Network Marketing (Arbonne) - gifts & samples, entertaining

dido241dido241 Just JoinedRegistered Posts: 2
I have a client who has become an Arbonne consultant. Basically, it is network marketing. The client purchases approximately £5000 of product each year but only sells up to £100 (cost price). The client takes about £500 of product for personal use and loans the rest to prospective/current recruits to try out. Direct sales by my client attract 35% commission and sales made by recruits attact 4% to my client (rising to 8% after the recruits achieve certain sales targets) - meaning sales income/commissions to my client has been at most £2000-£2300 in a year. After their 3rd year of making losses (£15000 in total) I advised my client that I could not foresee this business ever making a profit if they continued without selling the products directly. I was told that "accountants much cleverer" than me had advised them that HMRC are perfectly happy for them to spend 10 years or more making losses (which are offset against employment or other SA income each year). Research informs me that a small minority of 'consultants' ever achieve a big enough team of recruits to achieve the sort of commission income required to turn losses to the kind of profits my client is anticipating. Also, the "much cleverer accountants" advise that meeting with prospective recruits in a cafe and buying them lunch is a marketing expense. None of this advice sits right with me as I was always taught that business must be carried on with a view to making a profit and that entertaining expenses were not allowable for self-employed subcontractors - which these recruits are. Has anyone got experience in this area as I am totally in the dark about network marketing?

Comments

  • NpsNps Experienced Mentor Registered Posts: 782
    edited February 2015
    No useful advice but I'm watching with interest as a few of my colleagues have quit their good, stable jobs to sell Arbonne products on the promise of great riches. Apparently they will be retiring in 5 years on the massive profits they have been promised. One asked me to do her books but I didn't want to be involved so politely declined. I was told that I was a fool and they'd have the last laugh when they'd retired in their 30's and I was still working for someone else. I'm a bit bored of them constantly trying to recruit me into their cosmetics 'cult' to be honest, it's all they talk about.

    Apparently it is absolutely, definitely, certainly, without a doubt, NOT a pyramid scheme and anyone who thinks that it is, just haven't seen the light yet.

    I wish them the best, but I do wish I could see what they will be doing in 5 years.....

    Or perhaps I am indeed a fool and they were right all along and will be millionaires from selling a product which doesn't appear to be used by anyone apart from those selling it....

    I've asked them how it works as I'm genuinely interested about how people are pulled into it, but apparently they can't possibly tell me unless we have a proper 'business meeting' about it, funnily enough in a cafe with them buying me lunch.......
  • burgburg Experienced Mentor GloucesterModerator, FMAAT, AAT Licensed Accountant Posts: 1,419
    I'm also a skeptic around these types of business. The only thing I can say from experience is it needs to be the right product and you need to be an early adopter and get in early. I have one client who is doing a similar business and does very little selling herself. The majority of income is through 'underlings' who have further 'underlings' and so on. Works well for her with profits close to 6 figures each year!

    That doesn't change the fact though that I probably wouldn't do it. The line of business she is in has been around for some time so replicating what they do is not easy at all. Joining a new scheme you need to be sure that people will want and be willing to pay for the product. You also need to be very good at training people to sell well without the hard sell.
    Regards,

    Burg
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