What is the name of your state (only U.S. law)? Texas
I run a local consulting company in Austin, Texas. We normally charge between $500-$2000 per month to business owners for consulting. Over the past few months I have been looking into ways to expand our business and was interested in setting up a referral program. I'm hesitant to call it an "affiliate program" like many online companies since most of them just allow anyone to join, whereas we would individually be approving applications to ensure our brand was properly represented by qualified individuals.
In an effort to make sure our brand is properly introduced, I would like to limit access to our referral program to only current customers. By doing this I feel that it will have a lot more impact since the people they are referring know they have actually used our services. What I would like to do is charging a flat rate monthly fee such as $25/month to people who are also apart of our referral program. This would cover their support as a member of the referral program, extra promotion tools we give them, the backend area for tracking their referrals, and so on.
At first I didn't believe there would be any issues with this business model but after a bit more research it does appear they may be an issue that I was hoping to get some clarification on for you legal gurus. It looks like the FTC doesn't like it when businesses charge people to basically be a representative and also require them to be an active customer. While I do understand this somewhat, it seems like that applies more towards people running MLM companies. But of course the last thing I would want is to run into issues with any federal or state regulators.
The only way that I could see this looked at in a negative light by them is if they see I am charging $500/month to customers and if they want to be apart of the referral program, they also have to pay an additional $25/month. By doing this it would technically make it possible for anyone to join as a customer just so that they could have access to the referral program and earn 10% recurring commissions. Basically people could start selling the opportunity to make money from my referral program, instead of selling our actual services - this was explained to me by a friend who is involved in MLM related companies and websites.
From what I've read on the FTC's website is that something is considered a pyramid scheme if there are more people apart of the opportunity to send referrals than there are people who are only customers, but something doesn't seem right to me about that. The reason I have a feeling that I'm misunderstanding that is simply because I am working with business owners who are constantly networking with other business owners. Pretty much any customer of my company could benefit from referring fellow business owners for just $25/month and I am estimating about 70% of them will choose to join the referral program (since referring just one other business owner will cover their monthly fee for being apart of the program).
NOTE: this would only be one level deep. You only earn money from people joining to become a customer and you earn nothing extra if they also become part of the referral program.
If anyone could help shine some clarity on this from a legal standpoint, that would be awesome!
I run a local consulting company in Austin, Texas. We normally charge between $500-$2000 per month to business owners for consulting. Over the past few months I have been looking into ways to expand our business and was interested in setting up a referral program. I'm hesitant to call it an "affiliate program" like many online companies since most of them just allow anyone to join, whereas we would individually be approving applications to ensure our brand was properly represented by qualified individuals.
In an effort to make sure our brand is properly introduced, I would like to limit access to our referral program to only current customers. By doing this I feel that it will have a lot more impact since the people they are referring know they have actually used our services. What I would like to do is charging a flat rate monthly fee such as $25/month to people who are also apart of our referral program. This would cover their support as a member of the referral program, extra promotion tools we give them, the backend area for tracking their referrals, and so on.
At first I didn't believe there would be any issues with this business model but after a bit more research it does appear they may be an issue that I was hoping to get some clarification on for you legal gurus. It looks like the FTC doesn't like it when businesses charge people to basically be a representative and also require them to be an active customer. While I do understand this somewhat, it seems like that applies more towards people running MLM companies. But of course the last thing I would want is to run into issues with any federal or state regulators.
The only way that I could see this looked at in a negative light by them is if they see I am charging $500/month to customers and if they want to be apart of the referral program, they also have to pay an additional $25/month. By doing this it would technically make it possible for anyone to join as a customer just so that they could have access to the referral program and earn 10% recurring commissions. Basically people could start selling the opportunity to make money from my referral program, instead of selling our actual services - this was explained to me by a friend who is involved in MLM related companies and websites.
From what I've read on the FTC's website is that something is considered a pyramid scheme if there are more people apart of the opportunity to send referrals than there are people who are only customers, but something doesn't seem right to me about that. The reason I have a feeling that I'm misunderstanding that is simply because I am working with business owners who are constantly networking with other business owners. Pretty much any customer of my company could benefit from referring fellow business owners for just $25/month and I am estimating about 70% of them will choose to join the referral program (since referring just one other business owner will cover their monthly fee for being apart of the program).
NOTE: this would only be one level deep. You only earn money from people joining to become a customer and you earn nothing extra if they also become part of the referral program.
If anyone could help shine some clarity on this from a legal standpoint, that would be awesome!
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