With MLMs, the situation is much worse. Nobody is home. Even the Soviets had someone thinking about how much was enough! If the bureaucrat in Russia was having a hard time trying to play Adam Smith’s “invisible hand” in setting the supply level in the Soviet Union, then an MLM “executive” is in a truly unfortunate position. Not only is there no one assigned to make the decision of how much is enough, the MLM is set up by design to blindly go past the saturation point and keep on going. It will grow till it collapses under its own weight, without even a bureaucrat noticing.
Indeed, one of the biggest complaints we’ve heard about MLMs is that once someone joins one, they see every social interaction as an opportunity to make their sales, or add to their downline. Friendships have ended and relationships have broken up through this.
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.
Who has an eye on “X,” the point of market saturation at a given price, in an MLM? Well, the funny thing, or perhaps the tragic thing, is that “X” will be reached and exceeded without anyone noticing or caring.
What if I recruit more distributors – then can I stop selling? Assume each new guy manages to expand the business by 10% – again, EXTREMELY generous. With two sellers, total sales are $12,000 so I make $600 doing nothing, and each distributor in my downline makes $600 in direct profit. Even if each distributor increases sales by 10%, I’d still have to recruit at least 10 people and DOUBLE my total sales in order to profit least as much as before while doing nothing. With ten distributors and me at the top, total sales are $20,000. I make my $1,000, and they each make $200 (10% profit).
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They will claim to have made “new friends,” most of which are MLMers or new acquaintances who could be considered “future prospects.” The shallowness of these “new friends,” the stilted conversations among the “old friends,” and the embarrassment, in general, for what seems clear to everyone but the MLMer go unnoticed. Callousness sets in; standards are lowered.
“You see, if you can convince ten people that everyone needs this product or service, even though they aren’t buying similar products available in the market, and they can convince ten people, and so on, that’s how you make the real money. And as long as you sell to a few people along the way, it is all legal.” Maybe…
Many LuLaRoe Facebook groups have the word “addiction” or “addicts” in their titles: Christine’s LuLaRoe Addicts Anonymous, LuLaRoe Addicts, LuLaRoe Addiction VIP Boutique. It’s supposed to be a joke, but it’s truer than many women realize.
“As of the end of first quarter 2017, approximately 90% of all retailers who started an independent fashion retailer business since the time LuLaRoe was founded still maintain their businesses today,” says a LuLaRoe spokesperson. “We are very proud of this figure.” In part due to this high retention rate, the market is becoming saturated, both online and off. Multiple retailers now often live within a few blocks of each other—and how many pairs of leggings does one neighbor really need? “They’ve flooded the market with so many consultants, nobody is making money, and everyone is so stressed out,” Sophie says. “Now it’s like, ‘Oh, there’s another consultant down the street.’”
The only word that makes MLM Kool-Aid drinkers bristle quicker than pyramid is cult. It’s a bold accusation, one not to be trotted out lightly, but there’s simply no other way to describe the techniques MLMs use to attract and retain recruits.
The upper echelons of LuLaRoe’s consultant community have a reputation for being vicious to their downline. “It’s like the policy police,” Ashley says. “‘We’re going to find you, stalk you, tell on you. How dare you guys say a single word bad. We’re going to shame you.’”
For a portion of independent retailers, LuLaRoe is to economic opportunity as Goop is to wellness: It’s for ladies who already have it all. The ability to throw down $12,000 to start a LuLaRoe business and work 30 hours a week sometimes comes from a place of privilege, not desperation. Some mothers who are just looking for a hobby have husbands whose salaries are already high enough to support their families. “I felt like I was trying to keep up with the Joneses to stay in business against these other consultants who can afford to drop a $500 order every few days,” Ashley says.
MLMs sell themselves using self-empowerment language and sparkly beauty products. MLMs only sell through a network of consultants, not in online stores or in brick-and-mortar shops. Sellers buy inventory from a parent company and sell it to their friends and family, keeping the profit for themselves like a franchise would. But the real potential to earn money generally isn’t in peddling wares: It’s in building up a team of sellers below you and getting a cut of their commissions. Once a seller has recruited new consultants, she has to push them to buy more inventory each month or to hit consumer-sales targets in order to earn her bonus check and keep the money flowing upstream. This means the further down the recruitment ladder you are, the less opportunity there is to make real money.
“The fact that it was a low investment to join was very enticing for me,” she says. “And last September, I left my job as a full-time fitness coordinator to focus on my business. I still teach a few classes a week, but majority of my time is dedicated to Stella & Dot.”
As a result, many women sign up unaware of just how hard the system makes it to earn a living selling for a MLM. “I’m trying to make it work the best I can without letting my family know I pretty much signed up for a pyramid scheme,” says Kayla, a consultant in her twenties who lives in rural Wisconsin.
“I can’t believe you call yourself a Christian,” one retailer wrote to someone trying to sound the alarm. “Where is the Jesus in you?” Even when consultants wake up to the fact they’ve been hoodwinked, many don’t warn their friends to stay away. That’s because if you speak out against any of LuLaRoe’s rules or mishaps, the community could publicly shame and harass you for being negative. “I can’t believe you call yourself a Christian,” one retailer wrote to someone trying to sound the alarm. “Where is the Jesus in you? I have to block you due to your constant-gross-delusional-uneducated opinions of LLR.” If you reveal you are struggling to make sales, you might be told to stop playing the victim, that you’re not putting in enough effort, to be more enthusiastic, and, of course, to buy more inventory.
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)”
MLM presents itself as a “business opportunity,” with products that are ostensibly sold to the general public. However, it doesn’t resemble any other retail business at all, and what it does strongly resemble is a pyramid scheme – the underlying mathematics of the two are identical. MLM has also been described by regulators as a form of gambling or lottery. Some MLMs resemble cults. The MLM industry denies that MLMs are anything other than normal, legitimate businesses, and unlike pyramid schemes, MLMs operate openly and (just this side of) legally in most countries.
Recruitment into these companies created billions of dollars of losses to consumers each year. The losses of these 99% of distributors were passed up the sales chain to the less than 1% of the people at the top as commissions.
“Retailers should absolutely never put their personal financial situation at unreasonable risk to establish or operate their retailer business. Period,” Lyon says. “If any retailer is encouraged to do that, we do not support it.”
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.
Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.
^ Jump up to: a b c d O’Regan, Stephen (July 16, 2015). “Multi-Level Marketing: China Isn’t Buying It”. China Briefing. Dezan Shira & Associates. Archived from the original on December 8, 2015. Retrieved November 26, 2015.
Provide relevant information to the people who will be viewing your site, and keep to your own niche. Find out what the people you want to attract are searching for online, and then provide that content. You can check social media sites and forums as they’re a great repository of information.
“What causes the average, otherwise shy person to suddenly think they can be a wealth-generating salesman? Because someone showed them “the math.” I’m sure you’ve heard it. All you have to do is find 5 people to join, and those 5 will find five, and those five will get five, and 6 months later you will have 20,000 people working for you, and you’ll be earning $10,000 per month. Really?
For example, when a hypothetical 20-something, Priya, buys skincare, makeup and bath products from Arbonne at a discount and sells it at the suggested retail price, she earns a commission of about 15 percent. But Priya can also earn a percentage of commission on whatever Sarah, a friend she recruited to the company, sells. Word-of-mouth is one of the key strategies in direct sales, so both Priya and Sarah are likely reaching out to their friends and families — and, increasingly, online social networks — to both move product and recruit for their respective sales teams.
The minimum order is 30 pieces at a time, and LuLaRoe requires sellers to buy a minimum of 33 pieces a month ($346 in wholesale leggings, for example) to maintain active status. This means that if a retailer sold 30 pairs of leggings a week, it would take them just under three months to make back their initial $5,000. As they also need to use their revenue to restock an additional 33 pieces a month ($1,038 worth of leggings over 11.5 weeks), it would therefore take another month or so of selling 30 pairs of leggings a week to start turning a small profit. (There is a more detailed mathematical breakdown of different business models here.) “Just like anyone starting a new business, there is risk involved and not everyone is guaranteed success,” LuLaRoe CMO Lyon says.
Multilevel marketing (MLM) or network marketing is a type of unfair and deceptive financial woo, purportedly a business, promoted by a non-salaried workforce selling a company’s product/s or service/s independently, who are paid according to a commission structure that heavily incentivizes endless recruitment.
Jump up ↑ O’Donnell, Jayne (February 10, 2011). “Multilevel marketing or ‘pyramid?’ Sales people find it hard to earn much”. USA Today. https://usatoday30.usatoday.com/money/industries/retail/2011-02-07-multilevelmarketing03_CV_N.htm. Retrieved April 6, 2018.
And typically I did. Instead, with other companies, you can get rep pricing without signing up! I’m not averse to MLMs that have special products that you can’t get elsewhere, but I don’t see it being good to get roped in to end up even going into debt to buy more just to stay “active” with a company.
Later the same year, by the way, the founder of FUND AMERICA was arrested for having generated some 90% of revenues selling “distributorships” versus product… making it clear that this particular MLM was little more than a pyramid scheme.
Watch for red flags. According to the Federal Trade Commission, some businesses posing as MLM companies are actually illegal pyramid schemes. Pyramid schemes scam recruits into buying into a company and almost always result in a loss to the recruit. Some things to look out for are:
In an October 15, 2010 article, it was stated that documents of a MLM called Fortune Hi-Tech Marketing reveal that 30 percent of its representatives make no money and that 54 percent of the remaining 70 percent only make $93 a month, before costs. Fortune was under investigation by the Attorneys General of Texas, Kentucky, North Dakota, and North Carolina with Missouri, South Carolina, Illinois, and Florida following up complaints against the company.