Some modern incarnations of MLMs attempt to address this particular problem by limiting the number of people you can sponsor, say, to four. But the same geometric expansion problems exist; the failure mechanism has just been slowed down a bit. And now there is the added problem of even more unnecessary layers in the organization.
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)
For more, see the Frequently Asked Questions, Additional Points and Rebuttals section at http://www.vandruff.com/mlm_FAQ.html E-Mail the author of this article, Dean Van Druff, at end of this section.
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.
I’ve used oils internally and felt that they were helpful (though the Slim and Sassy did nothing for me :-(), but I am changing my thinking on this. Oils are super potent. It takes about 16 pounds of peppermint leaves to make 1 ounce of peppermint oil. Wow. (Source)
Scheibeler, a high level “Emerald” Amway member: “UK Justice Norris found in 2008 that out of an IBO [Independent Business Owners] population of 33,000, ‘only about 90 made sufficient incomes to cover the costs of actively building their business.’ That’s a 99.7 percent loss rate for investors.”
The difference between a MLM and a pyramid scheme can be blurry, both legally and practically. It’s never been legally defined in the US by a statute, but the FTC defines it as whether a consultant can make an income by selling to the public alone without having to recruit consultants underneath them. “Not all multilevel marketing plans are legitimate,” the FTC states in its literature on MLMs. “If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”
“I did pretty well for myself,” says Stern, who split sales with her business partner. The work was part-time, and she pulled in anywhere from $5,000 to $10,000 a month in revenue. Every month, the head of her consultant group would post a leaderboard for the top inventory buyers and sellers, some of whom were bringing in up to $60,000 a month. Stern noticed that the amount of inventory bought correlated with higher income, so after attending one of LuLaRoe’s touring conferences, she was inspired to bulk up her inventory. She and her business partner went on a buying spree, posting pictures of all the unopened boxes on her Facebook page, which began to swell with excited customers.
Stern jumped in during the heyday phase of a MLM when the people at the top grew rich, and quick. By the start of 2017, nine months after Stern joined, LuLaRoe was pushing 80,000 independent retailers. According to interviews with several consultants, this is also the time when sales suddenly became tougher: The hundreds of thousands of ravenous customers who once clamored to buy leggings from 10,000 consultants flipped in less than a year to eight times that amount selling to just a fraction of the clients. The scales began to tip.
But wait, did you know the average MLM associate quits after just 4 months? That means that you will need to recruit 5 new people (another 125 prospects) every 4 months just to keep from going backwards. And guess what, this applies to your entire organization!”
Of course, it could be pointed out that this might have happened anyway. Perhaps the die-hard MLMers would have ruined their friendships anyway in some other non-MLM business failure. Is the MLM really the cause, or just the vehicle?
“These types of businesses hurt women because they are not informed of the true risks of investment. Their time, relationships and money are not valued, they are used and discarded if they become frustrated or do not meet ‘sales goals.’
Investigate the products or service the company sells. Since you’ll be responsible for pitching and selling this product, make sure it is reputable. Some MLM companies market questionable or dangerous products, and you could face legal action if you take part. You should keep the following in mind when considering a product:
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.
The Times: “The Government investigation claims to have revealed that just 10% of Amway’s agents in Britain make any profit, with less than one in ten selling a single item of the group’s products.”
Another common practice is “channel stuffing” – requiring distributors to buy large minimums of company product, ostensibly for retail sale or for “personal use,” which serves to inflate sales numbers to give the appearance that an MLM is more sales-driven than it really is. However, the only support materials usually provided by their recruiter(s) are ones that promote the signing on of more new distributors. As a result, many a person out there has a closet full of Mary Kay cosmetics that they don’t need, and can’t sell. Type the name of any well-known MLM into eBay or Craigslist and you’ll see evidence of what becomes of that “investment” of “just a few hundred dollars” made in order to achieve new wealth and prosperity in ten hours a week from home.
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.
MLMs aren’t a new business model—they’ve just done a little rebranding. A lot of the old guard such as Avon and Mary Kay are still around, but nowadays, some of the most popular MLMs include Herbalife and Plexus (nutrition and weight loss), Young Living and DoTerra (essential oils), Pampered Chef (kitchen tools), Rodan + Fields (skincare), and Jamberry (nail stickers).
The U.S. Federal Trade Commission (FTC) states: “Steer clear of multilevel marketing plans that pay commissions for recruiting new distributors. They’re actually illegal pyramid schemes. Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people—except perhaps those at the very top of the pyramid—end up empty-handed.”
As noted, many MLM companies do generate billions of dollars in annual revenue and hundreds of millions of dollars in annual profit. However, the profits of the MLM company are derived to the detriment of the overwhelming majority of the company’s non-salaried workforce (the MLM participants). Only some of the profit is then significantly shared with none but a few individual participants at the top of the MLM participant pyramid. The earnings of those top few participants then allows the creation of an illusion of how one can potentially become financially successful if one becomes a participant in the MLM. This is then emphasized and advertised by the MLM company to recruit more participants to participate in the MLM with a false anticipation of earning margins which are in reality merely theoretical and statistically improbable.
LuLaRoe also says it invests “considerable time, resources, and talent” to support its “independent retailers,” as it calls its consultants. If they experience financial or psychological hardship through operating their businesses, it says it’s not the company’s fault. “Retail is not for everyone,” says a LuLaRoe spokesperson. “Retailers own their own business and make their own decisions…The success of any business depends on its leader’s own respective and independent business goals, and the strategies they employ to achieve those goals.”
To try and understand what LuLaRoe success looks like, I studied Nicole’s Facebook Live stream. What was she doing so right? Nicole and another consultant pulled out 71 pairs of leggings in an hour. They deemed almost every one “pretty,” “beautiful,” or “cute.” The most egregiously ugly leggings—like one pair covered in paintball splats with flowers overlaid on top—were “fun” and “different.” In an MLM, saleswomanship is key, no matter what the wares you’re selling look like.
Targeting vulnerable or disadvantaged groups (ethnic minorities, recent immigrants, non-English speakers, ex-cons, recovering addicts, poor communities, high school/college students, women), often accompanied by love bombing
Founded in October 2016, the LuLaRoe Defective/Ripped/Torn Leggings and Clothes Facebook group was initially intended for posting pictures of holey leggings. Now it has more than 30,000 members and has become a place for women to share pictures of ugly merchandise, screenshots of vicious consultant behavior, and to upload documents from the numerous lawsuits against LuLaRoe. (At last count, there are nine ongoing legal battles.)
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.
“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.”
The problem is that in a recruiting-driven MLM, there is no upper bound save the market population itself, and the bottom rung of distributors makes no money at all except from sales. This ensures a fierce scramble among distributors to sign up their own downline (Amway in particular is notoriously aggressive about this) so they can move up the ladder, often to the exclusion of product sales, and also ensuring market saturation—most distributors wind up selling only to themselves and perhaps a few friends, with only the most driven (and often least principled) making any money at all.
The problem here is one of common sense. At a mere three levels deep this would be 1,000 people. There goes the neighborhood! At six levels deep, that would be 1,000,000 people believing they can make money selling. But to whom? There goes the city! And the MLM is just getting its steam going. Think of all the meetings! Think of all the “dreams” being sold! Think of the false hopes being generated. Think of the money being lost.
In most MLMs you will have no choice. You are going to have to sit through meeting after meeting after meeting after meeting. You are going to be “motivated” to coerce your friends and family to hear “the pitch.” This is the way the “dream” is planted and fertilized. Get used to it.
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.
MLM can no longer claim to be new and, thus, exempt from the normal rules of the market and the way goods and services are sold. They have been tried and, for the most part, have failed. Some have been miserable failures in spite of offering excellent products.
Instead, those who fail just didn’t work hard enough (funnily enough one of the new promotional UK videos for an MLM emphases ‘hard work’ several times). The message? It’s not the MLM that didn’t work, it’s you.
While this is the most difficult point to make, it is perhaps the most important. Anyone who has any experience with an MLM has strong feelings, either for or against, and this is the problem. Polarization runs deep.
Often the only way to make these sales is to recruit people under you (making commission off their starter kits) or to buy products yourself. Otherwise you’re left trying to sell your products to friends, family, mums at the school gates, and anyone you come into contact with (one of the reasons why some of the more pushy/desperate MLM reps get a bad reputation).
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.)
MLMs blur the line between ‘contractor’ and ‘customer.’ That’s because participants aren’t just required to sell products – they’re required to recruit other people, presumably in the same general geographic area, who also sell the same products. When you recruit someone, you’ve just created a competitor, which will decrease your own sales. What you gain from recruiting that person (i.e. the cut from his sales) is never enough to offset the loss of your own sales, and thus, your income.