The percentage of an MLM company’s total profit that is ultimately distributed to its participants (the sales force), away from the MLM owners or shareholders, differs from one MLM company to the next. However, the percentage earmarked to be paid to participants is usually a quite smaller share of overall company profits. The earmarked figure is then distributed in complex compensation plans which, ultimately, funnel most of it to a few individual participants in the upper-most levels of the MLM participant pyramid. The remaining majority of participants (often over 99.5% or more) receive no returns, or negligible return which are more often than not at a net loss after they deduct expenses which were incurred in the promotion of their “independent businesses”.
For most people, thankfully, the MLM experience usually ends in very quick financial failure and is then sidelined. Two possible responses are: 1) being embarrassed about participation, or 2) becoming even more intractable when the MLM has failed. You will find the latter chasing after the latest “get rich quick” scheme with similar results. “If we could have just sponsored so and so–they have so many friends–we would have made it.”
The all-too-obvious point here is that management of supply and demand, and keen insight into realistic market penetration and saturation are crucial to any business, for any product or service. Mismanagement of this aspect of a business will eclipse good market access, excellent product design, human resource assets, production quality, and so on. Simply stated, a failure to “hit the target” of supply and demand can ruin a company if the market is oversaturated.
Many have left high-paying jobs to “pursue their dreams” in an MLM. Having been conned so dramatically, they do not easily admit defeat. It seems easier to cling to the bad dream in an increasing cycle of desperation to make the MLM work against all odds. “Losers” at the bottom congregate into support groups, perhaps spinning-off another MLM where they can be “boss.”
LuLaRoe’s messaging is filled with positive language: “I believe in you” is the company’s unofficial tag line, and body-positive imagery floods its website to showcase its large selection of flattering plus-size outfits. “It’s hard to find plus-size clothing that actually looks good—that makes you feel like you look good,” Sophie says. “That’s why there’s such a customer base for LuLaRoe.”
When considering whether or not to engage in the fast paced world of network marketing, one of the most important things you can do to prepare is to identify the overall demand for the product or service you are looking to promote. By identifying the level of demand for the product/service you are promoting, you can be more effective in connecting with the individuals or groups interested in the items.
At issue in determining the legitimacy of a multi-level marketing company is whether its products are sold primarily to consumers or to its members who must recruit new members to buy their products. If it is the former, the company is deemed a legitimate multi-level marketer. If it is the latter, it could be operating a pyramid scheme, which is illegal. The Federal Trade Commission (FTC) has been investigating multi-level companies for several decades and has found many that blur the lines between the two. According to industry data, there are 90 million members worldwide, but relatively few earn meaningful income from their efforts. To some observers, that reflects the characteristics of a pyramid scheme.
“It’s micro-entrepreneurship,” he says. “[Multi-level] marketing is just a form of direct selling. And it’s really about compensation. There’s single-level or multi-level, and that doesn’t mean anything other than how I get [paid]. People get all hung up on, ‘Well, it looks like a pyramid, so it must be a pyramid.’ But every company in the world looks like a pyramid!”
The main sales pitch of MLM companies to their participants and prospective participants is not the MLM company’s products or services. The products/services are largely peripheral to the MLM model. Rather, the true sales pitch and emphasis is on a confidence given to participants of potential financial independence through participation in the MLM. This is referred to as “selling the dream”.
Ashley (name changed), a mom and wife who lives in the suburbs of Indianapolis, signed up to sell LuLaRoe in August 2016 after her husband lost his job and was only able to make half his salary at the next one he found. “Simply put, I signed up to make money,” she says. Ashley opened three credit cards to cover the initial set-up cost and generated $3,500 a month in revenue for the first two months. But on the advice of other retailers, she plowed it all back into buying more inventory instead of keeping any of it for herself, her family, or their mounting bills. “Often increased inventory can assist in increasing retail sales to consumers,” says Justin Lyon, LuLaRoe’s chief marketing officer.
The MLMers of the new millennium are starting to sound a lot like the gangsters of yesteryear. In an era where management science and the law generally condemn MLM, they’ve “got their own experts,” from academia or law, who are “on the payroll.” Confidence, remember, is key.
None of these conditions exist anywhere in the real world. Markets change, trends come and go, customers are fickle and demanding, and competitors constantly enter/exit the market. There isn’t an endless supply of people willing to serve as self-appointed salespeople in any market, anywhere – some of us have better things to do than sell overpriced supplements to our friends on Facebook. And there are almost always plenty of competitive alternatives to every consumer product. So what inevitably follows is point #4…
Jump up ↑ Salinger (Editor), Lawrence M. (2005). Encyclopedia of White-Collar & Corporate Crime. 2. Sage Publishing. p. 880. ISBN 0-7619-3004-3. Archived from the original on February 24, 2017. https://books.google.com/books?id=0f7yTNb_V3QC&lpg=PP1&dq=isbn%3A0761930043&pg=PA880#v=onepage&q&f=false. Retrieved 13 June 2016.
So is “The Top 25…” just an online popularity contest? Not exactly. To make a fair assessment we gave consideration to things that really don’t matter; for instance, 24 of the 25 companies are members of the DSA. And to things that really do matter; like time in business!
Vulnerable women are duped into believing that they too can become business owners, all in their spare time, while bouncing babies on their hips, taking care of a home, and working another part time job. They are given nothing but a promise and a golden carrot to chase, and then sent out to go sell.”
Yes, some people do make money from MLMs. But most appear to just learn a very expensive lesson. This is why billionaire investor, founder of Pershing Square hedge fund management company and philanthropist Bill Ackman has put a short bet of US$1 billion on Herbalife, as featured in Betting on Zero.
Revenue and total profit of the MLM company is thus largely generated from the pockets of participants within the MLM pyramid who are simultaneously both salespersons and consumers at once. Only an insignificantly small proportion of revenue and total profit is derived from non-participant retail consumers who are outside of the MLM participant pyramid. Many MLM companies will not disclose what percentage of its consumers are simultaneously their own participants. Other MLMs do not keep said figures because they do not differentiate between participant consumerism versus non-participant retail consumerism.
“A statistical analysis of income disclosures made by 10 major multi-level marketing (MLM) companies… reveals that, on average, 99% of all participants received less than $10 a week in commissions, before all expenses.”
Once you are ‘in’ you can start making money by selling merchandise or services directly, and will also start making commissions on the sales of those you recruit. So, to succeed, you need not only to dedicate to selling the product or service of the company but should also be ready to sign up and train others to sell these products and services.
Not so with the MLM crowd. Pick up any brochure or videotape for an MLM and you are more than likely to see a cheesy, obvious, and blatant appeal to greed and materialism. This is offensive to everyone, even die-hard materialists. Typical is an appeal to “the American dream.” Usually there will be a mood shot of a large new home, a luxury car, a boat, perhaps a beautiful couple boarding a Lear jet, and so on.
“I realized if they’re making the money that they say they’re making all over their Facebook pages and how it’s life changing, why can’t it change my life?” Kayla assumed she could just buy a couple of hundred dollars’ worth of leggings to get started, but she found out that she was required to buy a startup inventory package, which costs between $4,900 and $6,000. “Initial inventory packages are designed to provide sufficient inventory to help retailers succeed,” says a LuLaRoe spokesperson. “If a retailer can’t afford it, a retailer should not buy it.”
MLMs are designed to make profit for the owners/shareholders of the company, and a few individual participants at the top levels of the MLM pyramid of participants. According to the U.S. Federal Trade Commission (FTC), some MLM companies already constitute illegal pyramid schemes even by the narrower existing legislation, exploiting members of the organization. There have been calls in various countries to broaden existing anti-pyramid scheme legislation to include MLMs, or to enact specific anti-MLM legislation to make all MLMs illegal in parallel to pyramid schemes, as has already been done in some jurisdictions.
Since MLM organizations are notoriously flash-in-the-pan, one has to wonder why any new company would choose this flawed marketing technique. Perhaps one of the things to consider is that the MLM organization can effectively skirt the Federal Trade Commission by using word-of-mouth testimonials, supposed “studies” done by scientists, fabricated endorsements, rumors and other misrepresentations that would never be allowed to see the light of day in the real world of product promotion, shady as it is.
Water.org is an international nonprofit organization that has positively transformed millions of lives around the world through access to safe water and sanitation. Founded by Gary White and Matt Damon, Water.org pioneers innovative, market-driven solutions to the global water crisis — breaking down barriers to give families hope, health and the opportunity to break the cycle of poverty.
Business Students Focus on Ethics: “In the USA, the average annual income from MLM for 90% MLM members is no more than US $5,000, which is far from being a sufficient means of making a living (San Lian Life Weekly 1998)”
The overwhelming majority of MLM participants (most sources estimated to be over 99.25% of all MLM participants) participate at either an insignificant or nil net profit. Indeed, the largest proportion of participants must operate at a net loss (after expenses are deducted) so that the few individuals in the uppermost level of the MLM pyramid can derive their significant earnings—earnings which are then emphasized by the MLM company to all other participants to encourage their continued participation at a continuing financial loss.
While participants’ movement up the pyramid of an MLM can be accomplished in theory, and indeed this is one of the distinguishing factors between MLMs and traditional pyramid schemes (besides featuring actual sales of products or services), said upward movement is so extremely improbable as to render it practically impossible, despite all efforts and investments of time and money by a participant.
Starting in fall 2016, customers started reporting that LuLaRoe’s “buttery soft” leggings were falling apart. That figure may be low because LuLaRoe products used to be so hard to return. For a long time, angry customers couldn’t send back faulty products directly to LuLaRoe: They had to return them to the consultant they purchased them from. Customers are instructed to hand-wash leggings inside out and air-dry them, but that hasn’t stopped the company from getting sued by angry consultants alleging that the leggings are poor quality. Some LuLaRoe retailers have even taken to fat-shaming customers, telling them if the leggings rip, it’s their fault.
Ami Chen Mills Shaking the Money Tree captures the “stink” of MLM pathology and culture most vividly. Hold your nose, and dive into major deja-vu at http://www.metroactive.com/papers/metro/10.03.96/cover/multilevel-9640.html
For any company selling a product the concepts of marketing and sales are very important as they can mean the difference between success and failure. While they are often used interchangeably or grouped together they are two different concepts … Read more
A number of folks in the oils industry have suggested that the reason YL and doTERRA recommend so much internal usage of oils is to drive up usage and drive up sales. I don’t know their motivation, but that would make perfect sense.
Sarah Stern, a stay-at-home mom in southern Florida, signed up with LuLaRoe in March 2016 after receiving a glowing review from a friend. “She told me that they have a cult following, the clothes sell themselves, and it’s under 10,000 people now, so you want to get in while it’s on the ground floor,” she says. Stern joined her friend’s LuLaRoe Facebook page and saw women fighting in the comments to buy beautiful leggings and dresses. She showed her husband, a VP of sales for a consumer-products company, the profit margins, and he told her to go for it.
Despite their popularity, this type of company doesn’t exactly have the best rep. Though pyramid schemes are illegal in Canada, the perception that all MLM companies have pyramid-like qualities is a lasting one, aided in part by rumours of sketchy business practices and bad press about the industry. For example, LuLaRoe, which reportedly requires new consultants to purchase $5,000 worth of inventory when they join, was hit with a $1 billion class action lawsuit last October that says, according to the Chicago Tribune, “the [California] firm encouraged women who wanted to sell its leggings, skirts and other clothing to take out loans, run up credit cards and even sell their breast milk, then left some in financial ruin with unsold goods… As many as 80,000 people paid thousands up front for inventory.”
Some people don’t want to give out their SS# to become a rep. The companies need these to file taxes with the IRS. I understand concerns about keeping your SS# private. One alternative is to get a Tax ID # from your state. (Update: One reader shared there is a way to get a discount from doTERRA without your SS#.)
Let’s just suppose that “X” has been reached today in a particular MLM; the number of possible units sold at this price has just been exceeded, and you happen to be a starry-eyed prospect sitting in an MLM meeting listening to the pitch. Now consider: Does anyone in this company know about “X”? Does anyone care? Is the issue being suppressed on purpose for some other motive? Since we are supposing that the market saturation number “X” has been reached, everyone joining the MLM from now on is buying into a false hope. But that is not what the speaker will be saying. He will be telling you, “Now is the time to join. Get in on the ‘ground floor’.” But it is all a lie, even though the speaker may not know it. The total available market “X” has been reached and nobody noticed. All the distributors will lose from here on out. Could this be you? How could you possibly know at what point you will become the liar in an MLM?
MLMs disproportionately flourish in suburban and rural America: According to LuLaRoe’s retailer map, it only has 10 consultants in all of Manhattan, which has a population of 1.64 million. By comparison, Pueblo (Colorado) has the same amount for its population of 110,000, St. George (Utah) has 12 sellers to its 82,000 residents, and Idaho Falls (Idaho) and Casper (Wyoming) both have nine sellers servicing each’s 60,000 citizens. In 2016, the US Census Bureau stated that the median rural household income is 4% lower than it is for urban families, and income inequality is also higher. Job growth in metropolitan areas has far outpaced that in rural areas since 2008, and the job market in these regions has shrunk 4.26% in the same time.
And these sales aren’t just to customers. You see, in order to join an MLM you usually need to buy products to sell (often referred to as a starter kit, or similar). And then in order to remain a seller, stylist, supervisor, or whatever term the company uses, you often need to make a minimum number of sales in a given time period (though not always).