Travel MLMs: What You Need to Know

We’re about to get a little bit controversial here and chat up on travel Multi Leveling Marketing (MLM) businesses , and how they differ from host agencies. Our goal is to make sure that people that want to become bonafide travel agents don’t end up with a travel MLM. We want to help agents differentiate between full-service travel companies and travel MLMs.

Before I launch in, I want to say that this truly is not a “host vs. MLM face-off” or anything of the like. No way. We’re all about peace, puppies, yummy green matcha drinks, and trumpets over in our neck of the woods. 

You know that girl that sits on her porch the first day of summer and plays Summertime on her trumpet for all the neighborhood? 🎺 Oh, well now you do!Happy First Day of Summer, everyone!! So happy I'm having a good day so I can properly celebrate. 🙂

Posted by Steph Lee on Wednesday, June 21, 2017

 

Our goal is to educate and make sure people understand the business they’re entering into. Host agencies and MLMs are two different types of businesses. I’d say they’re like apples and oranges, but it’s really more like apples and elephants. (Not sure what a host agency is? Read this.)

But we do want to take a moment to discuss these differences, because every so often an aspiring travel agent stumbles into a travel MLM opportunity thinking it functions like a host agency. But that’s just not the case. So the goal here is to figure out some of these differences to make sure you’re finding the support that is the right fit for you and your travel agency.

HAR Shares Their Feelings On Travel MLMs

Let me cut to the chase: If you are a travel agent or an aspiring travel agent who wants to earn money planning trips and selling travel, we here at HAR do NOT think a travel MLM is a good option for you. No siree. Not by a long shot.

The HAR crew has mind-melded on the travel MLM issue. We recently decided not to list MLMs on Host Agency Reviews. We talked about it, but we’re not gonna do it. Not because we’re meanies, but because it’s of the HAR mind-melded opinion that the MLM business model uses deceptive advertising, preys on people who are at an economical disadvantage, does not provide adequate support to serious travel agents, and that it verges waaaay too far from the host or franchise model for it to make sense for us to list them.

If you want to be a bonafide travel agent, I suggest you go directly to our 7-Day Setup.

At the end of the day, we cater to readers who want to focus on selling travel, not subscriptions. What do I mean by that? Well let me back up and explain.  

What Is A Travel MLM?

MLM marketing is also called “network marketing” and “direct sales,” so if you see a website throwing around that terminology, they’re probably talking about an MLM business model.

An MLM gets real shady when it makes more money by recruiting other sales reps into the organization than it does actually selling a product (in this case travel). This is entering serious pyramid scheme territory. And that’s a major DANGER ZONE folks.

Like any other MLM, travel MLMs have two revenue streams for its members: 1.) commissions from selling a product (in this case travel) directly to clients. 2.) commissions, overrides, or kickbacks on membership sales from recruiting others into the organization.

Travel-MLM-pyramid-schemeIn travel MLMs, the dominant revenue stream is from selling memberships to recruits not commissions from selling travel. The recruits are considered the “downline,” and travel MLMs will try to entice you with promises of residual (or passive) income from the levels  of your downline (*cough* pyramid scheme) as they also recruit to grow your downline. 

You know how in most sales situations, you make the bulk of the commission on the product? Well, with MLMs, the people above you are the ones raking in the dough. (*cough* pyramid scheme).

What makes a travel MLM different from other MLMs (like Amway, LuLaRoe, Herbalife, etc.) is that reps don’t have have to buy any product to sell like leggings, makeup or vitamins—though, oddly enough, some travel MLMs do also try to push selling vitamins and energy boosters! In some ways, not having to buy products makes a travel MLM less risky in terms of financial investment (but not without risk).

What travel MLMs do have in common with other conventional MLMs is the high rate of failure. According to MLM expert, Robert FitzPatrick, “A statistical analysis of income disclosures made by 10 major multi-level marketing (MLM) companies and the largest of all MLMs, Amway/Quixtar, reveals that, on average, 99% of all participants received less than $10 a week in commissions, before all expenses.” 1

The study covered 10 publicly traded MLMs at its time—including the now-defunct travel MLM, Your Travel Business (YTB). What’s different about MLMs today is that most of them of are not required to publicize their income disclosure statement (they’re not publicly traded), but even those that do (in the name of transparency), present a pretty grim picture when it comes to income potential. 

For example, travel MLM WorldVentures reported that 77.8% of its reps earned nothing or operated at a loss. The average annual earnings of a WorldVentures rep was reported at $300.85, but the annual cost to join WorldVentures is a minimum of $351.87 in its first year. 2 

Yikes. Oh, but there’s more. 

Below is an infographic that reveals the of earnings data based on three travel MLMs that publicized income disclosures (unsurprisingly, many travel MLMs do not).

As you can see from the infographic, WorldVentures dismal income potential is not the exception, it’s the norm. But despite the grim earnings outlook, the disclosures mask comprehensive data that points to even more dismal income potential.

A Note on Income Disclosures

In a study of 400+ MLMs conducted by Jon M. Taylor, PhD  he warned that,

Prospects should ask their recruiter to furnish the company’s attrition (dropout) rate; i.e., the percentage of recruits who sign up only to drop out within a year – and over a five or ten-year period. If they can’t or won’t furnish it, you can assume that it exceeds the minimum of 50% per year, which we have found where such data is available. Over a five-year period, at least 95% typically have left the company; and usually after ten years, nearly all but those at or near the top of their respective pyramids will have dropped out.” 3 

Herein lies the illusion of transparency when it comes to a travel MLM’s income disclosure: As bad as the disclosures look already, it gets even worse. The info included does not (and is not required to) offer to a complete picture of earning potential of MLMs, which can further masks losses. 

These disclosures in particular do not include information such as: 

  • Churn Rate & Attrition: How quickly reps turnover and leave the MLM. The data may only include the number of reps who are still signed on with them at the end of the disclosure period, and does not account for the number of reps who left within that time frame. 
  • Total Number of Distributors at Different Levels of the Organization: This masks the total number of reps and distributors in general, then further obscures the data by not revealing how many reps sell at what level. How does this affect things? It skews the average income of the typical rep since the income spread between the bottom and top of a pyramid scheme can be significant (hundreds of thousands or even a million).
  • How Much Income is from Travel Commissions: The data also does not disclose what percentage of the income earned is from actual travel commissions (vs. residual income from referrals).
  • Definition of “Active” Distributor: Is active defined as someone that has sales during that period? Or any distributor paying fees? We have no idea. 

And this is really just the tip of the iceberg. There’s a ton of other juicy information that many MLMs (not just travel MLMs) conceal in these types of statements. 4

How Did Travel MLMs Start Getting a Bad Rap?

The shady reputation of MLMs certainly is not limited to the travel industry, but when it comes to travel MLMs in particular, it was the rise and fall of YTB (Your Travel Business) that really left a bad taste in the mouth of the travel industry.

Long story short: YTB was modeled after a typical pyramid scheme structure that preyed on hopes of those who were economically vulnerable with promises of get-rich-quick schemes that required little time and relatively low financial investment.

At the time they shut their doors, 85% of YTB’s revenue was from selling memberships and materials for marketing courses to new recruits rather than travel sales. This from a company that had claimed you were a travel agent!

And there’s more … guess how much the average YTB rep earned each year? The average annual commission paid to a YTB rep was $44.29. Sounds bad, right? Well it gets worse, because 81% of all YTB reps earned no money at all, and 4% of YTB reps (those at the top of the upline) received 96% of all commissions paid to the company.

Ouch.

And the travel MLMs’ habit of primarily booking personal travel (rather than travel for consumers) is something vendors noticed. Vendors felt that non-professionals were exploiting travel agent benefits (such as FAM trips) for personal gain. So much so, that many travel vendors severed ties with YTB.

TW image sources here, here and here.

YTB was subject to lawsuits from CA, IL, as well as a class-action lawsuit and eventually went bankrupt. But the vestiges of YTB exist today in modern-day travel MLMs. The founder of YTB (J. Lloyd “Coach” Tomer) is now the Chief Visionary Officer for Surge365.

David E. Manning was president of now-defunct Travelworks International, Inc. and is currently the president of Paycation (which now shows up as TraVerus, over which he also presides) and he is also the chairman of XStream travel. All of these are travel MLMs.  5

MLMs will often run strong for a few years, but implode once they get too big to sustain themselves. The MLM will then close its doors and the founders will start a new one, or rebrand and operate under another name. 

Travel MLMs Today

Travel MLMs were something of an uncharted territory for me. So when I started by digging in to the Google-verse, I was surprised to find how little concrete information was provided about joining a travel MLM organization on their sites. They offered little to no concrete info about commissions, backend support, Seller of Travel (which you need if you’re selling travel in certain states), E&O insurance—not even basic information about joining without signing onto their email listserv or participating in a sizzle call. By and large, they offered a lot of promises without any information to back it up. 

My search for the travel MLM Paycation redirected me to the site TraVerus which included zero information listed above. Instead it has a video that promotes deeply discounted travel in pursuit of a lifestyle that allows for all the time and money you need to travel all you want. And, let’s be honest, who doesn’t want that!? It also promises, “the richest compensation plan in the direct selling industry” without offering any data to back it up. Suspicious, if you ask me.

Travel MLMs have gotten smarter. No longer will they make promises of how much income you can earn in a month (because, according to the FTC, they need to be able to provide support of any income claims 6). Rather, they make appeals to lifestyle and promises of free or discounted travel. 

This “Your Travelution” promotional video clip outlines some of the misleading and manipulating marketing strategies travel MLMs will use to try and recruit members:

Halfway through the TraVerus video below, it attempts to sell you on a nutritional supplement (another MLM product), which reps, in turn, would sell to others—verging from its original appeal and trying to woo you with promises of feeling and looking great while you lounge on the beach. 

When I visited the Surge365 site, a travel MLM launched in 2015, you have to attend a “sizzle call” to get any concrete info on joining. When I checked out their Founder’s Circle, only 1 of the 22 founders mentioned any travel agency experience in their bio. The rest had either come from an undisclosed travel company (cough, cough, probably another MLM) or had a non-travel related background. Odd for a company that purports to sell travel.

Some travel MLMs such as WorldVentures do not allow their reps to book directly with vendors. Rather, vendors require that travel bookings are made through a designated MLM HQ, where the MLM permanent staff (not any of its members) make the actual booking for agents. This may sound nice but the downside is that you’re not in control of your reservation. This is problematic if you sign on believing you’ll be able use vendors’ travel agent portals, call in direct to the travel agent support lines, and build a relationship with the sales reps.

Ultimately, I was just really confused. I was left with more questions than answers. Which I interpreted as “proceed with extreme caution.”

And The Oscar Goes to . . . A Travel MLM Mashup!

Steph put together a great travel MLM mashup video to illustrate exactly how MLMs and their reps operate by preying on vulnerabilities, making big promises with zero info to back them up, and how they eventually become saturated and collapse (yes, it’s essentially a more entertaining version of what I just wrote :)):

If you’re still not convinced, and you want to give MLMs a shot, the FTC has a resource page with some great questions to ask your sponsor before signing on with an MLM. 

How Is a Travel MLM Different from a Host Agency?

We’re pretty host-happy on the site. If you want a refresher on what a host agency is, this article is a good start. From there, I promise you that Pandora’s box of host agency info will be opened. With that in mind, we know that the host agency model is not for everyone. But we do think a it’s a pretty dang good option for new agents to consider.

But how is a travel MLM different from a host? At its most basic, the major difference is what comprises their revenue stream. Host agencies don’t earn money unless you sell travel (not so with a travel MLM, that makes more money from membership sales.) This means that hosts are motivated to support you to sell as much travel as possible.

In fact, if you are wanting to become a travel agent with a focus on creating a client base, receiving a constant travel education, building relationships with suppliers, and providing great customer service over recruiting other sellers, I’d steer you (far) away from an MLM and direct you to a host agency.

Is the Travel Organization I’m Considering an MLM?

That’s a good question, and we want you to know the answer. So we created a nifty quiz you can take if you’re unsure whether or not your travel company has the trappings of a travel MLM:


A Travel Agent Chats On Why He Switched from an MLM to a Host Agency

Chris Dowd

I spoke with Chris Dowd, independent travel agent and owner of T.O.T.O Vacation, about his experience with WorldVentures travel MLM and why he decided to go with a host agency in the end.

Chris was with WorldVentures for about a year, and mentioned he joined that MLM, “more for their personal travel program, rather than trying to sell travel.” Ultimately, Chris was disappointed in the expense and difficulty of booking travel with WorldVentures and decided to switch to a host agency in order to focus on selling travel.

Chris offered some really insightful and balanced reasons why he made the change, and chatted on the pros and cons of the MLM model. Here’s what he had to say (verbatim) about his experience:

The WorldVenture Allure

“They promised travel discounts: they would build packages for places that were off-peak . . . The problem I had with them, they would put out their best stuff on a Tuesday for 30 or 40 days in advance. To try and go to someplace like Costa Rica in 45 days is nearly impossible. So unless you were retired and could drop everything and get out and do it, it was very difficult to take advantage of the discounts.”

[Editor’s Note: Travel MLMs do not have access to exclusive deals and members do not get to travel for free.]

WorldVentures Focus on Membership Sales

“They did push selling memberships to others. It was more of a travel club. WorldVentures provided a lot of backend support for selling more of MLM stuff. So it was definitely focused on the MLM aspect. When you built your downline you got a piece of everything they brought in. You really got much more money just from the money people spent with the travel club. To be perfectly honest, I’m still friends with a couple of guys that have done very well with WorldVentures. They’re not making money selling travel, they’re making money on selling subscriptions.

Difficulties with Booking Through WorldVentures

“We booked an Alaskan Cruise through them and were really disappointed. It was very hard to make payments and hard to book it. You have to book through WorldVentures who would then contact the supplier . . . Because it was a cruise, you couldn’t book it through the [WorldVentures] website. There was a small commission of $50 and $60 between the both of us. I really had no control over anything. Now [with a host agency], I can go straight to the supplier and work all those details out. I have a lot more control over the end product and customer service product.”

How Going with a Host Helped Chris Focus on Selling Travel

“I love the training that I get with [my host agency]. They provide hours and hours of video training and online seminars. I have a personal mentor that I can call and ask questions to. They can push me in the right direction. I’ve contacted them on a couple of large speculative opportunities on how to book and how to market it. There’s there a kind of experience there that I can draw upon.

They really want me to succeed, not by getting more agents in but by selling travel. You know what. I really feel they feel their success is contingent on my success. It’s empowering to know that these people really want me to succeed. I’m paying about 20% of what I was paying through WorldVentures.”

What is Your Take on the Travel MLM Model?

Per usual, we’re curious about your thoughts on MLMs! What has been your experience! What surprised you and what more would you like to know? If you sell travel through an MLM, what has been your experience? Give us a holler in the comments below!!

PLUS . . . A very special thanks to John Frenaye for offering his expertise on travel MLMs!

 


Howdy!  Have we met? This is your fellow wanderer, Mary Stein. I’m a writer by trade, and a traveler in my heart and soul. I joined the Host Agency Reviews crew as its Editor in 2015. Since then, I’ve contributed writing to publications such as Travel Market Report, The Travel Institute, and Travel Research OnlineYou can learn a little more about me (and my pup) here. >>>

But enough about me! I want to hear about you and your journey into the industry! Feel free to drop me a line if you have any questions or if you just want to say hello!


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