There are two key parts to any sales process: convincing the potential customer to buy what you're selling, and then getting paid. What if there was a way to eliminate both of these steps from your sales cycle? What if you could just go ahead and send something to somebody and automatically get paid for it? That’s exactly what some companies are doing, and they're making a fortune. Welcome to the world of opt-out sales.
How Opt-Out Sales Works
The opt-out sales model eliminates “sales,” because sellers deliver the product to customers without their explicit consent. Sometimes consent is obtained in an indirect way; other times, it isn’t obtained at all. The customer has the option of rejecting the sale and paying nothing, but if they don’t follow the steps to reject the sale, then it’s a done deal.
This model also eliminates collections and accounts receivable because the seller works through a billing partner. The partner is either a credit card company or a telecommunications provider with whom the customer has an existing relationship. Instead of sending an invoice to customers directly for something they didn’t explicitly want to buy, the seller informs the billing partner that they need payment, the charge is made to the customers' account and the seller is paid by the billing partner (minus a juicy processing fee).
Lawmakers Smell a Rat
If this way of doing business doesn’t pass the smell test with you, you're in good company. Congress and President Obama agree. In 2010, Obama signed into law the Restore Online Shoppers’ Confidence Act (ROSCA), which specifically prohibited certain practices related to opt-out sales. ROSCA specifically addressed the problem of “data-pass” marketing, a type of opt-out sales.
RELATED: What You Can Learn From a Franchise Scammer
With data-pass, a consumer is presented with a special offer right after buying something online. This special offer usually appears as a pop-up and appears to come from the same merchant from whom they just bought something. In reality, the pop-up is from another company and may appear to offer something for free as part of the special offer. If the consumer clicks on it, that's considered “consent” for the primary merchant to pass along the consumer’s credit card information to the secondary merchant offering the deal. Usually this secondary merchant will sign the consumer up for some type of subscription that's difficult to cancel.
ROSCA no longer permits data-pass and requires that any online subscription sales clearly disclose all terms, and that the seller explicitly obtains the buyer’s consent before charging anything and provides a simple and obvious way to cancel a subscription.
It may sound like ROSCA was a far reaching law, but in reality the scope was rather narrow. Forms of data-pass marketing are still happening today and foreign merchants selling to U.S. customers aren’t covered. It also doesn’t touch opt-out sales in the non-cyber world, which is why this practice is still booming.
A Legal Scam
Mobile phone companies are currently the partner of choice for opt-out sellers. Many of the companies involved in opt-out marketing offer email processing, text-message subscriptions and other content via opt-out sales. According to the FTC, approximately 20 million consumers per year have their phone bills “crammed” with opt out sales charges, with 95 percent of them completely unaware that they are paying extra for something. This generates over $2 billion in opt-out revenues for sellers, a huge payday for services that cost nearly nothing to deliver.
RELATED: Lessons From the 7 Biggest Sales Scams of All Time
The FTC is aware of it and the Senate Commerce Committee has held hearings, but so far there is no ROSCA-type law targeting it. Sellers typically send a text message to consumers’ mobile phones asking if they want to opt-out of their subscription service. Most people dismiss the message as spam and delete it. But by failing to opt-out, they will start being billed and paying for the subscription. For any of this to happen, though, the opt-out seller needs mobile phone numbers to target. Most people give their numbers away freely on websites or for sweepstakes and contests, not realizing that in the fine print they are “consenting” to receive marketing messages on their phone.
The opt-out sales strategy can be tempting to profit-minded business owners: Startup costs are low, there's a standard playbook you can follow and the practice is still permissible. But the "consumers" more times than not don't even know they are participants. It's unethical, even if it is legal ... for now. Would you really want to start or sustain a business using the shady practice of opt-out selling?
Read more articles on finance.