As an Independent Business Owner I have had to deal with chargebacks. Chargebacks are a reality of doing business with a lot of network marketing companies. What is a chargeback?
There are a lot of MLM companies that agree to pay their distributors advanced commissions for each sale they make. I will use my company as an example. My company pays a year advanced commission up front for each sale. This means that if I sell a policy to a customer for $35.00, I will get a check for $172.00 up front from my company. They take your as-earned commission amount and multiply it by 12 months. The customer will have to pay $35.00 a month for the policy to stay in effect. If the customer decides to cancel after 3 months, you will have a chargeback for 9 months of commission. My company for example will take their money back after you make your next sale. However not all companies do this.
In essence, the company is loaning you the advance. However, if your customer keeps their membership active for 12 months and decides to quit paying then there will be no chargeback because the customer will have paid off the advance.
After a year working with my present network marketing company I started to realize chargebacks on a more frequent basis. A lot of the customers I signed up early in my career were starting to cancel their policies. I had some personal issues in my life after a year and had to slow down a little in my business. I started to lose momentum in my business and could not recruit or sell memberships fast enough to offset the chargebacks. I wound up $295.95 in the hole and had to pay this back to the company. I have known many network marketers who have owed thousands. I remember attending one of my company’s conventions and hearing a gentle talk about how he overcame $40,000 in chargebacks. His story was one of determination and motivation. Now, he makes over a million dollars with my company. I learned to deal with chargebacks as a cost of doing business. I now focus on the customer more and attempt to build better relationships. The better a relationship you have with a customer the greater the chance of him/her maintaining the sale.
There are upsides and downsides to working with company’s that give advance commissions.
One of the major upsides is that it allows you build up cash faster. You will have more money upfront that you can reinvest in your business and turn a profit. It is also a great motivator for new people coming in. They are able to earn a hefty commission for selling a small monthly policy.
The downsides to the advance is when your customers cancel in a few months, you will owe money. A customer could cancel because you might be working with a company that is not competing in the marketplace. Also, your company’s product or service may be oversold or too expensive for the average person to maintain monthly. Another downside would be racking up a huge debt that you will have to pay back to the company with interest. Chargebacks would eat into future commission checks and could cause you to go out of business fast.
Whether a distributor would be willing to trust in the company’s product enough to go with the advanced commission or as-earned is an individual choice.