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.
MLM salespeople are, therefore, expected to sell products directly to end-user retail consumers by means of relationship referrals and word of mouth marketing, but most importantly they are incentivized to recruit others to join the company as fellow salespeople so that these can become their down line distributors. According to a report that studied the business models of 350 MLMs, published on the Federal Trade Commission’s website, at least 99% of people who join MLM companies lose money. Nonetheless, MLMs function because downline participants are encouraged to hold onto the belief that they can achieve large returns, while the statistical improbability of this is de-emphasised. MLMs have been made illegal in some jurisdictions as a mere variation of the traditional pyramid scheme, including in mainland China.
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Many readers will share the experience of observing MLMs divide families, friends, churches, and civic groups. Lifelong friends are now “prospects.” The neighborhood is now “a market.” Motives change, suspicions rise, divisions form. The question is begged: “Is it worth it?”
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.
The age-old technique of “con men” is to create “confidence” in some otherwise dumb idea by diversion of thought, bait, or force of personality. The victim gets confidence in a bogus plan, and, in exchange, the con man gets your money. MLMers are very high on confidence.
Jump up ^ Berkowitz, Bill (January 28, 2009). “Republican Benefactor Launches Comeback”. Inter press service. Archived from the original on September 12, 2010. Retrieved July 11, 2009. (in reference to BERR vs Amway (Case No:2651, 2652 and 2653 of 2007) in point of objectionability”c”)
In FUND AMERICA, the “approved materials” showed what a great man the founder was, depicted the depth of his management experience, showed him in mood shots, etc. It is easy to swoon in admiration of such a powerful, visionary man, dedicated to bringing this wonderful opportunity to common Americans like us.
The combined number of recruits from these cycles are the sales force which is referred to as the salesperson’s “downline”. This “downline” is the pyramid in MLM’s multiple level structure of compensation.
One such success story is Nicole Haas of Williamsburg, Virginia. A bubbly blonde and former personal trainer, she put $12,000 on a low-interest credit card to start her LuLaRoe business in January 2017. Through working 25 to 30 hours a week, she paid off her credit card in May and now puts $3,000 a month in her family’s account, less taxes. “It’s changed my life,” she says. “It’s changed who I am as a person.”
It should be noted that when selling product, the only distinction from a real-world business is the possibility for deception due to the “looseness” of the MLM and the incentive to exaggerate claims without any accountability. Other than this, selling product in an MLM is fairly similar to selling any product in the real world.
an endless chain of new distributors: a standard franchising model is protected and franchisees buy into a specific segment of the market with the understanding that they will not be directly competing with other franchisees within the same brand – MLM imposes no such limits and actually encourages exponential growth
After earning $3,000 to $5,000 a month for a few consecutive months, Kayla quit her job in late 2016 to sell LuLaRoe full time. “The next month my profits took a dip. And the next month my profits took a dip,” she says. “I’ve not been able to recoup anything since I quit my job.” After trying to sell off as much inventory as she could, she resigned from the company last month and is awaiting her refund check—which, at the time of writing, still hasn’t arrived.
Consumers of an MLM company’s products/services can, in theory, be merely end-user retail consumers. End-user retail consumers are non-participants of the MLM company, with their relationship to the MLM company being nothing more than in a capacity of consumers. In actual practice, however, the overwhelmingly majority of consumers of MLM products/services are the participants. They are the very “salespeople” within the MLM who had been recruited by a fellow participant positioned above them in the MLM pyramid structure.
In short, we wanted you to know the exact criteria we used in order to select, and then to rank, “The Top 25…” You may agree with our findings, or you may not; we welcome your thoughts and opinions either way. Here’s the Nexera Five-Factor Formula we used to make our selections:
So, yes, money can be made with MLM. The question is whether the money being made is legitimate or “made” via a sophisticated con scheme. And if MLM is “doomed by design” to fail, then the answer is, unfortunately, the latter.
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.”
If it turns out that there is a “run” on ReVo products, and they sell out in mid-June, then they have miscalculated demand and will miss out on profits they could have made. The more serious problem, however, is overestimating the saturation point for the product. If they make 10M units, and sell only 2M units, this may be the end of ReVo as a company.
In some cases, of course, direct selling does replace full-time, salaried gigs. That was the case for Sarah Millar, a 25-year-old personal trainer from Ottawa who joined Stella & Dot because she wasn’t making a consistent enough income on her fitness biz. Since signing up in January 2016, she’s paid off her student loans, gone on two vacations and started saving for a down payment. (She and her high school sweetheart are aiming to buy a home this spring.)
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.
“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.”
Whichever oils company you decide on, one of the best decisions I made was to take oils with me wherever (almost) I go. This carrying case is the perfect size to take while on the go or traveling so you always have your oils with you should the need arise.
Both recommend internal use of oils liberally, with doTERRA even having a Slim and Sassy blend that they recommend taking internally numerous time per day, for a long period of time, in order to aid weight loss. There are protocols on the internet recommending internal use of grapefruit oils by YL reps in order to lose weight.
MLM salespeople are not employees of the MLM company. Participants do not derive a salary/wage, nor do participants receive remuneration from the MLM company for their invested labor and expenses in their MLM “independent business”. The income of participants, if any income is made at all, is derived only from commissions on their personal sales or their share of the commissions on the personal sales of their downlines (the MLM compensation structure).
Honest confession: until we recently we thought MLMs were fairly harmless. In fact, we’ve even unknowingly profiled them on our site (we weren’t aware some businesses were MLMs). While they didn’t particularly appeal to us, we didn’t see the harm in them.
Thus, MLM has evolved into a “niche”: it can be used to sell products that could not be sold any other way. An MLM is a way to get undue credibility by exploiting people’s personal friendships and relationships via “networking.” This is an intrinsic moral difficulty with MLMs that will be expanded in the last section.
Network marketing seems like a breeze on the surface. Many people jump in, thinking they just have to pull in a few people and then sit back and watch the money roll in. Those people do not last very long. Take some time and learn these tips and tricks for your new business.
“Most people aren’t in it to replace income. Most people are in it to make additional income,” says Hassay. “If you could give me $1,000 that I don’t have right now, my life would be a heck of a lot better. And that’s what most people are doing. There’s a wonderful group of women who join in September or October, buy Christmas presents for their family, quit in January and join again the next year.”
The main issue with MLMs is in the way they usually work. Rather than your profit coming from the actual products you sell, it comes from recruiting people into the business as sellers under you (your ‘downline’) and making commissions on their sales (and their downlines).
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).
Try more than once to turn a lead into a customer. Just because someone wasn’t interested once doesn’t mean they will never be interested. Be careful not to overdo it, though- you could easily get a reputation as a spammer, which can hurt your business.
However, MLMs are nearly never the get-rich-quick plots their advocates promise. “The number of people who actually succeed at that is very small,” says Douglas M. Brooks, an attorney who represents victims of pyramid schemes. “And some do—people will get up on stage and wave checks around, but they represent a fraction of 1%.”
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).
Jump up ↑ Danny Robbins (September 10, 2006). “Nobel Prize winners say sites falsely cite research”. Fort Worth Star-Telegram. Archived from the original on 2006-12-06. https://web.archive.org/web/20061206191858/http://www.dfw.com/mld/dfw/news/nation/15486298.htm.
Extensive use of deceit: denying that they are an MLM when asked, use of front groups, making dubious or false claims about their product, claims of great potential wealth and success from joining, claims of utter failure if you don’t join or if you leave, going to great lengths to hide or de-emphasize their compensation structure (if they reveal it at all)
Perhaps a better paradigm than the runaway train analogy offered earlier of how MLMs perform over time is this: a helium balloon let loose in an empty room with a spiked ceiling, where product quality is analogous to the amount of helium. The better the product, the faster the balloon will rise, accelerating unhindered, towards disaster. The other option would be the case of a lousy product, in which case the balloon will sink of its own accord, never getting off the ground. To be sure, equilibrium is not in the cards, except perhaps as an accident, and then only temporarily. MLMs are intrinsically unstable. For any company that chooses an MLM approach, it’s pop or drop.
And so the MLM relationship “bull” tramples through the relationship “china closet,” blindly ruining fragile and valuable things. Some never pull out of this, figuring the coldness they experience in their emotional lives is due to some other cause than their MLM participation.
Cruz, Joan Paola; Camilo, Olaya (2008). “A System Dynamics Model for Studying the Structure of Network Marketing Organizations [Peer reviewed paper that refers uses Taylor as references]” (PDF). Archived (PDF) from the original on December 29, 2009.
Multi-level marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s “downline.” All distributors also make money through direct sales of products to customers. Amway is an example of a well-known direct-sales company that uses multi-level marketing.
And this is one of the reasons why most MLMs aren’t ethical – they sell the dream that anyone can be successful with their ‘opportunity’. They don’t make it clear that only a small percentage of people who join them will make a liveable income (or any income at all).
Research has shown that our brains release more of the pleasure chemical dopamine when we unexpectedly get a reward at a random time. Gambling addicts will run up credit cards and bankrupt themselves chasing that high, continually putting coins into the slot even though it’s become clear that, overall, they are losing. Likewise, LuLaRoe customers will stay glued to Facebook groups and consultants will keep buying inventory they can’t afford in the hope they will stumble across the rarest, most elusive styles.
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.”
Fed the fantasy of achieving the all-elusive American dream, many of them are being wooed by multilevel-marketing companies. Known as MLMs (or “direct-sales”), the current US administration is stocked with their cheerleaders: Betsy DeVos, the secretary of education, is married to a cofounder of Amway; Ben Carson is a spokesperson for a vitamin MLM called Mannatech; and president Donald Trump used to have an MLM, Trump Network, and was a spokesperson for another.
Regardless of all the vehement denials, MLMs are all to some extent pyramid schemes, and pyramid schemes are illegal. Sure, some are “getting away with it,” but so did the Mafia for decades. It is hard to stop a juggernaut, especially one that has taken such pains to look legitimate and misunderstood, that is highly organized, and that has so much money from its victims to propagandize, lobby, and defend itself. And so the exploitation goes on.
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)”