Master Distributors in MLM – Good or Bad?

The Good

In this industry, a lot of startups try to seed their businesses with people known as “master distributors.” These are the professional networkers that command a large following and can deliver anywhere between 500 to 30,000 people depending on their scope of influence.

These master distributors offer a lot of value because they help young companies capitalize their businesses with excitement, momentum and, more importantly, people. While Company Z might have the best product in the world, they’ll fade into obscurity if they’re never able to attract a committed group of people.

Show me the money

Master distributors are provided a financial incentive to join a business via some sort of special bonus, which is always in addition to their payout via the compensation plan. These bonuses vary but they’re usually a small percentage of the gross revenue from the downline i.e. 1% of gross revenue, 2% of gross revenue, payout from a special position, etc.

The Bad

The master distributor subject is also very controversial. Some companies are choosing to stay away from these arrangements because they’re afraid that when they hire “mercenaries” (a term used by a client, not me), the leaders would be more loyal to the money instead of the company. Master distributors also have the reputation of being “opportunity jumpers” where they stick with a company for a couple of years, recruit a brand new base of followers, and transition them over to the next company.

This one particular client of mine had an interesting perspective. He said, “I want to grow an organic base of people that are loyal to our brand. If we start paying distributors to come over, they’re coming for the wrong reasons.” Interesting take and I respect it.

Solution

In my view, there’s nothing wrong with master distributors leveraging their talent for a fee. In fact, I’ve done this type of agreement for multiple clients. If the master distributor commands an audience, it’s clearly worth something for a fledgling business. The problem arises when these “special deals” go undisclosed. As a mentor once said, “If you do something, assume it’ll be written in the sky.” There’s no secrets in this industry and when there’s a special deal, usually people catch wind of it. We’re not in the 80s anymore.

Disclosure is important because when the master distributor is promoting the viability of the opportunity, the prospective members are not eligible for the same opportunity; thus, it might be perceived as misleading. Recently, the FTC has required that paid endorsers disclose the fact that they’re paid by their sponsors. As an example, Michael Jordan says, “Gatorade is awesome!”

If he was paid by Gatorade, he would now be required to disclose his affiliation with Gatorade. The rationale is simple: consumers should know that the testimonial might have been influenced by money. The same rule should apply with master distributor arrangements.

Free advice

Am I suggesting that the master distributor disclose this each time they present the plan? “Oh, and by the way, I make a lot more money per recruit than you ever will.” Nope, that won’t work. I would suggest that the company provide a page on their website that discloses which distributors are being compensated in addition to the traditional pay plan.

The details are not necessary, just the basic fact that there’s a deal. Therefore, it can never be said that a company was withholding material information from the public that would have been influential in their judgment.

Reposted from Kevin Thompson – The MLM Attorney

Kevin Thompson is one of the most sought after MLM Attorneys in the country.  He owns and operates The Law Office of Kevin Thompson and specializes in providing legal services for network marketing and party plan businesses.  Kevin Thompson has extensive experience in the direct sales arena and helps entrepreneurs launch their businesses on secure legal footing.