How to Evaluate a Network Marketing Opportunity Edition: 12 Mar 94 Audience: World-Wide Second Draft Note on 1998/10/06 - This checklist is missing some features I would look for in a modern web-aware plan (such as no-cost pseudo-personal web-based retail order taking), but is still a worthwhile cautionary tutorial nonetheless. I doubt that I will have time to update it. This checklist is designed for use both by people who have just been presented with a network marketing company (NMC) business plan and those already enrolled with one. The ranking produced gives a rough comparison of the plan at hand to prevailing opportunities, and at the very least provides some probing questions to ask about the opportunity. The coined abbreviation "NMC" is used in this document because the more traditional "MLM" (Multi-Level Marketing), to many people, implies certain practices, policies and attributes that don't apply to all forms of network marketing businesses. Likewise, the generic term "representative" or "rep" is used to describe enrolled/registered members who are building business under the plan, rather than "dealer", "distributor", "associate", "jobber", "marketing executive" or other terms which may have misleading connotations. The total score, after scaling, will be in a 0 to 1.0 point range (or 0 to 100%). The rough evaluation of a score is: 76-100% Quality: This is probably an attractive opportunity. 51-75 Limiting: This plan has too many needless restrictions as a networking business, although it may be a decent consumer (product) opportunity. 25-49 Abusive: This plan was designed to enrich its founders, not you. 0-24 Scam: This plan has serious problems and may even be illegal. With each topic is a short discussion of the considerations involved. All dollar amounts, unless otherwise specified, are "wholesale" (or whatever term is used to describe the prices that the lowest positioned reps actually pay to purchase product). Do not use "bonus volume" or "point value" prices, if those vary from what is actually paid. The test parameters are organized roughly in life-cycle order (the order in which they arise for someone becoming involved with a plan). I suggest printing the test out, and marking it by hand. Each possible answer, on the left, has a maximum possible score, for example [5], and a range of ranked answers associated with it. Pick the answer that best describes matters as you understand them, and write the number in the box to the lower right of the topic. If the question does not apply (and there is usually an instruction for that case), don't answer it, and deduct that question's maximum possible score from the divisor to be used in the final calculation. Company Name being evaluated: ___________________ Raw point count: ____________ Divide for Final Score: ______________ Maximum possible: ___________ (Initially 345) Plans do exist that score in the >90% range. It is difficult to score above 95% due to offsetting factors (e.g. a plan that scores well on being international may score lower on name recognition burden). Plans which have no physical deliverable, consumable product ("the business is the product") will fare very poorly in this test. Plans which emphasize door-to-door sales, which includes many in the cosmetics field, will also not as score highly as those that emphasize down-line building. Even if you can't score this completely, you will learn a lot about various healthy and unhealthy practices in this industry, and will be able to ask pointed questions the next time someone says "Hey, would you like to hear about a great home business opportunity?". There are more questions here than most people ask of prospective employers. The length of this checklist does not imply that network marketing plans are excessively complicated. Questions similar to these must be addressed in the operation of virtually all sales business. This checklist is not completely objective, and I don't think that's a realistic demand. It does, however, reflect how I would personally design an NMC. All company and product names in this document are ficticious, as far as I know. I am not presently in any NMC plan, nor am I interested in being in one. ============================================================================ 01. Promotion: How is the product/plan promoted? .......................[__] How is the opportunity generally communicated to the public? [3] Promotion is primarily by the individual efforts of those enrolled. Advertising, if permitted, tends to be individual in nature. Groups of reps sponsoring co-op ads is rare. [2] Rep-group co-op advertising is common. [1] Company-sponsored ads are common, but participation optional. [0] Company-sponsored ad participation is mandatory Historically, NMCs have relied on word-of-mouth to reach new customers and representatives. Although most permit their reps to advertise, the presence of extensive media advertising works to compete with your individual efforts (unless you pay to participate). If you participate, several serious questions arise, such as: who pays for it and how much? How do the candidates respond to the ads and how are the leads shared among those funding the ads? 02. The Company Name, part 1: Was the Name Prominent?...................[__] [5] The name is typically volunteered immediately on first contact. [4] The name may or may not be volunteered, but is freely given when requested. [3] The name is withheld until the candidate agrees to hear a presentation. [2] The name is withheld until the presentation. [1] The name is withheld until the end of the presentation. [0] The name of the host company is not used. The name of a "front" organization is used instead. When you heard about the opportunity, was the name of the parent or actual host company volunteered, and if not, was it provide when you asked, etc. Whatever was or was not told to you, is what you in turn are likely to be expected to say if you enroll. If your sponsor behaves like there's a "problem" with providing certain information, then they are telling you that there's indeed a problem. 03. The Company Name, part 2: Benefit or Hazard?........................[__] [3] Most people have heard the name and hold favorable opinions about it (few will score this high, as it begs the question: why aren't they already enrolled). [2] Most people have never heard the name, or have heard of it, but have neutral opinions. [1] Most people have heard the name, vaguely lump it with "MLMs", but haven't had specific negative experience or been exposed to stories of negative experiences. [0] Most people have heard the name, and have a distinctly negative bias toward the company. A few are openly hostile. When you first heard the name of the parent/host company, what was YOUR reaction? The nature of the business form is such that the names of most NMC companies are unknown to the general public, but some of them are widely known, with varying degrees of pre-formed opinions present in the minds of those familiar with the name. 04. The Company Name, part 3: Too Specific? ............................[__] [3] The company name is a coined word, generic term or proper noun that is not tied to a specific product, field of interest or well-known individual. Example: "Peak, Inc." or "ExcellPlan". [2] The company name has vague connotations, but doesn't seriously limit expansion of the product line beyond current areas of interest. Ex: "HomeGreen", "EnviroMaster". [1] The company name is identified with a current product line, making it difficult to expand beyond it. Ex: "EarthOil", "AloeFresh", "Eucalyptus, Inc.", "WeightZapper", "MultiTool", "YardMaster". [0] The company name is strongly identified with a single product, making it difficult to even diversify the product line. Ex: "BasketCase", "MicroFilter", "CookieLite", "ThinMix". 05. The Company's Legal Structure.......................................[__] [4] The company is a privately held corporation. [3] The company is a partnership or sole proprietorship. [2] The company is a public stock corporation. [1] Unable to determine company form. [0] There is no company (free-floating pyramid or chain), or the company is deliberately hidden. NMC companies must perform a careful balancing act in setting targets for company profit, rep bonuses and pricing (and retail markup, if any). Publicly held corporations have an additional piper to pay, the stockholders - and must pacify analysts from time to time. Being publicly held gives you an alternative way to participate in the growth of an NMC, but an attractive return on the stock may be at the expense of rep bonuses. Of course, if you can't find the host company, you may be relying on the goodwill of your up-line for bonus payments, and have no legal recourse if the business plan is violated above you. 06. Representative Participation .......................................[__] [3] Significant changes in the compensation plan must be approved by a majority of all the enrolled "active" Reps. [2] Some of the Reps (typically those who have earned the higher bonus positions) are voting members of the board of directors (or equivalent exceutive committee). [1] Reps may consult with the company but have no voting weight in policy and product decisions. [0] Rep input and opinion are ignored. 07. The Company's Financial Condition...................................[__] [6] The company is profitable and debt-free. [3] The company is profitable OR debt-free, but not both. [1] The company is presently losing money AND in debt. [0] The company is in bankruptcy, refuses to provide a statement of financial condition, or there is no company. If the company is not a corporation, there may be no mandatory public reporting of financial status, so this question is posed broadly. 08. The Company's Location..............................................[__] [4] The company is based in your country. [3] The company is foreign, but has a national subsidiary. [2] The company is foreign, and has only a national rep organization. [1] The company is foreign, and located in a nation that has poor legal arrangements with my company. [0] Unable to locate host company. A company whose home is in your country provides the best recourse in case of any problems. Foreign basing may not necessarily signify increased risk, but merits investigation. Often, you will get new products and local-language literature well after the home country introduction. 09. International Activity .............................................[__] [5] The company operates internationally, cross-border down-lines are allowed, and pay nearly the same as in-country. [4] The company operates internationally, cross-border down-lines are allowed, but pay substantially less than domestic. [3] The company hasn't yet gone international. [2] The company is international, but cross-border down-lines aren't fully desirable, as they are subject to strict limitations. [1] The company is international, but cross-border enrollments pay only a modest one-time bonus. [0] The company is international, but cross-border enrollments aren't allowed at all. The lack of cross-border down-lines is a disadvantage when dealing with immigrant candidates and in near-border locales. 10. Company Accessibility ..............................................[__] [4] Visits to headquarters and factory (if any) are welcome. [3] Visits to headquarters OK, but no factory tours available. [2] Visits to either location restricted. [1] Visits not allowed under any circumstances. [0] Unable to locate headquarters or factory. Is company headquarters a secured "ivory tower", or are ordinary reps welcome to visit it? If not, what are they hiding? Can you tour actual production facilities? 11. Company Age ........................................................[__] [4] Company is at least three years old. [3] Company is at least two years old. [2] Company is at least one year old. [1] Company is under one year old. [0] Age of company cannot be determined. Most NMCs that fail do so in the first three years. There is not necessarily any advantage to being over three years old, and being over ten or twenty may actually be a disadvantage, as the compensation plan may have been designed prior to the availability of powerful low-cost computers, and may be very paper-work and/or time-intensive for the reps. 12. Company Philosophy & Politics ......................................[__] [5] The company, its management and the highly placed reps are NOT generally regarded as having a position on any controversial political issues. [4] The company has stated that it has no political positions, but there are persistent rumors that one or more of the management or highly ranked reps have taken political stands that some candidate reps might find objectionable. [3] The company itself has been tainted by persistent rumors of controversial political stands, and has done nothing to counter them. [2] The company is an open advocate of one or more controversial political positions. [1] The company and its product(s) were specifically intended to generate funding for one or more controversial political issues. [0] It is impossible to identify the company management or any of the highly placed reps. The point of this question is not that a "Save the Skeet" MLM is necessarily a "bad" thing, but that it will limit the pool of candidates, since skeet shooters will object to being involved. 13. Enrolled Representative Head Count .................................[__] [4] Membership is more than 5000 and less than 0.1% of national population. [3] Membership is between 1000 and 5000, or between 0.1 and 1% of the national population. [2] Membership is between 100 and 1000, or between 1 and 10% of the national population. [1] Membership is less than 100 or greater than 10% of pop. [0] Company refuses to divulge membership data. Being a "charter" rep in a new NMC can be an outstanding ground-floor opportunity, but it is usually accompanied by a small product line, sparse literature, poor support and risk of company failure. Similarly, a mature company won't have those problems, but will have challenges of its own, primarily that many of the "easy recruits" will already be enrolled, and many candidates generally will have already been exposed to the company, and may have formed hard-to-change opinions. You can succeed in either case, but its harder than during the high-growth adolescent period. 14. Company Mission ....................................................[__] [9] The company was formed primarily to provide an opportunity for the reps. The management, however, does expect to be rewarded for this. [8] The company was formed primarily for the benefit of the founders, but they specifically designed it to be a model opportunity, with a plan that is much more attractive than that of the average NMC. [7] The company was formed primarily to provide an outlet for a unique product (passionate inventor founder). [3] The company was formed primarily to benefit the founders. [1] The company has a vague mission statement that you don't quite beleive. [0] There's no way to discover why it was founded. Why does the company exist? Are the founders still running it? Obviously, all business ventures are designed to provide some value to the founders (financial, psychological, philosophical, spiritual, warped, whatever). What applies in this case? 15. Company Founder/Principals Visibility/Access .......................[__] [5] The principals are constantly visiting local rep meetings and wander through the crowd talking to people at random during regional meetings. They can also be reached by phone. [4] The principals are often visiting, but don't mingle, and questions are limited to controlled periods following presentations. They rarely take phone calls. [3] The principals sometimes make live presentations, but don't take questions. They don't take calls. [2] You only ever see them on tape or closed circuit. [1] You never see them, but you know their names. [0] You are unable to discover who they are. If you can't personally meet the people who defined (and can change) the products and business plan, you need to consider how risky it might be to bet your future on them. 16. Company & Retailing ................................................[__] [5] The company sells only thru enrolled reps, not thru conventional retail distributors, and has made a firm statement that they will never go retail. (This is not to say that individuals who happen to own retail stores are prohibited from selling the product there). [4] The company sells only thru enrolled reps, but has no statement ruling out future retailing. [3] As [4], but the company is already retailing in other markets (perhaps foreign). [2] The company is retailing as a result of retailer demand, but those retailers pay the same as all other reps. [1] The company is actively soliciting retailer's and their distributors. [0] The company is actively building a retail business, and giving that channel lower wholesale prices than individual reps. If there is no product, skip the question and subtract [5] from the ranking divisor. An objection that many people have to being NMC customers is that they have to mail order from the company or from their local rep. It is often less convenient than buying at the local store. If you, as a rep, have to compete with widely available inventory of the same product (even if priced slightly higher), you are at a serious disadvantage. Also, one way that NMCs often fail (as NMCs) is to "go retail", shafting the rep organization. 17. Product Diversity ..................................................[__] [3] If the company's most popular product were outlawed, seized by the FTC, or lost in a patent/copyright suit, the company would remain viable with the rest of the products. [2] The company would be significantly affected by the loss of the top product, but would continue operations. [1] The company has only one product, and would halt business. [0] There is no "product" - "The business plan is the product". One-product companies are risky. Even if protected by patents, alternative products may appear. The more appealing the product and the higher the income Reps earn on it, the more likely that a competitor will arise. A wise company is selectively adding to its product line, assuming that older products will eventually lose at least some of their luster. 18. Product Count ......................................................[__] [5] There is enough diversity that half of the products will appeal to everybody, but the number is small enough that the average rep can instantly answer "We [don't] have a product like that." [4] The product count is a little too high. There are times you need to consult a catalog to answer an availability question. [3] The product count is way too high and the mix is constantly shifting. You can occasionally expect to fail to make an order because you didn't know about a product, or fail to receive an ordered product because it was deleted from the catalog. [2] The product count is a little too low. There are a number of people for whom you don't have a product that interests them. [1] The product count is way too low. It is a specialized product or line of interest to a small percentage of the population. [0] There are no products (the business is the product). 19. Product Consumption ................................................[__] [5] The products are consumed such that monthly reorders for some mix of products, for personal consumption, are common. [3] The products are consumed such that reorders for personal consumption are common once per quarter. [1] Reorders are more like once per year. [0] The product is not consumable (once per lifetime sale). If you aren't building a down-line of repeat consumers, you may have a momentum problem. Until you create a down-line of business builders, you'll either be constantly looking for NEW customers of your own, or will be relying on continuous down-line enrollments and/or lots of retail sales. 20. Product Differentiation ............................................[__] [5] All of the products are unique, and cannot be duplicated by another company due to patents, copyrights and the like. [4] All of the products are strongly differentiated against what appear to be similar store-bought products. Some (but not all) are unique. [3] The products are different than store-bought equivalents, but not strongly. [2] The products are not substantially different from store-bought, but at least private-label. [1] The products are identical to store-bought. [0] The products are re-labelled generics. If there are no products, skip the question and subtract [5] from the ranking divisor. 21. Product Pricing ...................................................[__] [10] The NMC products, at full manufacturers suggested retail price (MSRP) are competitive with store-bought brands from a discounter. [8] The NMC products, at MSRP, are competitive with store-bought at non-discounting retailers. [6] The MNC products, at wholesale (Rep price), are competitive with discounted store-bought. [4] The NMC products, at wholesale, are competitive with store-bought at non-discounting retailers. [2] The NMC products, at wholesale, are priced between 1 and 25% higher than comparable non-discounted retail. [0] The NMC products, at wholesale, are priced 26% or more higher than non-discounted retail. If there are no products, skip the question and subtract [10] from the ranking divisor. No matter what price is picked for a product, it is bound to annoy somebody. Furthermore, there are risks in pricing too low, as well as too high. Ideally, the NMC wants to price for maximum profit over the long term, which goal needs to emphasize enrollment growth. Prices that are above familiar retail levels tend to discourage enrollment, because candidates are usually looking for reasons to say "no", and pricing is one of the first things they examine. 22. Product Value ......................................................[__] Irrespective of price... [5] The products are clearly superior to apparent store-bought equivalents, and this is immediately obvious to candidates. [4] The products are superior to store-bought. It is not obvious, but can be demonstrated or documented. [3] A case can be made that the products are superior to store- bought, but not everybody accepts it. [2] The products are no better than store-bought name brands. [1] The products are no better than store-bought generics. [0] The products are worse than generics. If there are no products, skip the question and subtract [5] from the ranking divisor. 23. Product Ordering and Delivery ......................................[__] [10] Any registered buyer can order directly from the company and take delivery at any address they desire, and nobody pays any premium or surcharge for doing so. [6] Any registered buyer can order direct, but some pay a premium or surcharge. [2] Lower positioned reps must place orders with, and take delivery from their up-line. [0] Everyone must order up-line and take delivery from up-line. Being unable to order directly is a serious disadvantage. It either means redundant re-shipping charges or limits your geographical area to what you can personally deliver/pickup. Furthermore, a company phone line will be more reliably manned for order taking than your upline rep's is likely to be. If there are no products, skip the question and subtract [10] from the ranking divisor. 24. Product Order Quantities ...........................................[__] When ordered directly from the company (not from upline)... [6] Products are priced for ordering as "eaches" (single units), with a discount for case lots, quantity discount, or a discount/rebate for large dollar orders of mixed quantities. [4] Products are priced for ordering in case lots, with a surcharge for "eaches". [2] Products are priced for ordering in case lots, with no provision for eaches. [2] Products are priced for ordering as eaches, with no provision for case lots or quantity discounts. If there are no products, skip the question and subtract [6] from the ranking divisor. A program which emphasizes "eaches" tends to encourage repeat consumption by the enrolled buyers, but needs to have incentives for sellers. A program which emphasizes case lots, strongly suggests that it is a retail sales oriented program. 25. Product Order Methods ..............................................[__] Add points for each available method. Max [10]. [+3] By phone to company, toll free. [+1] By phone to company (toll call - needed for out-of-country use). [+3] By mail to company. [+1] By FAX to company. [+1] By electronic mail or bulletin board system (e.g. CompuServe). [+1] By voice/in-person to up-line sponsor. If there are no products, skip the question and subtract [5] from the ranking divisor. 26. Order Payment Methods ..............................................[__] Add one point for each available method. Max [4]. [+1] Credit/debit card - at least any two of VISA/MC/AMEX/Discover. [+1] Personal check. [+1] EFT: Electronic Funds Transfer. [+1] Net 30 billing. If there are no products, skip the question and subtract [5] from the ranking divisor. 27. Shipping Charges ...................................................[__] [5] Shipping is "free" (buried in the product price) [4] The shipping charges are less than 5% on a typical order. [3] The shipping charges are greater than 5% but less than 10% on a typical order. [2] The shipping charges are greater than 10% but less than 15% on a typical order. [1] The shipping charages are greater than 15% but less than 20%. [0] The shipping charges are greater than 20%. [+1] If it is possible to avoid shipping charges altogether by making a hand-carry pickup at a company office or event, add 1 point to any score lower than 5 on this section. If there are no products, skip the question and subtract [5] from the ranking divisor. "Free" shipping makes life simpler, but usually raises the product price relative to alternatives, so any company that scores [5] here may score lower on the price and value questions earlier. 28. Sales or VAT Tax ...................................................[__] [3] Sales tax is never due on the company's product. [2] Sales tax is only paid on orders placed and filled in the company's home state/country. [1] Sales tax is always collected on every order, but reps buying for re-sale can obtain exemptions. [0] Sales tax always collected, with no exemptions. Obviously, the company may not have a lot of control over this, but people often do go mail-order to save on taxes, so it can affect buying habits. If there are no products, skip the question and subtract [3] from the ranking divisor. 29. Product Returns ....................................................[__] Pick a base score and apply the penalty factors below. [5] Products may be returned at any time, for any reason, opened or not, for a full refund. [4] Products may only be returned during a limited period. [3] Product return is solely dependent on the up-line sponsor. [0] Products may never be returned. Penalties - subtract each point that applies. [-1] Products may be returned only if defective. [-1] Products may be returned only if unopened. [-1] Sales tax and shipping charges are not refunded. [-1] There is a re-stocking charge. If there is no product, substitute "business aids" for "products" above. 29. Business Aids, Varieties ...........................................[__] Assign and add points [+#] for each type available. Maximum possible score is [7]. [+1] VHS video tape in local TV format (NTSC, PAL, SECAM, etc.), describing the product line in some detail. [+1] VHS tape describing the business plan (may be same tape as above, but tapes that only contain reps sitting around sharing testimonials about "how it changed my life" don't count.) [+1] Printed literature describing the products in some detail. [+1] Printed literature describing the business plan. [+1] Audio tape describing the products and business plan. [+1] FAX-back material describing the products and business plan. [+1] Printed presentation material for reps. 30. Business Aids, Languages ...........................................[__] [3] Company-providied aids are available in all of your country's major languages (for the US, this would be English and Spanish. For Canada, English and French, etc.). [2] Aids are available only in your country's single major language. [1] Aids are available only in English, and English is not a major language in your country. [0] Aids are not available in any national language or English. 31. Business Aids, Pricing .............................................[__] [4] Business aids are provided at, or slightly below the company's actual cost. [3] Business aids are provided at slightly above the company's cost. [3] Business aids are provided at substantially below the company's cost. [2] Business aids are provided substantially above the company's cost. The company is clearly treating them as a profit-making item. [2] Business aids are "free". [1] The pricing on the aids is outrageously high. [0] Only one set of aids is allowed per rep (i.e. price is "infinite" for additional copies). An NMC optimizes growth by supplying business aids at cost. That way, the company, the products and the bonus plan don't subsidize the aids, and the individual reps can distribute them in a financially self-regulating manner. Although "free" business aids might be appealing, someone has to be paying for them. Low/no pricing tends to encourage waste, which raises the price of whatever is subsidizing the aids. Conversely, making a profit on aids usually falls somewhere between counter-productive for the company and abusive of the reps. 32. Business Aids, Commissionable? .....................................[__] [3] No bonuses are paid up-line when you purchase aids. [2] Bonuses are paid, but at a lower rate than for normal products. [1] Bonuses are paid, at the same rate as for products. [0] Bonuses are paid, at a higher rate than for products. If there are no "products", enter [1]. Paying bonuses on sales aids raises serious questions about whether or not the plan is a true "pyramid" scheme or is in some way illegal. 33. Business Plan, Comprehension .......................................[__] For a typical plan transaction, how difficult is it to explain where each penny of every dollar of gross income goes? How difficult is it to explain ALL of the rules for each level of position promotion? [4] The business plan can presented in complete detail in under 15 minutes. [3] The business plan takes 16 to 30 minutes to explain. [2] The plan takes 30 minutes to 1 hour to explain. [1] The plan takes over an hour to explain. [0] No one seems to be able to completely explain it. This question is not about the "standard presentation", but about the plan in COMPLETE detail, something many plans fail to provide. 34. Enrollment Cost ....................................................[__] This question concerns the actual check/cash the someone must fork over to get involved with the NMC. This is not just about the "fee". Also add in any minimum product/biz aids purchase, and mandatory training. Exclude sales tax and shipping charges. [7] The minimum required expenditure to become enrolled is $12.49 or less. [6] The minimum expenditure is between $12.50 and $29.99 [5] The minimum expenditure is between $30.00 and $74.99 [4] The minimum expenditure is between $75.00 and $149.99 [3] The minimum expenditure is between $150.00 and $299.00 [2] The minimum expenditure is between $300.00 and $599.99 [1] The minimum expenditure is between $600.00 and $1499.99 [0] The minimum expenditure is $1500.00 or more. It usually costs a company about $15 to process enrollment paperwork and get someone loaded into their computer, not to mention providing a formal copy of the business plan, the first year's newsletter subscription, etc. Offering "free" enrollments is unwise, as someone has to pay that overhead, and the company systems are likely to get cluttered up with non-producing enrollees. An enrollment fee close to the $25 charged by membership discount warehouses is what people are comfortable with, and is enough to motivate them to make at least enough purchases to amortize the $25. 35. Enrollment "Fee" ...................................................[__] Enrollment in many NMC plans often provides documents about the plan, some business aids and perhaps some sample products. Go back to the minimum enrollment cost above, and subtract out the realistic wholesale value of any physical items delivered. What remains is pure fee. How much is it? [5] The purely-fee portion of the enrollment cost is $15.00 or less. [4] The purely-fee portion is between $15.01 and 30.00. [3] The purely-fee portion is between $30.01 and 75.00. [2] The purely-fee portion is between $75.01 and 150.00. [1] The purely-fee portion is between $150.01 and 300.00. [0] The purely-fee portion is over $300. Any program with hefty up-front charges that are pure fee, is dangerously close to being an illegal pyramid scheme. 36. Bonuses on Enrollment Charges ......................................[__] [6] No bonuses are paid on any part of the minimum enrollment charge. [5] Bonuses are paid on the non-fee part of the enrollment charge, and the breakdown (fee/non-fee) is published. [3] Bonuses are paid on enrollment charges, but below the normal rate for products, and presumably are not being paid on fee. [0] Bonuses are paid on enrollment charges, at the normal rate. Paying bonuses on enrollment fees is usually illegal. A program with both a hefty charge, that is largely fee, and on which bonuses are paid, is highly likely to be a pyramid scam. 37. Front-Loading Disincentives ........................................[__] [10] There is a limitation on the maximum order that will pay a bonus to the up-line. The bonus on an order in excess of that amount is returned to the rep placing the order. [7] There is a cut-off level on orders (as above), but the bonus on the excess is retained by the company. [4] There is no cut-off, but soliciting large orders by new reps is discouraged. [2] There is no cut-off, and soliciting large orders by new reps is accepted practice. [1] There is no cut-off, and soliciting large orders by new reps is encouraged. [0] Large initial orders are the principal bonus generator for the up-line. If there are no products, skip the question and subtract [10] from the ranking divisor. A "large order" is one that is more than 6 times the average monthly order for someone who has been in the program 6 months. "Front-loading" large start-up orders is a serious problem in the network marketing industry, with unscrupulous reps persuading new enrollees to buy quantities of products they can neither consume nor realistically expect to sell in a year. 38. Cost to Initially Qualify for Bonuses ..............................[__] This refers to a first-time, one-time or accumulated cost. Monthly qualification cost is in the next question. [6] You must purchase or invest between $50 and $149.99 to qualify for the lowest level position that is eligible for bonuses. [4] You must purchase less than $50 or between $150.00 and $249.99 to qualify for a bonus-able position. [2] You must purchase/invest between $250.00 and $499.99. [1] You must purchase/invest between $500.00 and $999.99. [0] You must purchase/invest over $1000.00. Plans that require substantial product purchases before you are eligible for bonuses are often "front-loading". The up-line people are making most of their bonuses on new enrollments, and not on repeat product sales. If you are required to purchase more product than a family could reasonably use in a few months, or you are required to purchase multiple units of a single item, beware. Conversely, if reps can earn bonuses on down-line activity without having to make (or have made) any significant purchases themselves, the company is likely to create a huge organization of idle non-buyers who are all sitting around waiting for some sales to happen below them. 39. Theoretical Bonus Payments .........................................[__] What percentage of the wholesale gross is theoretically returnable to the reps? [5] Between 30 and 70% [4] Between 20 and 29% or between 71 and 80% [3] Between 10 and 19% or between 81 and 90% [2] Between 5 and 9% or between 91 and 95% [1] Less than 5% or greater than 95% [0] Data is not available, or the company refuses to provide it. A very low percentage implies that gross sales must be proportionately greater for a given income target. A very high percentage implies that the product may be overpriced. An extremely high percentage borders on being an illegal pyramid scheme. 40. Ratio of Actual to Theoretical Payments ............................[__] Divide the actual average bonus payment (percent of gross) by the theoretical, and multiply by 10. For example, if the company's business plan can theoretically return 55% of the wholesale gross to the reps, but in reality only 33% is paid in an average month, then the score on this item would be: [6] = 33 / 55 * 10 If the company will not, or cannot provide this data, score [0]. The difference between actual and theoretical bonus payments is "leakage" - money that is dangled in front of the reps, but siphoned off by the company under the guise of disqualifications, penalties and other abusive fine print gotchas. 41. Source of Bonus Payments ...........................................[__] [10] The company directly pays all reps with earned bonuses. [6] The company only pays some of the reps. The rest are paid by their up-line, which implies that when you reach that position, you too will be paying your down-line out of the company-provided bonus check. [2] The company only pays the top positions. Everyone else is paid by the up-line, and pays their down-line. [0] Everyone is paid by their up-line and pays their down-line. Failure to be paid on earned bonuses, incorrect payments, late payments and bad checks are a major problem in some plans. Since your experience in such plans depends largely on the character of your up-line, there's no way to know in advance what to expect. The only way to avoid bad apples in the tree above you is to pick a plan that pays direct. 42. Group Activity Reporting ...........................................[__] [5] The company provides periodic computer reports to ALL reps, with sufficient detail on the activities of everyone below you to determine if the numbers are correct. [4] The company provides reports to all reps, but you need to have accurate personal records on your down-line to perform any serious auditing. [3] The company does not provide reports to ALL reps. In some positions the reports are from the up-line. [2] The company provides no reports. All reporting is from the up-line. [1] No company reports. The up-line is not required to provide you with reports. [0] All you ever see is a check (maybe). 43. Depth of Payment ...................................................[__] At the first position that pays multiple levels... [10] The plan pays one of: - Fixed depth of at least 7 levels, but there is no limit on the number in anyone's first level ("front line"). - Unlimited depth with percentage declining with depth. - Variable depth of [N] levels (at least 4), with cutoff/breakaway occurring because the chain contains [N] high-volume reps. Many are in fact being paid 10 or more levels deep. [7] The plan pay a fixed depth of at least 7 levels, but also limits the front line to under 10. [5] The plan only pays 6 levels. [4] The plan only pays 5 levels. [3] The plan only pays 4 levels. [2] The plan only pays 3 levels. [1] The plan only pays 2 levels. [0] The plan only pays 1 level. A plan that pays, for example, 3% on all the purchases of ALL the people enrolled below you (your downline), is in, effect, paying 3% on a given person's purchases to ALL the qualified reps above that person. Obviously, after 33 reps up-line, there are no more percents left. All plans must have some way to limit payment depth. Some use a declining percentage with depth, some limit to an absolute depth (e.g. 7 levels), some limit to a headcount of reps at a certain level (e.g. unlimited levels down to the fifth "Purple Exec" on any line). Since the power of network marketing is the geometric leverage of all those down-line people (who presumably wouldn't be there without you), you want a program that rewards to some depth. 44. Front Line Limitations .............................................[__] The 'front line" consists on enrollees who are directly below you for bonus-flow purposes (which may be different than for head- count purposes). [5] The plan has no limits on the number of people you may sponsor, or DOES have limits but there are ZERO financial or advancement disadvantages to having filled the front line and being obliged to place additional enrollees below existing ones. [4] The plan has a very high limit (over 200) on the number of people you may sponsor, or has lower limits, and very mild disadvantages to having filled your front line and being obliged to place additional enrollees below existing ones. [3] The plan has a moderate limit (30 to 199) on the front line, and moderate disadvantages once the front line is filled. [2] The plan has a low limit (less than 30) on the front line, and significant disadvantages once that is filled. [1] The plan has a rigid matrix which must be precisely filled in order to meet reasonable advancement requirements. Front-line limitations are needless and suspicious. Although the disadvantages to having filled yours may be mild, you may also find that someone above you fills your front-line before you realize it, and has filled it with non-producing non-buying reps. At some later date you may enroll a fireball two levels below some deadwoods, only to discover that most of the fireball's organization is outside your matrix, and pays you nothing. 45. Placement Capabilities .............................................[__] [5] The plan allows sponsoring a new rep below one of your existing reps, and you get to chose between granting the bonus-flow value and/or the head-count value of that enrollment. [4] You can make placements, but can only grant one of: bonus-flow value or head-count value, not chose between them. [3] You can make placements only by effectively giving away the entire enrollment to the grantee rep. [2] Company policy discourages placements, but doesn't penalize it. [1] Company policy penalizes, but does not prohibit placements. [0] You can be terminated if the company finds out you've given away an enrollment. Sponsorship "placement" can be a valuable tool in growing your down-line. When you enroll someone who is likely to remain just a product buyer (not a business builder), placing them below a recently enrolled business builder may cost you a mild reduction in bonus, but can dramatically motivate the grantee. 46. Maximum Possible Income ............................................[__] [5] The top people are netting more than $100,000 per year, after deducting expenses and any bonuses paid down-line by them. [4] The top people are netting between $50,000 and $99,999 per year. [3] The top people are netting between $25,000 and $49,999 per year. [2] The top people are netting between $10,000 and $24,999 per year. [1] The top people are netting less than $10,000 per year. [0] This informaton is unavailable or the company refuses to provide it. Although the plans of most companies represent an "unlimited" opportunity, where the income depends on the size of the organization you build, the actual income of the top current people can be an instructive guide to the potential, and potential difficulty. 47. Business Transfer Rights ...........................................[__] [5] You own your position in the company, and can give, sell, or will it to anyone who is otherwise qualified to hold it (in terms of age, citizenship and prior plan involvement). The new owner does need to maintain your on-going qualification activities. [4] You can give/sell/will your position, but there is some loss of benefits to the new holder. [4] You can give/sell/will, but there are restrictions on who the receipient can be - restrictions more severe than those on new enrollees. [3] You can give/sell/will, but the company has a priority option on buying the business at some pre-arranged value. [2] You can give/sell/will your position, but they completely requalify to retain your full down-line. [1] The company can veto your gift/sale/willing of your business, and the criteria are not exactly clear. [0] You cannot transfer ownership of your position. 48. Re-Enrollment Restrictions .........................................[__] [5] Anyone who resigns (sells/gives away/surrenders) their position must wait between 4 and 7 months to re-enroll. [4] Anyone who resigns must wait between 1 and 2 months, or between 8 and 9 months to re-enroll. [3] Anyone who resigns can re-enroll in one month or less, or between 10 and 12 months. [2] Anyone who resigns must wait between 13 and 18 months to re-enroll. [1] Anyone who resigns must wait more than 18 months to re-enroll. [0] Re-enrollments not allowed. This is another trade-off situation. If it is too easy to re-enroll, reps with small/no down-line may be tempted to "jump ship" to another sponsor who they like better, or who lives closers, etc. Reps with larger down-lines may be able to persuade their people to jump with them, to your detriment. If the dwell time is too long, it needlessly penalizes people forced to surrender a rep partnership due to divorce and the like. 49. Retail Sales Required? .............................................[__] [10] Retail sales are optional, but an incentive exists for those who desire to indulge in it. [8] Retail sales are optional, but there is no incentive for it. [6] Retail sales are theoretically optional, but there are disincentives for not selling. [4] Retail sales are required, in at least one position, to between 1 and 3 non-enrolled customers per month. [2] Retail sales are required, in at least one position, to between 4 and 10 non-enrolled customers per month. [0] Retail sales are required, in at least some position, to more than 10 customers per month. If the plan has no sales, skip the question and subtract [10] from ranking divisor. If you really enjoy selling, perhaps you might want to consider working in a door-to-door or franchise plan that is pure sales. The financial power of network marketing comes from enrollments, not sales. Any plan that requires sales has several problems: 1. If being an enrolled buyer is such a fine idea, why would you NOT want to enroll someone, rather than sell to them. 2. Fear of selling is the single most common objection that people have when presented with an NMC opportunity. A plan that requires sales needlessly frightens people away. 3. When the end of the month rolls around, and you are one sale short of forfeiting your bonus, the temptation to get someone to make a fake "straw man" sale can be overpowering. If you fudge on that, it impairs your integrity, and in effect, rewards dishonesty. If the sales requirement is difficult enough, no plan should be surprised to learn that over time, an increasing percentage of the reps are evidencing other dishonest behaviour. 50. Advancement Requirements: Objectivity ..............................[__] [10] If you meet the accomplishment requirements, you get the new position, period. There are no grey areas or subjective evaluations involved. [6] One or more of the positions (usually the top ones) requires "approval" by either management or the existing top reps, but the qualifications needed to gain their approval are either published or well understood, and easily met. [4] One or more positions requires subjective approval, the criteria are NOT published or well understood, but no one has ever been turned down. [3] One or more positions is subject to approval, the criteria are mysterious, and at least one person has been turned down. [1] One or more positions is subject to approval, and many people have been turned down. [0] One or more positions is subject to approval, and your sponsor can't name someone who has actually been approved. If the plan has no positions or advancement, skip the question and subtract [10] from the the ranking divisor. 51. Personal Purchase Requirements .....................................[__] To maintain your position, one of the requirements is making periodic purchases, for personal consumption, of product at a level: [5] Less than a single person would normally consume in the period, but greater than zero. [4] Less than a couple would normally consume in the period, but greater than zero. [3] Less than a family of four would normally consume, or zero. [2] More than any reasonable household would consume, implying that for most reps, selling would be needed (even if not "required") to dispose of the excess. [1] Far more than any reasonable household could consume. Retail selling essential to move the excess. [0] Far more than any reasonable household could consume, and the requirement grows as you advance positions. If there are no products, skip the question and subtract [5] from the ranking divisor. A healthy program builds a network of repeat enrolled customers. Setting purchase requirements at zero (none) tends to create an organization of infrequent buyers, who routinely "forget" to make purchases, but sit around hoping someone below them will. Setting requirements above what a single person or couple can use creates an enrollment objection for that and lower classes of candidates. 52. Personal Purchase Dollar Amount ..................................[__] Apart from whether or not a household can reasonably consume the periodic personal purchase, the actual dollar amount is a concern: [5] Between $10.00 and $19.99 worth of product. [4] Between $5.00 and $ 9.99 or between $20.00 and $39.99. [3] Less than $5.00 or between $40.00 and $74.99. [2] Zero or between $75.00 and $149.99. [1] Between $150.00 and $300.00. [0] More than $300 per month. A dollar amount too high will scare candidates away, and may tempt reps to buy more than they can use or re-sell, for fear of losing their bonuses. A modest non-zero requirement is ideal. The idea is to get the buyers (and reps) in the habit of placing AN order each month. If the products are any good, once people make out their minimum monthly order, they will normally pick out a number of additional items. If a monthly purchase is optional, data suggests that less than 5% will remember to do it. 53. Auto-Purchase Coverage .............................................[__] If the plan has personal purchase requirements, does it also have a way for you to automatically make a the required periodic purchase, should you neglect to place an actual order. [4] Auto-purchase is offerred, and is totally optional. [3] Auto-purchase is offerred, and is mandatory for you to earn bonuses (but optional to just be a product buyer). [2] Auto-purchase is not offerred. [1] Auto-purchase is mandatory for you and for everyone below you that you rely on for head-count qualifications. [0] Auto-purchase is mandatory for you to earn bonuses, and you only get paid on those below you who are also on auto. If no periodic personal purchases are required, skip this question and deduct [4] from the ranking divisor. 54. Advancement Requirements: Milestones or Millstones .................[__] In addition to any on-going personal purchase requirements (rated in a later question)... [5] Advancement for at least one position requires meeting one-time (one month/quarter) group volume requirements, and meeting and retaining a specific accumulated enrollment head count. [4] Advancement for at least one position requires meeting and MAINTAINING a specific group volume requirement for a period of MORE than one quarter, and/or meeting a one-time enrollment RATE for some period. [2] Advancement for at least one position requires meeting and INCREASING a specific group volume requirement and/or meeting and MAINTAINING a specific enrollment RATE. [1] Advancement for at least one position requires meeting and increasing an enrollment rate target. One-time milestones are preferrable to on-going quotas. If the plan has no positions or advancement, skip the question and subtract [5] from the the ranking divisor. 55. Advancement Qualification Periods ..................................[__] [5] The qualification criteria for at least one position, once achieved, must be maintained for a period of 31 days or less. [4] The criteria must be met and maintained for between 32 and 62 days. [3] The criteria must be met and held for between 63 and 93 days. [2] The period is between 93 days and six months. [1] The period is between seven months and one year. [0] The period is over a year. If the plan has no positions or advancement, skip the question and subtract [5] from the the ranking divisor. Example: A plan that requires a group wholesale volume of $18,000 for five months to qualify your for promotion to the "Palladium Commander" position would rank [2]. 56. Advancement Award Dates ............................................[__] [5] When advancement criteria are met, the benefits of that position are awarded RETROACTIVE to the beginning of the qualification period in which it was acheived. [4] The benefits are awarded effective on the date that the criteria were met, which may be prior to the end of the qualification period. [3] The benefits are awarded at the beginning of the next month after qualification. [2] The benefits are awarded at the beginning of the second month following qualification. [1] The benefits are awarded at the beginning of the next quarter. [0] The benefits are awarded at the beginning of the next fiscal, calendar year, or enrollment anniversary. Plans do exist in which an increased bonus or purchase discount is paid/granted retro-active to the beginning of the month in which you made an advancement, even if you or someone in your group made the critical qualifying enrollment/sale/whatever on the last day of that month. Plans also exist wherein you must maintain some group volume for six months, and then don't get all the benefits until the next year. 57. Penalties ..........................................................[__] For one or more positions in the plan... If you fail to meet the criteria for your position in any given period, your... [5] Benefits merely drop back to whatever position you do qualify for. You do not have enrollments or group volume credit taken away from you. [4] Benefits fall back. No enrollments are lost, but group volume calculation is based on fall-back position. [3] Benefits fall back. Enrollments are not lost, but subsequent bonuses may be impaired. Group volume falls back. [2] Benefits and group volume fall back. Enrollments lost. [1] Part or all of your group can be permanently taken away. [0] Your registration can be terminated. You will probably have to go well up-line, or even to the company, to get this and the next question answered in many plans. Some plans have nasty penalties, which they conveniently neglect to put in their promotional literature, and sometimes not even in their formal plan descriptions. They hope you won't find out until after you are seriously involved. 58. Requalifications ...................................................[__] If you fail to maintain all the criteria for your position in some period... [5] Your position is restored immediately upon correction of the deficiency. [4] Your position is restored at the end of the month in which you correct the deficiency. [3] You must completely requalify, but you completely restore your position and group. [2] You must completely requalify, but your position and/or group suffers some impairment. [1] You must completely requalify, as if you were a new enrollee. [0] No requalifications permitted. 59. Classroom Training Essential? ......................................[__] [5] The business plan may be executed without formal training. [4] The plan can be executed without training, with some difficulty. [3] The plan is very difficult to execute without training. [2] The plan cannot be executed without training. [1] You aren't allowed to even attempt execution without training. Since many NMCs do not have widespread geographical penetration, it is an advantage to be able to succeed without classroom training. If no training is available, skip the question and subtract [5] from the divisor. 60. Training Forms Available ...........................................[__] Add one point for each form available. Max [10]. [+3] VHS Videotape [+1] Audio cassette [+2] Printed material [+2] Free live classroom in at least one state. [+1] Free live classroom within a one-hour drive of every major city. [+1] PC and Mac computer-based The above materials may be the same as the promotional media if they are more than content-free hype and actually contain details on bonus flow numbers, all plan positions, and advancement requirements. 61. Training Cost ......................................................[__] Add one point for each applicable item. Max [3]. [+1] The minimum essential training is free. [+1] Any media-based training is available at or slightly above manufacturing cost. [+1] Sponsors will normally loan media to new enrollees at no cost. Enter [0] for this item if tuition-bearing training is required. Changes that were planned for the next edition: - add: evaluation of Renewal fees - revise: expand detail on advancement milestones/quota periods - add: evaluation of cross-line bonuses - add: questions on attrition rate - add: item(s) on territories (franchises) ____________________________________________________________________________ Regards, PO Box 248 Bob Niland Enterprise mailto:name@isp-name.domain Kansas which, due to spam, is: 67441-0248 USA rjn AT access DASH one DOT com Unless otherwise specifically stated expressing personal opinions and NOT speaking for any employer, client or Internet Service Provider.