How Does the MLM Business Model fit, work and exist in the Travel Industry?
Written By: Tom Ogg, Co-Owner – FindaHostTravelAgency.com
MLM’s have been around the travel industry since the early 1990s. After the Airline Deregulation Act took full effect in the 1980s the entire travel distribution system was turned on its head. The organizations that controlled travel agents, the CAB, ATC and IATA were all disbanded and were replaced by the ARC, or Airline Reporting Corporation. While ARC continued on with the appointment of travel agents that were seeking the opportunity to be in the airline ticketing business, non-ticketing leisure agents were simply overlooked by ARC.
This created a vacuum that spawned the growth of niche associations like NACOA, OSSN, NACTA and others. It also created the environment that propelled host agencies to evolve into the large organizations that they are today. And, it created the opening for the MLM business model to enter the travel industry. The 1990s in the travel industry was truly a unique period. Orthodox store-front travel agents viewed their home-based counterparts as unprofessional and not real travel agents. To make matters worse, MLMs, or “Card Mills” generated tens of thousands of card carrying consumers pretending to be travel agents that were clueless about how to sell travel.
The first MLM travel companies were nothing but complete scams. One duplicated the “industry IATAN Travel Agent ID Card” and sold tens of thousands of them. Travel MLMs were opening everywhere and then failing costing consumers quite a bit of money. It got so bad that in March, 1997 the Federal Trade Commission actually raided a travel MLM company in Irvine, California and shut them down seizing all of their books and records. In the ensuing negotiations between the FTC and World Class Travel Network (the defendant) a settlement agreement was reached in May of 1997. Unfortunately, the settlement agreement spelled out exactly how one could start a travel MLM legally. This was just the opposite of what the travel industry wanted.
So, What Exactly is a MLM, or Multi-Level Marketing?
Here is how the FTC explains a MLM. “MLM companies sell their products or services through person-to-person sales. That means you’re selling directly to other people, maybe from your home, a customer’s home, or online.
If you join an MLM program, the company may refer to you as an independent “distributor,” “participant,” or “contractor.” Most MLMs say you can make money two ways:
- by selling the MLM’s products yourself to “retail” customers who are not involved in the MLM
- by recruiting new distributors and earning commissions based on what they buy and their sales to retail customers. Your recruits, the people they recruit, and so on, become your sales network, or “downline”. If the MLM is not a pyramid scheme, it will pay you based on your sales to retail customers, without having to recruit new distributors.
Most people who join legitimate MLMs make little or no money. Some of them lose money. In some cases, people believe they’ve joined a legitimate MLM, but it turns out to be an illegal pyramid scheme that steals everything they invest and leaves them deeply in debt.
The reality is the MLM, or Direct Marketing, as it is also known is a viable marketing strategy in many areas of commerce. Rather than investing in a salaried sales force, a company can choose to elect a MLM distribution network. The critical elements that must exist in a MLM distribution system are the following. There must be enough profit embedded in the product pricing to make it viable. Ease of sale is mandatory for an MLM to properly work, as most distributors will have a very low knowledge of the actual industry they are competing in. Fulfillment of the sale should occur instantly and settlement should also be immediate.
Categories such as beauty, health and wellness and home care products make up the vast majority of MLMs. These products have every element necessary for a successful MLM. Typically, someone in the MLM will recruit a new MLM distributor who will invest in some inventory to sell to their friends and neighbors. The term “Multi-Level” refers to the fact that the revenues from sales and recruitment are generally paid to the various levels of distributors. The person that started the MLM gets a portion, as does the person they recruited on the first level. Both the person that started the MLM, the person on the first level all make money when someone is recruited on the second level. And, so it goes. Everyone makes something when each new distributor is recruited in their “Downline” or sales are made by people that somehow are related to their “Upline”. This is how MLM sales people tend to hook new distributors. They claim that there is unlimited income to be made from the people that you recruit into the business.
Unfortunately, it is estimated that 73% of MLM sales people either lose money or make absolutely nothing for their efforts. The people that tend to make money from an MLM are the founders and those at the very top. Fortunately, reputable MLMs will provide investors with an “Income Disclosure Statement” that shares details about what income one can expect working through the MLM organization. We will look at these statements from some of the larger travel MLMs later in this article.
So if MLMs are Viable Marketing Strategies, What’s Wrong With a MLM in the Travel Industry?
Remember the elements that make for a productive MLM as stated above? Let’s go through them as they apply to the travel industry.
Travel is an extremely low-profit business. This is especially true if the agent is new and unfamiliar with the ins and outs of the travel industry, which virtually all MLM agents are. There is simply not enough yield in the typical travel sale to cover the cost of operating the MLM, which is why most MLM have ongoing fees attached to their agreements.
Ease of Sale
Even the most simple sale of say, an airline ticket, hotel reservation or car rental requires specific knowledge to make it happen effectively. Selling travel requires a good amount of operational knowledge. Virtually all MLM travel agents simply do not have nor will they acquire sufficient knowledge to effectively market travel.
Fulfillment of the Sale
Essentially all successful MLM companies provide their affiliated distributors with inventory that they sell from. When a sale is made, the distributor then fulfills the transaction on the spot to complete the transaction. Travel, on the other hand takes weeks, months and sometimes a year, or more to complete a transaction. During the process there may be changes and cancellations that will take additional time to complete the transaction and require support of the travel MLM organization to complete.
in the typical MLM, settlement occurs when an existing distributor sales a new distributor who then buys his inventory to start selling. The money earned from the sale of the inventory is then distributed to the up-line involved with the distributor. This makes the process of settlement extremely easy. In the travel industry however, settlement may not occur until months after the completion of the travel when the supplier of the transaction then pays the commission to the MLM organization. That commission is then tracked down to the affiliated agent and distributed to their up-line. This becomes an accounting nightmare and is simply not conducive for a travel MLM.
As you can easily see, it should be obvious that travel MLMs are not viable business opportunities based on the sale of travel only. You have to ask “So why are they still around?” Being an MLM, most of the revenue comes from recruiting new members and that is one of the motivators for people to join. The other motivator is the “fabulous travel agent benefits” that members can receive.
The Travel MLM Pitch
Travel MLMs have a great pitch which claims that the MLM travel agent will be able to access valuable “travel agent discounts” with an MLM id card. This pitch is effective with people who do not know the travel industry and are relatively naive about travel itself. I mean, it might make sense to the uninformed that hotels, resorts, cruise lines, airlines, all-inclusive, theme parks and other travel venues would want to make travel agents familiar with their products and services so that they could offer them to their clients. Some MLMs go so far as to say that members will get discounts for simply talking about their experiences online or person to person. Of course, this is all nonsense.
Many MLMs offer their “opportunities” at formal meetings where others may also be in attendance. In this scenario there is a ringer in the audience that shares the fabulous discounts they received during their European trip that they just returned from. “We showed the agent at the ticket counter our id card and got upgraded to first class. When we checked into our hotel in London, we showed our id card and got upgraded to the honeymoon suite and they sent us a bottle of wine and some appetizers. And, on it goes. Of course, none of this is true, but to the uninformed, it sounds great.
Some MLMs offer “travel clubs” where the members supposedly get huge discounts by booking the “MLM’s special rates”. Again, the whole idea of the MLM is to recruit as many people as possible. So let’s take a look at the reality of travel MLMs and what to expect.
Income Disclosure Statements
As mentioned before, most reputable MLMs will provide you with an Income Disclosure Statement that details the reality of what people are actually earning. Here are the results for several Travel MLMs.
InteleTravel – PlanNet Marketing
InteleTravel has been around for quite a while. It costs $179.95 to join and then $49.95 per month or roughly $600 per year to be a member. InteleTravel’s compensation plan for the U.S. is based on how many new members (ITAs) you can recruit. Selling travel is simply incidental to earning money with InteleTravel. So how much are agents with InteleTravel earning? Here are the numbers from their 2020 disclosure statement.
- 77.40% of InteleTravel members earned absolutely no money for the entire year.
- 97.68% of InteleTravel members earned an average of $154.14.
WorldVentures has also been around quite a while and has been the subject of several investigations over the years. The most recent Income Disclosure Statement ended on June, 2019. When you research their compensation plan you are likely to get a headache. The entire focus is o recruiting new members. After filing chapter 11 bankruptcy in December of 2020, they subsequently got an investment to work their way out of bankruptcy.
- 85.4% of WorldVentures members made absolutely nothing for the entire year.
- Currently some WorldVenture members are suing to recover unpaid commissions.
Here is another recruiting scheme with a complex compensation plan that has both current and deferred income streams depending on how many new members are sold. At a cost of $99 per month after a $495 start up fee, this is not an inexpensive program.
- 70.35% of Surge365 members made absolutely no income for the year of 2020.
- The average income for all members was $497.13
This is just a sampling of travel MLMs, but there are certainly more out there. Unfortunately, they do not publish income disclosure statements. My advice is if you are thinking about joining an MLM, really put a lot of thought into it. For a lot less money, you can start your own home-based travel business and actually make money, rather than throwing it away. And, if you are currently involved with an MLM, look seriously into moving into your own travel business selling travel rather than recruiting people.
MLMs and Travel Benefits
At this point, you are probably wondering why anyone would spend money on a business that makes absolutely no money, as the vast majority of travel MLM members do. If you watch the recruitment videos for travel MLMs you will see that the entire focus is on the supposed fabulous travel benefits and discounts that their members will receive. Of course, this is all sizzle and very little meat.
MLM Business’s travel sales are generally “sales-to-self” or normal consumers trying to access either travel agent discounts or commission discounts on their own travel. This is verified by the extremely low sales per MLM member and the fact that the vast majority do not make any income for entire years. Given that major travel suppliers such as Royal Caribbean Cruise Line and others refuse to do business with some MLMs should pretty much tell the story. Travel suppliers sell their products to consumers at full price, which is why this phenomenon has taken place. They are not eager to discount their products because one of their consumers has joined a MLM Business.
Further, the day is long gone when travel suppliers might offer a discount to someone with a business card that says “travel agent”. The truth is that discounts are offered to travel agents, but they are based solely on productivity and relationships. If obtaining travel benefits is what you are after, you are much better off working with a quality host agency and selling travel within a niche. I hope this helps you find your way.