Understanding Your MLM Distributor Agreement: What to Look For

What is a MLM Distributor Agreement? When you join a MLM Company as an independent distributor, you sign a legal, binding contract, which basically states that you agree to follow the rules outlined in the contract.

This contract outlines the company’s policies and procedures and clearly states what you can and cannot do as a distributor.

These “contracts” vary significantly from company to company.  Some are just one or two pages long. Others are 50 to 100 pages long.

Most network marketing companies want to OWN and CONTROL their reps, and if you read their policies and procedures objectively, you would NEVER partner with them.  It’s sad, but true.

Other companies are more flexible and only have a few basic rules.

Unfortunately, most distributors do not read this document thoroughly before they sign it (if they even read it at all). They’re so “hyped” up and excited about the business opportunity that they don’t do their due diligence first.

As a result, they might not have a clear understanding about what they can and can’t do. For the purpose of this article, I’m going to share some pointers (things to look for) in your MLM Agreement, before you agree to sign it. Let’s get started.

1. Internet Marketing Policy: Most network marketing companies are anti-internet. In other words, they do NOT want their distributors to use the internet to build their business, even in today’s internet age.

Most MLM Companies prevent you from advertising online, mentioning their name on your blog, or through email. Some companies even prohibit you from building your business via Facebook or YouTube.  Hard to believe, huh?

If you are planning on building your network marketing business online, this can create huge problems. I highly recommend you read the entire MLM Agreement, especially this section. You might be (un)pleasantly surprised at what you find.

Here are some questions to ask about the company’s internet marketing policies?

  • Can I build my business online?
  • What am I allowed to do online?
  • What is prohibited?
  • What type of online training and resources does the company provide and at what cost?

2. Participation in Other Programs: Most MLM Companies prohibit you from participating in other network marketing programs. In some cases, they have policies that you can’t promote affiliate products or even be a customer of another MLM Company.

To me this is crazy, especially since we are supposed to all be independent distributors.  I understand their policies about cross-recruiting your team members into other MLM Companies, but if my MLM Company told me I couldn’t build another business, or use another company’s product line, I would tell them good bye!

Some companies even go on to say that you can’t do business with your own team members outside of the company.  For example, if you are a realtor, some companies prohibit you from buying/selling houses of your downline members.

Once again, I find this crazy and unjust.

The bottom line is to make sure you read the fine print so you know what you are getting yourself into.

Here are a few questions to ask:

  • Am I allowed to own other businesses?  If so, what types?  If not, why?
  • If I leave/quit the business, is there a waiting period before I can join another MLM Company?
  • Am I allowed to do business with team members as long as it’s not with another MLM Company?

3. Money Back Policy: Any legitimate network marketing company has a strong buy-back policy. Distributors should NEVER be stuck with a bunch of products they can’t get rid of.  At a minimum, you want a company with at least a 30-day money back guarantee.  Anything more than that is even better.

Here are a few questions to ask:

  • How long is the buy-back period?
  • Is there a restocking fee?  If so, how much?
  • Do I have to pay return shipping or does the company cover it?

4. Compensation Plan: You should read the distributor agreement to get a clear understanding of the company’s compensation plan.  Unfortunately, not all company compensation plans are created equal.

Here are a few questions you wan to ask about the compensation plan:

  • How much do you need to spend each month to qualify for commissions?
  • What are the retail requirements?
  • Do you get paid on volume or actual dollars spent?
  • How many levels do you get paid on?
  • What is the wholesale-retail profit?
  • What are the different types of bonuses?
  • What type of fast start payouts are there?
  • Is there are a car bonus or any trips you can qualify for?
  • What percentage of the TOTAL volume does the company pay out on?

Also,you want to see if there is a clause where the company can modify the compensation plan at their discretion.

One of the best things you can do is compare at least three different compensation plans from different companies.  Find out how much volume and how many people you need to make $500, $1000 and $5000 per month.  You might be surprised at what you find.

5. Systems and Training: Find out what type of systems and training you are allowed to provide your downline. Most companies prohibit the sales of tapes, seminars or tools to your downline, unless they are pre-approved by the company first.  That’s fine.

Also, find out what systems and tools are offered by the company and at what cost.

Here are a few questions you can ask the company:

  1. What tools and training do you offer?
  2. What is the cost of the these tools?
  3. Is there a buy-back policy on the tools?
  4. What type of conference calls, webinars and and events do you have?
  5. You might also want to ask your potential sponsor and upline the same questions.

Final Thoughts

If there is one major lesson I learned during my time in the Army, it’s that it is very important to read a document before you sign it. That way, you have a clear understanding of what you are getting yourself into.

After you read your MLM Agreement, you might even find that the company isn’t the right fit for you. Personally, I think it’s better to find this out before you join a company, rather than after the fact.

What do you think?  What tips can you offer our community about what to look for in their MLM Distributor Agreement?  Leave a comment below and let us know what you think.  I look forward to hearing from you.  Thanks.

chuck holmes


Chuck Holmes
Network Marketing Professional (since 2002)
Author, Blogger, & Entrepreneur

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2 thoughts on “Understanding Your MLM Distributor Agreement: What to Look For”

  1. This is a very important post. I used to just sign contracts without reading them. I had a friend seeing me signing a contract once without reading it. He asked me how I didn’t know if I was signing a pact with the devil. That question made me really consider my stupidity. From that point on I read contracts completely. The fine print is important. That is where those little clauses are hidden that they really do not want the signer reading. Do yourself a favor and read complete contracts.

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