As we have reported in the past couple of months, there have been numerous actions taken against companies which proudly feature(d) the DSA logo and go through rigorous due diligence to become a member of the DSA - Direct Selling Association (Weekenders, NHT Global, Mannatech, Herbalife) .
In some cases the suits can be considered frivolous or just class action based on stock performance (lack thereof) but we also have examples like Weekenders who decided to close its doors with no warning to its distributors at all and the latest $25m lawsuit against YTB brought by the California Attorney General alleging fraud.
While we have made several attempts to get answers from the DSA about the Weekenders demise, we have been met with a lack of any information on their part. In fact, the DSA never posted a single announcement on their website about Weekenders closing nor did it provide any information online to Weekenders distributors as to what they can do or offer any assistance to them that we have seen. What was equally as puzzling was the fact that even weeks after Weekenders had closed its doors, it was still featured as a member of the organization on its website.
What is most interesting about the chain of events that has taken place recently and how it relates to the DSA is to better understand how the DSA makes its money - off of the efforts of these companies distributors hard work. Once you have been approved by the DSA - a process which takes one year in which time “the company’s business plan is reviewed to verify compliance with all provisions of DSA’s Code of Ethics” - you then have to pay “Membership Dues”. Any company accepted to the DSA must pay these membership dues according to its website. The Dues are “based on the yearly total of direct sales a company generates. This does not include any retail or catalogue sales a company may have, only the direct selling portion of the business”. This means that the distributors who represent these various member companies products are in essence subsidizing the DSA since its their sales in which the DSA gets a percentage of for the participating company to continue to preserve its membership.
So the question is, if the distributors are in essence subsidizing the participating companies dues, why doesnt the DSA support these distributors more? Yes, the DSA says on its website that member companies will “Repurchase 90% of the marketable inventory and sales aids you have purchased within the past 12 months if you decide to leave the business” but what happens when the company goes out of business? what happens when there is no “marketable” inventory such as companies like YTB and others who sell services and not products and then the big question, who determines what “marketable inventory” is? Clearly if the company went out of business there is likely to be little to no market for the inventory, yet conceivably speaking, when the company was in business and a member of the DSA, those sales representatives helped contribute hundreds if not thousands, if not tens of thousands of dollars to the DSA and are now left with nothing.
We have hundreds of messages from Weekenders distributors who worked very hard to generate money for the company - a percentage of which went to preserve its membership with the DSA - and now have nothing at all. There is no information as to how they can recoup any of the inventory they are stuck with and no information as to how to contact that DSA member company (or former). What the DSA should do is recognize that its bread is buttered indirectly from the millions of distributors who are selling products that generate fees back to the organization and create a fund to support them in cases like Weekenders. Since they supported the organization when the company was healthy, why should they be abandoned when the company screws up and goes out of business or has shady practices? As well, there should be a policy that if an organization receives more than 20 calls to the Better Business Bureau, they are put on suspension for a year until such time that the number of complaints drops. YTB had over 90 complaints in 3 years just in the eastern Missouri and southern Illinois region alone!
While the DSA says it generates its revenues from the 200+ member companies, the truth is there are MILLIONS of distributors who are actually subsidizing these membership fees and the question remains what does the DSA truly offer to those that are paying its dues?
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What a GREAT article and glad to see someone explain things that seemed obvious but are now clear. I love your idea of the DSA creating a fund since we pay all their salaries anyway.
Comment by Jonathan Miller — August 11, 2008 @ 6:59 pm
Steven,
I wanted to point out one significant error in this post and your last post about Weekenders a few weeks back.
You said:
“Yes, the DSA says on its website that it will “Repurchase 90% of the marketable inventory and sales aids…”
DSA’s code of ethics state:
“As a salesperson, you should expect a DSA MEMBER COMPANY to:
Repurchase 90% of the marketable inventory and sales aids you have purchased within the past 12 months if you decide to leave the business.”
Note that is the MEMBER COMPANY, not DSA that is repurchasing your inventory. Just as with any other company that goes out of business, all people who are owed money will need to “stand in line” to try to get their share of money that was earned when the company’s assets are liquidated.
Dues to any trade association are used to pay the salary of the association staff who monitor federal, state and local bills that may make it into law and harm the association constituancy. If the association did not do this, the salesforce may be out of work based on overbearing laws that were enacted. If DSA were to create a “pool” of funds to help compensate people when a company went out of business, guess where the money would come from…yep, the salesforce. Thank you, but I would rather set aside a dollar every week and stick it in the bank and earn interest myself.
Comment by Jen — August 12, 2008 @ 3:26 am
Jen,
Nothing like putting the burden on a company that may not have the capacity to help and whose sole discretion it is to determine what is “marketable inventory”.
There is a significant difference between dues that are paid by a company which are annualized fixed rate fees and those who contribute a percentage of gross dollars to fund an organization. Especially when the fees collected are ONLY those of the work of distributors and not from any other revenue generated by the company.
Of course the DSA has to secure funding for its operation through membership dues, however, making them a percentage of gross sales which are generated solely by distributors and then not being able to provide assistance for those distributors appears to be very imbalanced.
The organization is built to show other potential network marketers and purchasers of products the “Good Housekeeping Seal” which is designed to build trust and purport that there was some diligence done to warrant the DSA logo. When the California DA files a $25m lawsuit against your company (YTB) alleging fraud, I would expect the DSA to come to bat for that firm (if it is not a fraudulent acting company) and make some representation on its site. As well, how is it not the responsibility of an organization that lives off of a percentage of the dollars generated solely by distributors to be completely aware of situations like these and be able to serve as a resource to the distributors who are in essence paying them?
I stand by a scenario whereby the DSA uses a percentage of its funds generated by the hard working distributors who are funding them to allocate a fund for situations where the company is either found guilty of fraud and goes out of business or goes out of business for economic reasons. There is no justification to take a percentage of those distributors efforts in the form of cash and provide zero efforts to help them when they are left with nothing. They relied on their company and potentially joined because they recognized the DSA logo as a stamp of legitimacy and it failed.
Comment by Steven — August 12, 2008 @ 4:28 am
I have to take issue with this, Steven.
The Federal gov’t also said Freddie and Fannie were legitimate, yet they are also in difficulties. Are you suggesting that the taxpayers pay for their inventory as well?
This is a slippery slope. From what I understand, the DSA does not offer financial backing to any company, just like any other trade association. Members of the Society of Petroleum Engineers do not expect SPE to bail them out when an oil well runs dry or when an oil company goes out of business.
Comment by Interested — August 12, 2008 @ 7:42 am
Interested,
I beg to differ with your analogy. The Fed government never put any stamp on Fannie Mae or Freddie. Both of those companies are publicly traded companies which operate in the public markets. As well, the SEC does not take a percentage of the revenues garnered by those public companies to subsidize their operations.
In your example of MSPE, please keep in mind that MSPE does not generate its revenues as a portion of its members gross sales based solely on the revenues of sales agents. There are thousands of organizations who are funded by membership fees by participating organizations. I am unaware of any other organization that solely generates its membership fees from the sole efforts of distributors revenues - and not on the total company revenue. If you have such an example, please let us know and we would love to investigate it.
Think of it this way, if 100% of your membership revenues are derived from the actions of people - who have no choice but to contribute - then why arent those people protected in times of strife by organizations who are only “donating” based on what those distributors earn?
If you worked for a union and contributed fees each time you got your paycheck, would you expect the union to go to bat for you when you needed it? it’s your “dues” which are making the union run. You also need to be reminded that a distributor does not have a choice as to whether or not a percentage of their sales go to fund the DSA membership and they may rely on that stamp of approval to sell more.
There is no question that the DSA serves a purpose and seemingly operates for the good of the industry. That is not in question. What is in question is how is it an organization that relies on the revenues of millions of distributors not supportive of them in situations such as Weekenders or why arent they providing greater information to the public when organizations who bare their stamp are being investigated for fraud (State of California vs. YTB). There seems to be an obligation on the part of the DSA that is missing and why shouldnt the millions of distributors who generate the revenues for them to exist expect more support?
Comment by Steven — August 12, 2008 @ 10:05 am
Actually, SPE does generate some revenue from dues. As a former employee, I have insights into how SPE operates.
You’re correct in that revenues do not come from “sales agents”; however, neither do the DSA’s.
No consultant “chooses” to take part in the DSA. The company chooses, not the consultant or distributor. Therefore, common sense dictates that the company which made the choice should bear the burden of supporting its salesforce. Otherwise, the distributors themselves would be able to become part of the DSA, bypassing whether the company chooses to take part. At that point, I would reasonably expect the DSA to step up and cover the distributors.
Since this is not the way the DSA gathers member companies, I cannot reasonably expect them to financially back any company. If they were to do so, the DSA would be extinct, as there are too many direct selling companies that go in and out of business every day.
I honestly do not understand why Optree keeps attempting to hold the DSA accountable for actions of its member companies. The DSA cannot control Weekenders’ financial obligations nor can it be held accountable for those. As for YTB - I don’t understand why they were allowed to be members at all, frankly. But, that’s a personal opinion garnered from the data I gathered on YTB’s business operations and compensation package.
I can read, research and make an educated decision on whether I want to become a part of a company. So can anyone else who can sign on the dotted line. Why are the people who invested in a poor business model not being held accountable for a poor business decision instead of placing the blame on an association?
It’s easier to blame the association for failing to bail out other’s poor decisions.
Comment by Interested — August 12, 2008 @ 12:27 pm
We recognize that SPE generates revenues from dues - most organizations due - the point was that we are unaware of ANY organization which takes a percentage of its members gross revenues generated by direct sales only.
The DSA model is one where members must pay a percentage of gross sales generated by direct sales - so yes, all of the revenues derived by distributors is what is being used to pay the DSA dues. Revenues the company generates outside of its distributors are not valued for membership purposes.
I think the point is being missed here. In the case of Weekenders, a percentage of every dollar earned by the distributors went to the DSA so that Weekenders could be a member of the organization. It can be safe to presume that a reason that a person choses to work with one direct selling company over another is because they are a member of the DSA and give a lot of value to that screening process which the DSA puts its companies through. So if you were a distributor whose efforts went to go subsidize that membership and then turn to the DSA and there is no information available to you at all - how can that be considered fair when it was your work and percentage of revenues which went to the organization while it was still running?
People typically dont chose to opt into poor business models but if it was a poor business model, why did the DSA accept them as a member? The association has a responsibility to the distributors whose money they take as part of the member company to ensure that its a sound business - otherwise, why do you need a year grace period before you are accepted? What’s the point? If there is going to be zero accountability on behalf of the Association, what value is it truly providing to the people who are funding it?
How can you not hold the DSA accountable for the actions of its member companies when the DSA is the one who determines who is accepted and who is not? It would be the same for any organization and its members. And if that Association is responsible to preserve the integrity of the distributors who are funding it, why isnt there stronger criteria as to who remains a member and who gets kicked out? YTB has complaints against them to the BBB in 33 States!!! and a lawsuit from the State of California…yet they are still an active member of the DSA with no visible mention of their membership being in jeopardy. Why? well logic will dictate that if the company is still making money (which it seems to be making a LOT of) and a percentage is going to the DSA, why would the DSA kick them out and lose out on that revenue? The system doesnt appear to protect or serve the interests of those who are indirectly funding its operations.
Comment by Steven — August 12, 2008 @ 12:47 pm
Interested - how can you not hold an organization that has a screening process of its members any responsibilty for that members actions? What is the value of the organization if it has no responsibility of its members?
Comment by Confused — August 12, 2008 @ 1:05 pm
I will agree that I think the DSA’s decision to allow YTB to be a part of them was a mistake, as I noted above. I will not defend their actions on YTB. I’m speaking in general terms.
Almost every organization has a screening process, Confused, as a way to ensure its members are protected. I can name several organizations that screen - SPE was merely an example.
As with EVERY other organization with dues that Companies are members of, yes, every dollar generated by said Companies’ employees, salesforce, etc. goes to the Company dues for that membership. This is true of every organization said Company chooses to be part of, not just the DSA.
I’m confused as to why the DSA is required to police the direct selling industry. Isn’t that what we have laws for?
Comment by Interested — August 13, 2008 @ 5:37 am
Interested,
Unfortunately, I disagree with you that EVERY organization’s dues are based solely on the revenues generated by a companies sales force. In fact, that is not remotely accurate. Companies generate revenues through various business objectives and I have yet to see an organization whose membership fees are a percentage of gross sales of its member company’s sales team. Please name one in the US. I think you will be extremely hard pressed to do so.
If an Association is going to collect dues based solely on the efforts of the member company’s distributors (which the DSA does) then it is our opinion that they have an obligation to those people who are paying those fees. Keep in mind, the DSA does not collect total gross revenue from a member company but ONLY of its Distributors.
We never suggested the DSA should “police the direct selling industry” but if you are going to impose a 1 year moratorium on a company and require them to meet certain guidelines in order to be accepted - and then take a percentage of their revenues - how can you not be expected to monitor those companies you are requiring to meet such stringent requirements and then take a percentage of their revenues as well? And to top it off, if the general public is looking for that DSA stamp of approval, do you not have some ethical responsibility to people who both enroll in such member companies and purchase from them to offer them some semblance of information and security? Otherwise, pleas answer this…what is the point of the DSA to its members (and their distributors) and to the general public as well?
And PS…YTB isnt the only company that is going through the mess it is. We have been informed there are other companies which are members of the DSA which may in fact attract the same attention from government agencies.
Comment by Steven — August 13, 2008 @ 1:46 pm
Steven,
I decided to review membership dues for several major trade associations. In total I reviewed about 6, and all of them based their dues structure based on the sales/revenue of the organization. As an example:
AHAM – Association of Home Appliance Manufacturers:
http://www.aham.org/ht/d/sp/i/1618/pid/1618
Dues for each Division are based on Annual Sales of product in the United States.
NEMA – National Electric Manufacturers Association:
http://www.nema.org/about/members/application/index.cfm
All members pay a base membership fee of $3,000 per year, in addition to a section-specific fee for service, which is calculated on a formula based on annual product sales.
ABA: American Booksellers Association:
http://bookweb.org/membership/join/regular.html
Businesses in operation for a year or more pay dues based on Total Company Book Sales for all locations plus a one-time processing fee of $25. Money that is initially earned by the sales force.
National Restaurant Association:
http://www.restaurant.org/join/signup.cfm
And again, fees are based off of sales, of the waiters, waitresses and bartenders (aka sales team)
Certainly the ABA and Restaurant associations are clear examples where income is earned only through the sale of products and dues are based off of the revenue brought in by the sales force. One could make the same arguement about the other associations that I listed.
While certainly not a thorough study, if the 6 out of 6 that I reviewed were all based on sales revenue, it would seem to indicate that that DSA’s meathod for calculating dues is not out of the ordinary. DSA calculates dues based of of income earned from the company’s direct selling activities, again, similar to other trade associations. I am not a lawyer, but I would assume this is a legal requirement for their non-profit, trade association status.
You asked: “Otherwise, pleas answer this…what is the point of the DSA to its members (and their distributors) and to the general public as well?”
The primary function of DSA (or any other trade association) is to lobby on behalf of its membership at the federal, state and local level. DSA has apparently been quite successful at stopping bills at the state and local level that could have been damaging to the industry (potentially decreasing sales in that area, or causing companies to cease operations in those areas. At the Federal level, they coordinated a massive campaign to voice objection to the FTC Business opportunity rule. For distributors, they demand that their member companies offer unused inventory buyback, and for consumers (and distributors), they offer a means for people to voice a complaint against a company (just like the BBB)
In reading some of your posts OpTree seems to have a negative bias against DSA (Rachel’s post on YTB indicates that DSA FINALLY posted comment on the litigation. What she failed to report was that DSA posted their comment 5 days before Rachel made her post), so I have to wonder what DSA did to deserve this negative bias? Did they not let you join their association?
Comment by Jen — August 13, 2008 @ 2:36 pm
Jen,
I appreciate your diligence but there seems to be numerous missing components from your position. First of all, the Restaurant Association is a FLAT FEE membership based on a range of TOTAL aggregate sales - NOT A PERCENTAGE of sales SOLELY by its sales force. That is a SIGNIFICANTLY different model than that of the DSA. In fact most of your examples are the exact same except the American Booksellers Association and to be quite honest, there is a reason that their membership is tiny and I dont think its fair to compare them to the DSA.
I also think there is something inherently missing about your summation with OpTree. We are very pro-the industry and cover it on an extensive basis more than any single site or combination of sites online today. We are the #1 resource online for timely information in this sector and are frequently showcasing the positive aspects of the industry - but also provide insight into some of the ugly aspects as well.
We have no bias against the DSA but feel it is important to bring to light certain questions and facts and let others form their own opinion as we are entitled to ours. We also believe that the Association should have greater corporate governance and provide more resources for the Distributors who fund their operations. As for the post about DSA finally making a comment about YTB - I truly hope you are not relying on the date of the press release as the date it was put on their website..Did you ever see anything posted on Weekenders? No.
As another point of clarification, we have NEVER applied to be a member of the DSA, nor inquired about if we could as we have no reason for joining.
It should also be pointed out that in some of the examples you referenced, there are NUMEROUS services provided by those organizations to its members (and workers of those member companies). In the case of the Restaurant Association, there is training, career opportunities, credit card processing, discounts for workers comp and health insurance etc. Unfortunately, I dont believe you are comparing apples to apples.
Again the fundamental question is this…since the DSA collects a percentage of gross revenue solely derived from Distributors, why doesnt the DSA provide more protection for those who are funding its operations? I still offer a challenge to find a single Association in this country which states it only generates revenues solely from its Distributors and not total gross sales. In every example you gave, it is based on total gross sales - that is NOT the DSA model.
I also dont believe comparing the DSA to the BBB is accurate. In fact, why doesnt the DSA monitor information that is given to the BBB on its member companies? YTB has complaints against them in over 30 states and yet are still an active member of the DSA paying dues?
Here is another question - why doesnt the DSA offer greater transparency into the percentage of dues they collect? It would seem that good corporate governance would dictate providing that information to the public - as many of your examples do. In fact, try calling the DSA to find out what the percentages are and see if they give them to you. I am not sure you will have any great success in getting that information. So an Association that collects a percentage of earnings from millions of distributors wont reveal how much of a percentage they are collecting. Seems a bit interesting.
Comment by Steven — August 13, 2008 @ 5:55 pm
Jen - do you work for the dsa? seems like ya do. Why doesnt the dsa support distributors more if they are the ones paying all the fees.
I think the opinion makes a lot of sense.
Comment by JJ — August 13, 2008 @ 6:16 pm
Steven - how about a comparison with the BBB, since Jen’s suggestions are, according to you, non-applicable?
The BBB has member companies, but you would not hold them accountable for companies closing, would you? Would they also be under fire for failing to provide for the employees/salesforce of one of their member companies?
Why should the DSA offer “greater transparency”? They are not beholden to you for any sort of explanation, and, in all honesty, I think your demands are both counter-productive and ridiculous.
Perhaps there should be a separate association devoted only to the salesforce of the direct selling industry. Maybe then distributors CAN actually make a choice about whether to join and pay the dues themselves.
However, that will not exempt companies from becoming DSA members.
Oh - one more question - what about Internet orders that are not attributed to any particular consultant? Many direct selling companies now offer this method of purchase. Perhaps those payments could be slated for DSA dues, thereby satiating your need for blood.
Comment by Interested — August 14, 2008 @ 9:11 am
Interested,
Since when does the BBB take a percentage of gross revenues from its members? Again, the BBB is NOT solely funded based on the revenues derived from its members distributors. There seems to be an attempt to draw comparisons to non-like examples.
The DSA should - in good corporate governance - provide greater transparency to the individuals who fund its operations! Are you suggesting that the MILLIONS of distributors whose efforts go to subsidize an Association solely on their efforts shouldnt be afforded transparency? It has never been suggested nor insinuated that the DSA should be beholden to “me” at all but it absolutely should be to those that fund their operations.
Why is there a need for a separate association when the distributors are already funding the DSA? Your solution would just mean even less money to the distributors - How would that be just?
Your comment about a “need for blood” shows your perspective pretty clearly. All we have stated are FACTS that this Association collects its dues based solely on the efforts of a members Distributors. It is our opinion that the Association should have an obligation to those who are funding its organization and not absolve themselves of any direct responsibility since they are taking their money.
You think it’s right that they continue to take money from YTB’s sales when they are being sued for fraud by the State of California and have complaints against them in over 30 States to the BBB? Come on, that is egregious! All the DSA is potentially doing is putting themselves in a situation whereby they are accepting monies that to fund their own operation which may in fact have been obtained using fraudulent means. No need for blood - those are indeed facts.
Comment by Steven — August 14, 2008 @ 10:10 am
As a disturbitor I really had no idea that we were the ones who were funding the DSA. After reading this and the DSA site, I completely agree that the association should provide more to us since we are paying their salaries.
If More reps knew about this they would feel the same way.
Comment by disturbing selling association — August 15, 2008 @ 3:12 pm
Looks like another one of their member companies is going out of business. Really makes ya wonder about this association.
http://optree.com/home-interiors-and-gifts-going-out-of-business-seeking-to-sell-off-its-entities/
Comment by Carl Williams — September 23, 2008 @ 4:28 am