I watched a YouTube video the other day by Dale Calvert. He was discussing why he thinks auto-ship is bad for the MLM Industry. In essence, he said that forcing people to go on auto-ship kills your retention rates. In fact, most people who go on auto-ship will cancel their auto-ship order within two to three months and quit the business. I agree with him.
I think it’s a better idea to ease your customers and distributors into the business. By forcing them to spend $100 to $300 (or more) each month on auto-ship, you are forcing them into negative cash-flow, right from day one. Sure, some people might disagree with this, and that’s okay. But if you look at your genealogy report, you will probably notice a similar trend.
Instead, I think it’s much wiser to slowly introduce your company’s products to your distributors. Let them place and order when they join the company, and then order products as they need them. This will give them time to incubate in the business, and learn the basics.
Personally, I’d rather have my downline stay in my downline for a longer period of time, even if they weren’t ordering products every month. This will help build their belief level in the company and in the products. Over a period of time, many of these people will go on auto-ship. But I think it’s best to let people make that decision on their own.
Another common mistake by MLM Companies is forcing distributors to go on auto-ship, just to be eligible for their bonuses and commissions. Personally, I don’t believe there should be any personal consumption requirements to earn a commission from your downline. If you build a large team, you shouldn’t have any personal consumption requirements, just to get paid your commission check.
What Others Are Saying
“I think forced auto-ship is one of the reasons MLM has a bad reputation — it makes it appear that the company is making its money off of the recruitment of new consultants (and the resultant auto-ship) as opposed to its product being viable in its own right. It raises the question: if the product is so great, why does the company have to force its consultants to buy it? I don’t know if there is an MLM company which does not use forced auto-ship — if there is one I’d be seriously interested in it. I’m investigating one now in which you not only have to auto-ship to get your commissions, only one category of products (out of three categories available) counts. I’m trying to decide if that’s a deal-breaker, or if I can figure a way to make it work. But it shouldn’t be this difficult to get started, IMO. It seems to me that all MLM companies need to do is to require a purchase or sale every month to get commissions, rather than the forced auto-ship. Then consultants could decide what they wanted or needed, and if they really believed in the products. If they don’t believe in the products, these aren’t the people you want selling your products anyway.” ~ Pat
“I recently took an MLM FTC course that I had to pass in order to validify my membership and during the course of which we were tested after each segment, during one of the segments it was stated that requiring business members to auto-ship to be qualified for income was against FTC regulations and that companies must have greater than 50% of product sales to non-participants (preferred customers). I think auto-ships stink and are what feeds the MLM machine having newcomers paying older distributors. The primary focus of every company and its distributors is the sale of products or subscription to non-participating customers and focus on getting them to auto-ship to enjoy the benefit and value of the products.” ~ Anonymous
“In the article above, I wrote why I thought auto-ship was bad for the industry. Today, I would like to defend the other side of the story and talk about why auto-ship is good for the MLM Industry. The best thing about auto-ship is that it creates volume in your organization. In most cases, volume is the only thing you get paid for. If you have 1,000 people in your team, but no one orders the products, you won’t make any money. Some could argue that it’s better to have 100 monthly auto-ship orders than to have 1,000 distributors who only order once or twice a year. Another great thing about auto-ship is that it gets people using the products right away. Many people will not order the products if they aren’t required to. It doesn’t mean the products aren’t good; it’s just human nature. The sooner you can get your team using the products, the sooner they can build their belief level in the products. As I see it, these are the two major benefits of getting your team members on monthly auto-ship. What do you think?” ~ Chuck Holmes
Watch the Video
Final Thoughts
As Dale Calvert mentioned in one of his YouTube videos, the auto-ship requirements are having negative consequences in the MLM Industry. I agree with Dale and think MLM Companies should seriously reconsider their auto-ship policies that force people to sign up for auto-ship in order to be eligible for bonuses. What are your thoughts? Leave a comment below and let us know.
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Reading all of the above comments on Autoship really opened my eyes. I never really through it was huge industry issue. The mlm company that I am a part of has no forced Autoship. The volume accumulated by my team and I, never gets flushed out and the compensation plan is great. However currently we are operational in India but in the next two years we are hitting a global market.
I also think forcing distributors to run a monthly autoship to receive a commission is wrong. If you make a sale, you should be paid commission on it. When sales don’t exceed the monthly autoship requirement, distributors wind up quitting their business. This business model should be outlawed.
I guess we can respectfully agree to disagree.
If I was going to argue your point, I could say that every franchisee in America (McDonald’s, Subway, etc.) is forced to buy products from their parent company in order to have something to sell and/or qualify for profits.
I work for a company in the performing arts, but I don’t buy the product. However, I still get a commission for selling the service and I still get my paycheck. MLM’s (still Pyramid schemes) require you to pay in to get money out, that should not be a legal business model in the US. It is a complete sham.
Traditional businesses require huge start up costs and large ongoing costs. All businesses have expenses.
Even McDonald’s has to buy their food products from their corporate HQs in order to have something to resell.
I guess we will have to agree to disagree.
Auto-ship in and of itself is not a bad idea, but forcing distributors to have it is. It gets things started on the wrong foot and be what makes or breaks you sponsoring someone. They could be enthusiastic about signing up and when it gets to that point, back off because they don’t want to be forced to commit. It creates anger and resentment, especially in the beginning when they may not be selling a lot. It also takes away a sense of control and responsibility from the distributor.
I am personally on autoship but I would not like it if I was forced to be especially if it also needed to be X amount. This is something that people should find out prior to starting if they can. The company that I am with now has an optional autoship and you do not need to spend a certain amount however there are perks to having larger auto-ship orders. I agree with this method because there is a comfort zone for everyone with extra perks for those who are serious business builders. Do I think it should be taken away from businesses? No, but I do feel it should be optional. May business owners and customers like to have that option. Something for everyone is what sells.
What an awesome idea! I think auto-ship puts a lot of pressure on people who are just starting out. It makes a lot more sense to get there gradually. I especially like your 80% thought. That would help out distributors who do have slow months, and we all know that happens in any business. I know I’d be a lot happier if auto-ship had some perks attached for the distributor – like your suggested discount.
Every MLM Company handles this differently. I don’t know of any MLM Company that doesn’t require their distributors to be on autoship, if they want their commission check. Other companies give an extra discount on auto-ship orders. Getting rid of the autoship would help a lot.
There is both positive and negative impacts from the auto-ship policies. I see where many of both were covered in this well-written article. I would like to offer a suggestion to MLMs who who use auto-ship. New distributors who are just getting their “feet wet” should not be forced into auto-ship. After a certain time period, the company should average the person’s sales figures and make their auto-ship 80% of their average. This will allow for down times in sales for that person. Another aspect that would probably give incentive is a small discount (1 or 2%) for auto-ship. This may give distributors a better outlook. No matter what the business model, there will be those who agree and those who don’t. Usually the disagreements come from those not doing their part in making the system work to their advantage.
Good point, Greg. I simply think that forcing people to buy $100 to $200 per month, or more, just to qualify for a commission check is ridiculous. Yes, you should use your own company’s products, but it shouldn’t be a requirement to order a certain amount, just to qualify for bonuses. This is one of the reasons our industry gets a bad reputation.
I believe there is one good use for auto ship Chuck. When you have a customer that is consistently using the same items, you explain to them about the auto ship feature. Showing them where it would be so much easier than contacting you each time they want to order. This will free you up from delivering their products. It will allow them to receive the products in their mailbox same time every month. The main thing is: don’t forget about them then. Check up on them from time to time, and see if there are other products to add to their auto ship order.