PART TWO:  LOS ANGELES BBB -- ROTTEN TO THE CORE?

This is the second of a ten part investigative report into the standards and practices of the Better Business Bureau of the Southland, Inc., here-in-after referred to as the LA BBB.  This ten part report is the result of months of research, interviews, and information supplied or confirmed by a highly placed LA BBB employee of long standing who has requested confidentiality.

We’ve already seen in part one of this series, that telemarketing accounts for 90% of the LA BBB’s $10 Million in annual revenues.  LA BBB pays its telemarketers on a base against commission structure.  The draw is around $450 gross per week, so bad telemarketing reps don’t stick around for long. 

Each sale of new LA BBB membership earns the telemarketing rep a 45 percent commission on the full membership price less the $30 registration fee.  Memberships range from $365 per year up to $8000 with an average membership fee of $425.  Additionally, the top producing telemarketers get a 5 percent bonus, bringing their commission rate to 50 percent of newly signed LA BBB member dues (less the $30 registration fee).  Renewals of memberships bring the telemarketer another 10 percent commission on the renewal dues.  Altogether, LA BBB pays over $2 Million in annual telemarketing commissions to their reps.  The average LA BBB telemarketing rep brings in almost $60,000 per year.  In turn, the telemarketing reps bring in over $10 Million in annual revenues.

NEW MEMBERS AND RENEWAL MEMBERS DUES REVENUES AND TELEMARKETING COMMISSIONS
(TOTAL COMMISSIONS OF $2 MILLION)

With roughly 25 percent of BBB membership declining to renew each year (a mediocre customer retention rate) there is tremendous pressure on the LA BBB telemarketers to sell new memberships.   That’s why the LA BBB compensates their telemarketers five times as much to recruit a new member as to renew an existing member.  That’s why 70 percent of the telemarketer’s paycheck comes from new member commissions.  Obviously signing up new businesses is a top priority for telemarketers.  We’ve already seen the aggressive and abusive tactics used by the LA BBB telemarketers in part one of this series, now we have a clue as to why they are so determined. 

This focus on new members is ironic on two fronts:

1.  The Los Angeles BBB earns the bulk of their revenues from renewals, so you think they'd focus more on increasing their customer rententions statistics.

2.  With only 75 percent of members perceiving membership in the LA BBB worth renewing, one must question the value of membership.

BREAKDOWN OF TELEMARKETING COMMISSIONS BY NEW AND RENEWAL MEMBER DUES

We’ve already seen in earlier reports on this website, and others, countless reports of member businesses having far better grades than their non-member competitors.  Now we are provided with a motive for why members have better grades—new members are (perceived to be) the lifeblood of the LA BBB and if it takes being a member of the LA BBB to get a good grade, then that’s just a smart sales tactic. 

It brings up further questions as well.  If it is true that membership can influence the LA BBB grade by as much as four grade points as we’ve seen in our side by side comparisons then what the LA BBB is really selling is not memberships, but advertising.  Members are promoted/advertised with a better grade.  This is at odds with the mission statement of the LA BBB which states in part “BBB is your key advisor, most reliable evaluator and most objective expert on the topic of trust in the marketplace.”  So far, there is scant evidence to suggest that the BBB should be trusted enough to be your key advisors, they have demonstrated that they are in fact NOT a reliable evaluator and are anything but objective. 

It also begs the question why doesn’t the LA BBB offer better member services so they can increase their customer retention rate?  Perhaps this is because there is really nothing of value they have to offer their members other than an improved grade and a wood plaque for their office.