and not pyramid schemes.