MLM's...myths and truths and yet they won't go away!

[misternoname]

Been hit up once again from a friend to join in yet another get rich quick, can't go wrong "business opportunity."

 

 

Yep...the thinly veiled pyramid scheme has found another BS product to incubate in.

 

 

I am fascinated that reasonably intelligent people will ignore the facts and drink that purple kool aid over and over again (I actually know an acquaintance that declared that her latest MLM was finally the right one...this would be number 6!).

 

 

I try to argue in a reasonable manner that the entire concept is flawed and doomed to fail. I know this post will get deluged with responses so I'm going to play Kreskin and rebut your rebuttals now.

 

 

1-MLM's are endorsed by Harvard Business School. No...Harvard Business School does NOT endorse nor do they offer a course in MLM's. Matter of fact only one small virtually unheard of college does. Bethany College (and no... I haven't heard of them either).

 

 

2-Some MLM's are household names and therefore must be legit businesses. No again. Amway is one of the oldest and most recognized names in MLM's AND the greatest Ponzi scheme on planet Earth. In the UK, MLM's must disclose real earnings of all participants (unlike in the US). The average (not beginner...one that's been working it for a while) earnings in real commission GROSS is between 42 and 114 pounds a month. It's less than having a part time minimum wage job! There were 7,640 participants. 6,211 fell in the above average income. Guy numbers 45 and up to number 4 made 7000 pounds a month, guy number 4, 3 and 2 15,000 pounds a month and numero uno 50,000 pounds a month. Now that's one hell of a spread! So your odds of making enough to quit your job and sell no name toilet paper is astronomical.

 

 

3-Most products in the future will be sold via an MLM because MLM's are growing so fast now. False. In the US less than 1/3 of 1 percent of consumer products sold in this country are a result of MLM's. They are statistically insignificant. This trend hasn't changed much since the first MLM's showed up 30 plus years ago.

 

 

4-Own your own business and reap the profits! You don't "own" anything. What you do "own" is auto shipped inventory and a bunch of worthless CD's and marketing crap. The drop rate of MLM operators is scary high...over 86% annually. Worse yet, the amount of participants that actually lose money is pushing 99%. That's right...the pyramid doesn't lie. The 1% at the top make ALL of the money at the end of the day. Primarily because they're the ones selling the crap to their "owners" at drastic mark ups. So somebody does make money on these schemes but unless you are one of the first 4 or 5 folks in the scheme or you're the actual originator, kiss your money bye-bye. If you have to buy something to be employed, you're not employed...you're just a customer.

 

 

5-Earn a car with sales! I have some friends in an MLM. They showed up with a brand spanking new black Mercedes with the MLM logo sticker down the side (big, ugly sticker). They couldn't wait to let me know what a mistake I made when I rejected their initial offer to jump on board. I actually went to the company website to do a little detective work. Basically the company gives you an allowance of around $600 a month to lease a Mercedes (must be a black Mercedes). The company has ZERO responsibility towards the vehicle. The dupe pays the down payment, the taxes, the registration, the insurance and of course the monthly lease. If the company goes under or the dupe drops below the sales level to get the allowance, guess what? Yep...they're 100% on the hook for the car. Basically the "company" is getting free advertising (the $600 is in lieu of additional commission) on the side of a luxury car with zero risk. Dumb.

 

 

6-Unlimited opportunity! Really? Do the math. At the 13th level of a expanding pyramid (you know 1 becomes 4, those 4 become 16 and so on) you will exceed the population of planet earth. Over saturation in MLM's is designed by the perpetrators to feed the top. Think about it like this...if proven retail businesses followed the MLM philosophy, there would be, say, a McDonalds on every single corner of every single street until everyone on planet Earth owned a McDonalds.

 

 

7-MLM's are not pyramids. Every product has an up-line and a down-line. MLM's just let the little guy participate. Hmmm...in business school I did indeed study how and why products are brought to market in a particular manner. Manufacturers sell to distributors, distributors sell to retailers, retailers sell to consumers. It's efficient. What's not efficient is having 5, 6, 7, 20 people in between the manufacturer and the end user. That's EXACTLY what MLM's do and its preposterous. The only way that can possibly work is for the profit margin to be exorbitant. Here again the fallacy of the entire system shines through. Nobody involved is actually buying the product solely for the product's sake. If the product was actually great and priced right, the operators would be selling like crazy to folks NOT in the scheme. The closest I can think of is Mary Kay. They do sell product to non participants but they're the exception and not the rule. Oh, and their closely guarded comp figures are rumored to be ridiculously low as well.

 

 

OK...bring on the rest. Ready for further debate.

[Radu]

A shortcut that everyone knows about is an absolute oxymoron ... Howard Marks

 

 

MLM's are designed to make money, but not for you if you are just some guy many many levels down.

The guys at the top sell to you, through tons of intermediaries, in reality ... in this business you have to look just at the ones above you.

The less there are above you, the more are below you, who are all customers.

ALL OF THEM are customers, including the smaller distributors.

[OpenBook]

I heartily agree with everything you said, except this:

 

Manufacturers sell to distributors, distributors sell to retailers, retailers sell to consumers. It's efficient.

 

No, the manufacturer selling directly to the consumer would be efficient. Why do we need two extra middlemen in between? Good for the economy, I suppose. But it's not efficient.

[misternoname]

Simplified version...manufacturers are good at making things, distributors are good at moving things, retailers are good at selling things. There are indeed companies that make a product and sell directly to their end users but that's a relatively rare situation. Think of it this way...would you pay a little less to buy your steak directly from the slaughter house or is a quick trip to the grocery store worth paying a little more.

[Radu]

If i was the owner of a big chain of grocery stores, i'd buy that slaughterhouse.