MLM & Network Marketing: Still Around

pyramid scheme - MLM

Until this November, I had not been approached by a single network marketing or multi-level marketing (MLM) pusher in a great while; I had not seen or heard as much as a whisper on the subject in print, online, or from acquaintances in many years. As it turns out, this too-good-to-be-true “business opportunity” (cough) hasn’t gone extinct. Indeed, MLM is still alive and attempting to kick.

I have a good friend by the name of Carlos in the Atlanta area who, like me, has made a part-time vocation out of creating websites for a few clients over the years. In mid-November 2010, Carlos received a call from someone introducing himself as “Super John” (name slightly changed) who apparently wanted to inquire about the specifics of the website services Carlos offers; however, the conversation abruptly swerved from web design to MLM (a.k.a., multi-level marketing, or network marketing). The moment this happened, Carlos decided he could not help Super John and, for some reason, thought I might be willing to speak to him in his stead.

losing money in MLM

Don’t get me wrong, Carlos; I am very appreciative that you think of me regarding opportunities to provide website services for potential clients. I thank you once again!

After dodging calls from Super John until such time as I could learn what Carlos knew of the enterprising fellow, I finally broke the ice. Super John turned out to be a real talker; our first phone conversation lasted almost an hour. He provided an unsolicited account of his rise and fall from millionaire status, his substantial connections in Georgia politics (he worked on the campaign of Georgia governor Nathan Deal), his Georgia business community dealings, real estate adventures, and much more. Naturally, I supposed that Super John would be willing to pay a nominal fee for some legitimate website services – that is, until he launched into a sales tirade designed to lure me into an “enviable, sure-fire” position in his MLM downline, just under Super John himself in this new flavor of an old network marketing recipe. I was forced to endure such cheesy sales come-ons as this:

not listening to any more MLM sales talk

Super John: Let me tell you, buddy, I’m a four (4) and you’re a six (6), and together we make…

Me: Yeah… (pausing, knowing he was waiting for me to enthusiastically shout, “Ten!”)

Super John: Together, we’re a ten! Get it?

Super John also attempted to galvanize me with his abilities as an intuitive: he asked for my birthday, then gave me my very own free cold reading! (His “psychic” reading revealed that I am a talented enough writer to get by without an eraser. Didn’t I already mention that writing was my specialty? Hmm….) Did Super John actually believe he was impressing me with his clairvoyance, or was the psychic chicanery merely in jest? Although I still don’t know for certain, I’d be willing to bet the cold reading is a well-established part — perhaps even a practiced segment — of Super John’s sales repertoire.

untruth, misrepresentations of MLM

What kind of ego does it take to refer to oneself as “Super” anything, anyway? Quite a stout one, I would venture to say – and perhaps one with which I’d be wiser to refrain from involving myself in any manner.

Finally, I told Super John that a small, very reasonable down payment would be required before I spent any additional time discussing his program or working on his projects. I am still confused about the precise reason he is unable or unwilling to provide a $150 down payment; although he mentioned that his girlfriend will not allow this exchange, he also pointedly informed me that it is he who “wears the pants” in their relationship. Super John continues to call and text me about the “amazing opportunities,” apparently convinced I will see the light and thus willingly perform the web work without a down payment.

losing money in MLM

I finally made a decision with regard to joining Super John’s MLM downline in such a way as to avoid turning him down outright, while ensuring that I spend or invest nothing (I could ill-afford to throw funds into this now, even if I wanted to). My answer comes in the form of a counter-offer.

“Because your MLM program represents such an incredible opportunity to earn money, is so pregnant with potential, and as you say, is a virtual guarantee — and because I do not have the extra money to invest right now — I have a wonderful win-win solution for us:

a bunch of talk about nothing

“As long as you will invest any funds in my place, and as long as I do not have to spend anything later, I will give you at least 10% of all the profit I earn.”

If the program were legitimate and not a thinly-veiled scam (or an intricate, unfortunate self-deception on the part of the promoters), then my offer would be a potentially lucrative and honest deal for both of us — one of those genuine win-win scenarios.

Problems with MLM

In the course of my research, I located a frank, objective, and highly detailed analysis of MLM resulting from a lengthy, in-depth study of over 350 MLM programs. The website — called The Truth About Multi-Level Marketing: Research-Based Answers to Your Questions — is packed with interesting information; it’s an absolute must-read for anyone considering investing in any type of network marketing. Here is a quote from mlm-thetruth.com:

not listening to any more MLM sales talk

The appeal in MLM promotions and the typical MLM reports of earnings of participants are dependent on a host of misrepresentations and deceptive sales practices. To be successful in MLM, one must not only work hard, but one must also –

1. Be deceived
2. Maintain a high level of self-deception
3. Go about deceiving others
4. Maintain denial of the harm done to those recruited into the chain or pyramid of participants

MLM Fun Facts (All Based on Substantial Research)

One of the most revealing pages on the site lists 41 separate misrepresentations typically used by promoters in MLM recruitment. Here are a few highlights:

The vast majority of commissions paid by MLM companies go to a minuscule fraction (less than 1%) of TOPPs (Top-of-Pyramid Promoters) at the expense of numerous revolving door recruits, over 99% of whom lose money.

untruth, misrepresentations of MLM

The popular MLM proposal that participants often work for part-time or seasonal income is not a reasonable claim: without full-time, long-sustained effort, MLM participants cannot possibly build and maintain a downline sizable enough to cover expenses. In reality, part-timers and seasonal participants are not profiting; they are merely contributing to the coffers of the company, the founders, and a very small number of TOPPs (Top-of-Pyramid Promoters).

Failure rates for MLMs are not comparable with proper small businesses, 39% of which are profitable for over their lifetime. Compare to MLM where less than 1% of participants ever make a profit. MLM makes even gambling look like a safe bet in comparison.

Consider the top 200 Amway distributors of a certain state: though these were supposedly the top distributors (average gross profit of about $12,500), the average net income after subtracting operating expenses was a loss of around $900. Of 20,000 total distributors, approximately two (2) who operated profitably results in a one-in-10,000 ratio: definitely uneconomic.

a bunch of talk about nothing

The Direct Selling Association (DSA)/MLM lobbyists argued that handing out a company-prepared, one-page disclosure of average earnings, criminal background of leaders, references, etc. would be an “intolerable burden” if foisted upon them. Federal Trade Commission (FTC) personnel perhaps should have viewed this as an obvious effort to avoid transparency for the sake of consumer protection. This is a ridiculous argument; franchisors are required to provide a disclosure document – sometimes hundreds of pages long — to their prospective investors. If franchisors must do this, why not MLMs?

MLM compensation plans assume an infinite, virgin market — neither of which exists in reality. This fact alone could be seen to make MLM inherently flawed, unfair, and deceptive.

The practice of comparing only currently “active” participants (instead of the true number of often-temporary members) with “successful” participants, who have been there for many years, greatly skews the numbers in the MLM’s favor; this is another major MLM deception.

a bunch of talk about nothing

Research into Nu Skin’s MLM program revealed that only one (1) of every 3,922 participants actually profited, producing the following odds of making a dime: 0.000255 (.025%), or just over two hundredths of a percentage point! Therefore, it is more appropriate to call the Nu Skin program and similar MLMs loss certainties than income opportunities.

In another popular MLM program, 54.3% of the payout went to only 114 out of 75,710 distributors, and this did not even include over one million (1,000,000) participants who dropped out during the last ten years of the study.

These conclusions revealing factual and atrocious MLM loss rates apply to all recruitment-driven MLMs for which data could be obtained for the study.

This research – and that of other non-MLM analysts – leads to the conclusion that MLM does not qualify as a legitimate business. If less than 1% profit and 95% or more quit in ten years across the entire MLM industry, it’s rather apparent that something is fundamentally wrong with MLM as a business model.

MLM participants do not legally qualify for SBA loans, SCORE assistance, or other small business funding and assistance programs.

(Source: mlm-thetruth.com )

P.S. A few days later, I made the decision I should have made the very moment I realized this exploit was multi-level marketing: to refrain from performing any website services designed to sell (or even advertise) MLM-related ventures. After learning the troubling facts about MLM, I have decided it would be unethical of me to play any part in this — especially such a potentially persuasive role as building a website to promote a specific MLM program.

Resources: Lowdown on MLM

mlm-thetruth.com
mlm-thetruth.com: The Case for and Against Multi-Level Marketing: MLM’s Abysmal Numbers
mlm-thetruth.com: Typical Misrepresentations Used in MLM Recruitment
Wikipedia on Cold Reading

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About Stephen Frasier

Freethinking hiker, web content writer, web developer
This entry was posted in Business and tagged , , , . Bookmark the permalink.

2 Responses to MLM & Network Marketing: Still Around

  1. Asking questions are actually nice thing if you are not understanding something fully, except this article presents good understanding yet.

  2. norodanandfields says:

    I believe the consultants many MLMs lack integrity and use manipulative tactics to get business partners. The consultants focus more on getting partners and having them buy business kits rather than selling the products. Check out the blog I just started for more info on my personal story and my personal opinions about MLMs.

    http://istoppedsellingrodanandfields.wordpress.com/

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