Business Practices Committee Report 75Alpha Club5. The Commission Structure |
The commission structure of MFS, trading as Alpha Club, was similar to that of Newport. To explain the composition of the commission structure, the following is quoted from a document which the Committee received from Alpha:
| 1) | "The R16 000 (13) payment made by you is your non-refundable capital contribution in your partnership with Marketing For Success (Proprietary) Limited ("MFS") |
| 2) | By entering into the partnership you will acquire ordinary (Silver) membership of Alpha Club and the benefits and discounts that it offers. (A copy of the current rules of Alpha Club is attached.) Full details of such membership and the benefits accruing to you will be explained to you in more detail at presentations. |
| 3) | Once you have entered into the partnership you are entitled to earn commission by selling Alpha Club memberships. The commissions payable are illustrated by the following steps, keep in mind that each new partner pays R16 000 and R5 000 of this amount is earmarked by MFS for commissions on the sale Alpha Club memberships. The amounts to be deducted in respect of income tax are ignored because the effect on each partner will be different, depending on the marginal tax rate of that partner. |
| 4) |
| (1) | STEP ONE - You become en commandite partner and purchase an Alpha Club membership by paying R16 000. You are now a Silver Member. R5 000 of the R16 000 paid by you will be paid to the Silver Member and/or the Group Member who sold you your Alpha Club membership. |
| (2) | STEP TWO - Should you sell two new Alpha Club memberships, you will receive a commission of 53 000 for each new members sold. You then become a group member. You do not receive any further commissions from the initial two memberships that you sold or the people that they sell memberships to. |
| (3) | STEP THREE - You are now a Group Member. For each Alpha Club membership sold directly by you, you will receive a commission of around R5 000. |
| (4) | STEP FOUR - You will receive a commission of R2 000 out of the R16 000 capital contribution for each new membership sold by your Silver Members. |
The steps set out above are merely a basic outline of the operation of the business and further comprehensive details will be furnished to you on request and in any event at the business and marketing development programmes held by MFS each week.
| 5) | Note that MFS retains R11 000 of the R16 000 paid and applies it inter alia in meeting its sales management costs as described in paragraph 4.4.4.5 of the En Commandite Partnership Agreement and administration expenses, employment costs and including, without limitation, payment of the licence and/or franchise fees payable to Alpha Club licensor. |
| 6) | In addition, 10% of all commissions accruing to you from "indirect sales" shall for all purposes be deemed to be earned by and accruing to the partnership and shall be dealt with by MFS in furtherance of the business of the partnership". |
In an example the accrued earnings in a nine-month time frame, assuming that members made only one new sale of membership per month, was stated as R134 000. The commission structure was more or less similar to the structure that applied to Newport.
| 13. | The R16 000 had to be paid in cash. Newport members also had to pay cash to become members. |