Contemplating MLM

Members of the ISP-Marketing list share stories of companies that use multi-level marketing to generate sales. You'd be surprised at how many big ISPs use MLM.

[January 22, 2002]

On the ISP-Marketing list in December, ML asked,

"Has anyone tried multi-level marketing for dialup? What kind of success did you have?"

A number of respondents suggested that Amway is the best example of the model:

[JT noted] "Join Amway, go to their meetings, and you'll see how it works. The problem is, there may not be much interest: I offer one month free for a referral, and very few people take me up on it."

[ML added] "I sat through an Amway meeting about ten years ago and, though I didn't pursue it, I was impressed by the people who were there. They were very passionate about what they were doing and appeared to be having fun."

Others warned that it's important to know what you're getting into first:

[RY advised] "Seek counsel experienced in MLM before you do much else. You will need marketing material, a plan, a sophisticated software package to track your distributors' commissions, etc. The legal pitfalls alone are huge. You can wind up tied up with the FTC in a heartbeat with the most innocent misstep. For example, simply giving a customer a free month or a $10 credit for just referring someone is illegal in most states. Get good legal advice before beginning-and I would also suggest retaining an MLM marketing consultant."

[EA added] "MLM Legal and MLMLAW look like good places to learn more than you ever wanted to know. The FTC also has some information on the legal issues."

Still others shared some different ideas on how to structure the arrangement:

[RC explained] "In our model, distributors get a 20 percent commission from subscribers and a 5 percent commission on new distributors they sign up."

[MS offered] "I have put together a two-tier plan that I think pays better than most out there. We are stating that a distributor can earn $101 for each referral they sign up to use our services. In the first six months, the distributor will receive $8.33 per month, then $3 per month as long as the customer remains with us. If someone they have referred also refers someone, we will pay the original distributor $3 per month for six months."

[ML observed] "I was tossing around the idea of a two-tiered model plus residual. So a person would, say, make $20 to sign a customer up. If they signed up a salesperson, then all of the sales of the second level would generate a $10 commission for the top level. So the direct acquisition cost at the second level would be $30. Then at some point I think you would want to kick in a residual, say 5 percent, once the top level person has generated 100 new subs."

[JT warned] "The thing about the Amway model is that it's limitless. I don't know if you could show an attractive revenue model at two tiers. With Amway, the idea is to get thousands of people in your downstream who you never see or talk to."

JA suggested that, if you can afford to be generous, the model can work very well:

"I can tell you from experience that there is a huge opportunity here. Remember FlashNet? They were purchased by Prodigy last year. They had a network marketing program that made me enough money to start my own ISP and more. The company had several hundred thousand dialup customers through their corporate sales department and their 8000 independent reps nationwide. The customers brought on by the independent reps cost far less to acquire, and stayed much longer because they typically knew the person that sold them the service. The company also spent much less in support costs, because the reps would usually set the customer up themselves. And from the reps' point of view, it was a dream come true.

I got $30 per account at tier one, and 5 percent a month in residual. The money was paid down six tiers, so with a few other people, I was happy. If you can support paying out $30 an account plus residual, plus some more to at least three more tiers at a total cost of $60 to $80 per account, you could have a hugely successful program."

—End