April 11, 2017
Have you ever heard of the 70% Rule? If you’ve been around the industry for a while, you probably have. If not, let’s take a quick history lesson.
FTC vs. Amway
In 1979, the Federal Trade Commission sued network marketing company Amway, alleging that the company was operating an illegal pyramid. After weeks, months, and years of deliberation, the court ruled in favor of Amway in that the company was a legitimate business opportunity.
One of Amway’s safeguards – the 70% Rule – was highlighted throughout the 1979 case. In essence, the 70% Rule stated that distributors had to move 70% of their existing inventories to customers or other distributors. The rule also is designed to prevent distributors from ordering excessive amounts of inventory just to become commission qualified.
Back in the day before the Internet and e-commerce, products were distributed through “standard” fulfillment. For some companies, one top distributor would be responsible for distributing products to their entire organization manually. During this time, they would store inventory to then distribute. That’s where the 70% Rule really came into play for Amway as a way to prevent inventory loading.
Fast forward to 2017, where a majority of sales are done directly online through a company (Plexus) and the customer. Still, Plexus still thinks the 70% Rule is an important safeguard in this industry.
The 70% Rule and Plexus
Although there is no reason for you to have excess inventory, since the vast majority of your customers order from your website and have products drop shipped, Plexus does have safeguards in place including reviewing certain orders made by Ambassadors, particularly large dollar orders. In this case, Plexus may reach out to verify that at least 70% of the products are either personally consumed or retailed. If you recall, last week we shared the importance of keeping receipts for Direct Customer Transactions, and the 70% Rule is another important reason to hold on to those receipts. For convenience, we have included a sample Retail Receipt below that you can use.
Protecting your business and legacy is important, and the 70% Rule is a key safeguard to help protect that legacy. If you have any questions about the 70% Rule, feel free to reach out to our Compliance team at firstname.lastname@example.org.
posted 2 years ago