Orinally Posted by Bob and Anna in Scams and Warnings here:
The FTC and three (!) state Attorneys General have shut down Fortune Hi-Tech Marketing (FHTM), calling it a “global pyramid scheme that rewards people for recruiting others.” That’s the beginning of the USA TODAY article by Jayne O’Donnell, which we have included below our sig file for your convenience. Click here to read the original article.
So why do some MLM’s get shut down as pyramids while others carry on peacefully and prosperously for years and years with no problems with the authorities?
It all comes down to what you are selling and how you sell it.
Let’s get back to the basics …
Downtown, people sell goods and services like lawnmowers and licorice and legal advice. When you hand over your money, you get something in return that you have decided is worth the price.
Commissions are paid out of the difference between retail and wholesale all along the line from digging the raw materials out of the ground to shipping the materials to making the product to shipping the product to the jobbers and wholesalers who take it to the retailers who sell it to you. The miners get paid, the manufacturers get paid, the truckers get paid, the advertisers get paid, the salespeople and sweepers get paid.
If it’s a service, everyone gets paid from the difference between the price of the service and the cost of providing that service. The rent gets paid, the utilities get paid, the staff gets paid, the student loan gets paid.
It all comes out of the $500 you spend on your lawnmower or the $5000 you send to your lawyer to handle your real estate deal or divorce. Makes sense, no?
And that’s how legitimate companies thrive and last and pay people sensibly for what they sell.
But things get whacko in MLM if we forget that network marketing is just another way of delivering goods and services to the end consumer. We lose sight of the retail/wholesale model and start sending our money away for licences, businesses, opportunities, founders’ positions, ebooks, educational material, promises and piles of other pucky that we’d never buy downtown. And we get nothing back in a bag, bottle or box.
Please read our article “What Are You Selling? Really? Are You Sure?”
So what was Fortune really selling?
Paul Orberson was the top earner in Excel Communications, and allegedly the first distributor ever to earn a million dollars a month. When he left Excel to form his own company, it made sense that he would adopt and fine tune the Excel model, as it had proven so profitable for himself.
Here’s the Excel model in a nutshell: High front end costs for a box of air, and puny or non-existent residual income.
Distributors will send in $300 to $500 for a ‘licence’ and receive a $10 binder as a starter kit. They will then go to work gathering customers for the company and be paid commissions like 2%, 1/4% (!), 1%, 5%, max 8%.
This model has been adopted by the energy and communications and travel companies. The travel comp plans we have studied have no residual income at all based on the sale of travel. It’s ALL recruiting!
So how do these companies produce their millionaires? Where does the money come from?
Out of your pocket.
Remember that $500 you sent away to start your business? $200 may have gone to your sponsor. Another $200 may have gone to your upline. The company may have kept $100. Worst of all, if you did not gather your two or three customers to trigger the bonuses, the company kept it all. And you got nothing but a box of air. See O’Donnell’s article to read …
More than 85% of the compensation paid is from recruiting new members, the complaint said. The compensation plan is designed so the majority of people will spend more than they earn. As Conway noted in an interview, about 90% of people made less than $15 a year, yet were asked to spend about $1,500 a year on products and membership fees.
When Excel was coming apart in 2004, a recruiting frenzy erupted among the soon to be homeless Excel distributors. Top earners found desperate new homes and started calling everyone on every list they had. We no longer heard the success stories, but started hearing the more truthful poverty stories – the kind we are now hearing from FHTM distributors.
Leaders who had never spoken to us before would call us up and attempt to bring us over to their new venture. Many admitted that their Excel checks were 80% to 90% recruiting and training bonuses (right out of your pocket), and only 10% to 20% residual. If their businesses did not continue to expand, their check would plummet, people would leave, customers would vanish, and their puny residuals would shrink too.
The Excel model is 90% illegal and 10% impossible. If you threw away all that messy long distance and pesky products, and just kept the real money making part of the biz, you’d have …
… one of the biggest pyramid scams ever perpetrated on the network marketing industry. Michael Dlouhy
So there’s your answer to the millionaire question. Most of the top earners in Excel were sponsor monsters living off the start-up fees sent in by hopeful recruits, NOT from the sale of goods or services to the end consumer.
The business model was “One, two and you’re through! Sign and split!”
Fortune was huge, so stay tuned for thousands to come to its defence. But … having spent five years working the Excel model, we know first hand how devastating it can be to put your time, your energy, your money, your reputation and your soul into a dream, only to have it turn into a nightmare like Excel and Fortune Hi-Tech. Maxed out credit cards, remortgaged homes, tarnished reputations, broken marriages and bankruptcies are the legacy of companies like this.
These are NOT legitimate MLM companies, and we say good riddance.
We empathize with the present Fortune Hi-Tech distributors, but we know for certain they can find a better home. We did.