“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.”
To put these statistics into context, John compared them with the failure rates for traditional small businesses using the Small Business Administration’s statistics for 2008. And he discovered that 44% of small businesses survive at least four years, 31% at least seven years, and 39% are profitable over the life of their business. In 10 years only 64% of small businesses fail.
Health insurance premiums never seem to stop going up. The 2015 Employer Health Benefits Survey conducted by the Kaiser Family Foundation found that annual premiums for employer-sponsored family health insurance increased by 4% over the last year, … Read more
The origin of multi-level marketing is often disputed; but multi-level marketing style businesses existed in the 1920s, 1930s California Vitamin Company, (later named Nutrilite) or California Perfume Company (renamed as “Avon Products”).
On the other hand, many people have gotten into Network Marketing and have made a fortune from it. People such as John Haremza, who signed up as a sales rep for a small water filter company, and is now worth millions. Alternatively, Sebastian Greenwood, who made an investment in Onecoin, and put in the hard work and time necessary. He is now considered an ambassador of the company, having made his fortune there, and spends much of his time helping others grow successful.
Jump up ↑ “13 successful multi-level marketing companies based in Utah County”. Provo Daily Herald. May 11, 2017. https://www.heraldextra.com/business/local/successful-multi-level-marketing-companies-based-in-utah-county/collection_8720a5f3-7203-5b55-864a-f0f3323a2551.html. Retrieved 25 March 2018.
In mainstream terms, it’s most similar to franchising, where a business operator buys the rights to a specific brand and in turn receives support from the company that owns the brand. But there are two big differences:
Dynamic Essentials was an MLM promoting “Royal Tongan Limu,” a seaweed extract. The company was dissolved by its parent after it was ordered to pay $2 million in fines and destroy almost $3 million in unsold inventory for falsely claiming the product could cure cancer, arthritis, and attention deficit disorder (ADD), among other ailments.
That self-help-tinged speak is a common thread among MLM companies. Arbonne’s tagline is, “transform your life and the lives of others.” Part of Stella & Dot’s appeal, says Berendson, is that, “the [company’s] name stands for the CEO and Chief Creative Officer’s grandmothers, and the business is all about empowering women and creating a business her way on her own time.” But that enthusiastic brand loyalty might be part of the reason for the persistent negative perception of MLM companies, which have sometimes been described as, “cult-like.” If you’re not in the community, that much enthusiasm can be off-putting.
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.
In a normal sales business, you are hired and promoted based on a holistic assessment of a variety of factors: one’s character, temperament, and contribution to the company and its profitability. In an MLM, there are no qualifications to join and you advance based on one factor alone: recruitment. The problem is that as the market saturates at an exponential rate, the pool of potential new recruits rapidly dries up, and new distributors must sink lower and lower and engage in steadily shadier and more desperate practices to build their downline. Far from being the behavior of “just a few bad apples,” as the MLM industry would have you believe, this practice is encouraged and rewarded by a system that prioritizes raw recruitment numbers above all else. This virtually guarantees that the ones who make the most money in MLM are the ones with the fewest scruples – which is unsurprising, given point #6…
Jump up ↑ “Attorney General Abbott Shuts Down Pyramid Scheme That Marketed Bogus Fuel Pill”. April 2, 2007. https://web.archive.org/web/20070402211346/http://www.oag.state.tx.us/oagNews/release.php?id=1906.
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.
There’s no minimum amount, It’s an investment that you do for yourself and to help other people. You shouldn’t make a decision based on the amount or what it costs, but rather on what it can bring to you as a result.
All products and services have partial market penetration. For example, only so many people wish to use a discount broker, as evidenced by the very successful but only partial market penetration of Charles Schwab. Not everyone wishes to join a particular discount club, or buy gold, or drink filtered water, or wear a particular style of shoe, or use any product or service. No one in the real world of business would seriously consider the thin arguments of the MLMers when they flippantly mention the infinite market need for their product or services.
“People need to be warned about this company now,” one anonymous woman said in a Facebook message to me in April. When I followed up a few days later, she had changed her mind. “I actually onboarded Monday with Agnes & Dora, another direct-sales clothing company. And as part of their policy and procedures, I cannot speak badly of another company.”
“One of the unique facets of this business is that the victims are also perpetrators,” Brooks says, speaking generally of MLMs. “You’re trained to recruit your friends and family and neighbors.” He points out that when you onboard someone underneath you, especially if they live in your town or are in your friendship group, you are essentially creating a competitor. It’s as if you open a Subway sandwich shop and then encourage your neighbor to open a Subway right next door—and everyone is already sick of sandwiches.
It turned out to be a savvy choice. In her category, two major competitors have recently declared bankruptcy, while Costa’s company has seen astronomical growth. “There’s a retail disruption happening,” she says. “Traditional bricks-and-mortar is suffering big time.” Peekaboo Beans, on the other hand, is thriving — by 2015, it employed 700 consultants, had paid out $1.7 million in commissions and its revenue had grown by an average of 70 percent every year.
These sales go against company policy. While a LuLaRoe spokesperson says sellers are “free to set their own sales prices for the LuLaRoe products they sell,” they don’t allow you to actually advertise those prices: “Out of fairness to all retailers, they are not allowed to advertise prices below MAP (Minimum Advertised Prices). LuLaRoe encourages retailers not sell product below MAP as MAP ensure that the LuLaRoe brand maintains a consistent level of value and fairness that benefits all Retailers. Advertising prices below MAP violates the agreement between retailers and LuLaRoe.” If caught, sellers are ostracized by the consultant community for diminishing the LuLaRoe brand, and some have claimed to be locked out of their point-of-sale systems.
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.
As non-employees, participants are not protected by legal rights of employment law provisions. Instead, salespeople are typically presented by the MLM company as “independent contractors” or “independent business owners”. However, participants do not possess a business in the traditional legal sense, as the participants do not hold any tangible business assets or intangible business goodwill able to be sold or purchased in a sale or acquisition of a business. These are the property of the MLM company.
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
LuLaRoe merchandise boxes are like Lycra slot machines. LuLaRoe merchandise boxes are like Lycra slot machines. In the onboarding package, new recruits don’t get to choose the size or style of their items. For example, Sophie knew plus sizes would sell best for her, but her initial package contained five XXS dresses and several long-sleeved shirts that were a tough sell for a Texas retailer in June.
Even in the digital age, the brick-and-mortar retail experience is preferable to MLM: it’s more convenient and does not open people up to accusations of conning their friends with substandard products or high prices. Internet and catalog shopping and reliable shipping services have long since obviated the need for a tightly-knit distributor network serving remote areas; in urban areas, where retail shopping has always been fairly available, MLMs were never important to begin with.
If you’re becoming a network marketer because you were recruited by someone else, look for leadership qualities in this person. If they do not possess them, you may not want to stick around for an inept markerter who will make money through your efforts. Perhaps you can branch out on your own.
If you’re tempted to join an MLM, we hope this has helped give you a more balanced view than the spiel offered by your rep. (If a friend is considering joining one, please send this article to them before they commit!)
But the dialog usually never even gets to this. The fact that MLM is in a mad dash to oversupply is largely chided as mere “stinkin’ thinkin’.” Expert MLMers know how to quickly deflect this issue with parable, joke, personal testimony, or some other sleight of mind.
A few people do make big money from MLMs. And these people are often trotted out in promotional videos, celebrated at annual events, and very publicly ‘rewarded’ with prizes like prestigious cars (although these ‘prizes’ aren’t as generous as they first appear – you simply get a discount on the lease which you must take out in your own name, and if your sales fall, the discount ends…). You also need to promote the company on the car they ‘give’ you.
^ Jump up to: a b Merrilees, Bill; Miller, Dale (1999). “Direct Selling in the West and East: The Relative Roles of Product and Relationship (Guanxi) Drivers”. Journal of Business Research. 45 (3): 267–273.
As a means of moving capital from the bottom of the pyramid to the top, MLMs are very effective; their chief promoters and high-level members aren’t lying when they boast of the money they’ve made from the scheme. However, as a business model (i.e., a means of creating and capturing capital), MLMs are hilariously ineffective – like a toddler imagining what it’s like to start a business. Here are just a few of the reasons why.
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.
In fact, Hassay draws a link between MLM’s popularity and the employment opportunities (or lack thereof) available to women. “If you look at ’40s and ’50s, which was the heyday of direct selling, women could be teachers or nurses. There were no other opportunities,” he says. “So, if you wanted some independence, direct selling Tupperware or Avon was all there was.” Unsurprisingly, considering the challenging realities of the job market today, Hassay believes we’re in the midst of a second MLM heyday right now.
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.
Multi-level marketing is a legitimate business strategy, though it is controversial. One problem is pyramid schemes, which use money from new recruits to pay the people at the top, often take advantage of people by pretending to be engaged in legitimate multi-level marketing. Pyramid schemes can sometimes be spotted by their greater focus on recruitment than on product sales.
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.
Essentially, the idea is that any given upline collects a cut of the sales from every member of their downline. As a result, the only path to solvency for the upline is to make sure that the downline recruits as heavily as possible, with as deep a pyramid beneath them as possible – as opposed to conventional businesses, where the path to solvency is to sell sufficient product to consumers.
Consultants and clients say the clothing’s quality has been going back up, but the PR damage has been done. Shoppers are becoming wary—and wondering why they’re not buying leggings that don’t rip on the first wear for $7.99 at Wal-Mart instead.
Multi-level marketing (simplified Chinese: 传销; traditional Chinese: 傳銷; pinyin: chuán xiāo) was first introduced to China by American, Taiwanese, and Japanese companies following the Chinese economic reform of 1978. This rise in multi-level marketing’s popularity coincided with economic uncertainty and a new shift towards individual consumerism. Multi-level marketing was banned on the mainland by the government in 1998, citing social, economic, and taxation issues. Further regulation “Prohibition of Chuanxiao” (where MLM is a type of Chuanxiao, Chinese name of the regulation is 《禁止传销条例》 ), was enacted in 2005, clause 3 of Chapter 2 of the regulation states having downlines is illegal (original text from the regulation ‘组织者或者经营者通过发展人员，要求被发展人员发展其他人员加入，形成上下线关系，并以下线的销售业绩为依据计算和给付上线报酬，牟取非法利益的。’). O’Regan wrote ‘With this regulation China makes clear that while Direct Sales is permitted in the mainland, Multi-Level Marketing is not’.
If these guys show up in your neighborhood, you are either “in” or “out,” family or target, friend or foe. Suspicion rules the day; everyone has an “angle”; greed supplants innocence. The “neighborhood” is turned into a marketplace, and may never recover from the blow.
Thus, a parallel or “shadow” pyramid of motivational tapes, seminars, and videos emerges. These are a “must for success,” and recruits are strong-armed into attending, buying, buying, and buying all the more. This motivational “shadow pyramid” further exploits the flagging recruits as they spiral inexorably into oversaturation and failure. The more they fail, the more “help” they need from those who are “successful” above them.
If you’ve been thinking about, or already are using, essential oils, at one time or another you’ve likely wondered if you should be part of Young Living, doTERRA, or some other multi-level marketing (MLM) company to get “the best essential oils” at a discount.
Marketing innovations are not rare in the modern world, as evidenced by the success of Wal-Mart, which found a more efficient and profitable way to distribute goods and services than the status quo, providing lasting value to stockholders, employees, distributors, and consumers. But this is not the case with any MLM to date, and after 25 years of failed attempts, it is time to point out the reasons why.
“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!”
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.