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January 7, 2008
Retailing in Quixtar Part 2 (70% Rule)
By Truth in Quixtar
Perhaps one of the most discussed rules in Amway/Quixtar is the 70% rule. Often it is referred to as the focus of the FTC v. Amway case from 1979. Often times however this rule is misunderstood. So with first things being first we need to understand the 70% rule. Currently the Quixtar rule referencing the 70% rule states:
4.18. Seventy Percent Rule: An IBO must sell, at a commercially reasonable price, at least 70% of the total amount of products he or she purchased during a given month in order to receive the Performance Bonus or recognition due on all the products purchased; if the IBO fails to sell at least 70%, then such IBO may be paid that percentage of Performance Bonus measured by the amount of products that can be shown to have been actually sold, rather than the amount of products purchased, and recognized accordingly. For purposes of this Rule, products used for personal or family consumption or given out as samples are also considered as part of the sales volume.
However, this is not always how the rule was worded, and when you read how the rule was wrote before one can certainly understand why someone would think that an IBO needed to sell 70% of their volume before getting a bonus. Here is how the rule used to be worded:
4.18. Seventy Percent Rule: An IBO must sell at least 70% of the total amount of products pur-chased during a given month in order to receive the Performance Bonus or recognition due on all the products purchased; if the IBO fails to sell at least 70%, then such IBO may be paid that percentage of Performance Bonus measured by the amount of products actually sold, rather than the amount of products purchased, and recognized accordingly.
Some supporters argue that this always included sales to downline, but that is not outlined in the rule so that was clearly speculation on their part. Besides, now that Quixtar is mostly direct fullfillment I don't see how you sell to your downline since everyone supposedly buys from themselves and teaches others to do the same. I have yet to be shown how you can purchase one item from yourself and your upline at the same time. With product pickup I can see how sales to downlines apply, but with direct fullfillment I see the 70% rule applying to personal circle volume only.
In reading the decision on the FTC v. Amway case I have to agree with the supporters that the 70% rule was recognized as a way to prevent inventory loading. I know the wording talks about sales, but it also states clearly what the rule was put in place to prevent:
The '70 percent rule' provides that '[every] distributor must sell at wholesale and/or retail at least 70% of the total amount of products he bought during a given month in order to receive the Performance Bonus due on all products bought . . ..' This rule prevents the accumulation of inventory at any level.
With the modern day direct fullfillment I have to agree again with the supporters that if an IBO is consuming their purchases or giving away samples that those acts do prevent inventory loading and therefore are in compliance with the 70% rule. The only problem with this rule is I don't see how Quixtar can possibly enforce it without some pretty extreme measures.
How do you know that an IBO actually consumed all of what they purchased that month? Short of doing home inspections it is impossible to know. In addition to that what is the difference between buying a ton of product to make a pin level and stocking it up in your house, and buying a ton of product to make a pin level and giving it away as samples. The way I see it they are the same thing. Once again short of home inspections by Quixtar this rule cannot possibly be enforced.
In the end the 70% rule simply cannot be enforced and is only on the books for the benefit of Quixtar so they can say they are in compliance with the FTC decision. I will say any IBO out there who is purchasing product just to make a pin level is crazy, but I wouldn't put it past anyone to do, or worse someone to "advise" their downline to do. To make it worse there is nothing Quixtar would be able to do about it. It seems the 70% rule is a perfect example that making a rule and enforcing a rule are two completely different things.
Comments
I would agree that it is redundant for someone who simply buys too much. However, I think the intent was for those who just buy to get pin levels. The buy back rule is fine but would not be used by these people since they would also lose the PV.
I guess the intent would be that they would not try to buy a pin level if the bonuses would not be paid. But as I pointed out short of Quixtar starting their own police force to do home inspections it is impossible to enforce this rule, and if you have a rule you can't enforce I don't see how that makes everything OK.
Here is a thought:
A 70% rule to prevent inventory loading and at the same time having a "buy back" rule are redundant measures for "inventory loading" in my opinion. You don't need to have a 70% rule if there is a "buy back rule" in place.
If you have a buy back rule, and some one buys too much, the buy back rule will protect them.
Posted by: Scott Larsen | January 7, 2008 11:22 PM