MLM (Multi-Level Marketing) - My personal view based on a real life story

carbayon

Over the past years I know I person that is involved on a MLM company, so the following is based on my experience with the MLM business.

First and foremost I need to define what an MLM is, as there are many companies out there with a similar business model, so we need to differentiate between them.

What makes a company an MLM?

• As the name says, it is a Multi-Level, so if there are levels on the company, this is a flag
• Do you make money from selling products or for selling licenses to sell products? If you make more money from the license than the products, this is a flag
• Do you have to pay a monthly subscription to retain your license or get paid commission? If you pay a monthly fee, this is a flag

Any company that raises all three flags, this is a MLM that you should be aware off, if the business model only raises one flag, then the business could be genuine.

Now I want to analyzed what most MLM companies say (or let you understand) about their business;

1. MLMs offer a great “business opportunity,” with huge incomes reported for many.
   MLM’s nearly always lead to certain loss for new recruits. The founders and a few are at the top make most of the money.
   
   
2. “Everyone can do this” – and earn a good income.
   Holding up top earners (usually the first ones in) as examples of what others can do is deceptive. It is unfair to sell tickets on a flight after the airplane has already left the ground. No matter how hard you work, you will never reach the top, your work pushed the top earners higher.
   
   
3. MLM offers true “time freedom.” For those who work at it, MLM can provide an income that is reliable, residual, long-term (even “permanent”) income.
   These catchwords are used by MLM promoters to appeal to the desires for “easy money” that keeps on growing and providing for the comforts of life – and the resources to do what we want, when we want. [Remember that the money is in selling licenses] Those who do “succeed” must be constantly recruiting others to replace those that leave the program or fail to sell licenses.
   
   
4. Work for only an hour or two a day to supplement your income to help meet expenses or pay down debt.
   To profit at a recruitment-driven MLM, one must work long hours and be willing to continue to recruit to build one’s downline and to replace dropouts.
   
   
5. Standard jobs are not rewarded fairly. In MLM, you can set your own standard for earnings.
   Fair? Most MLM compensation plans are weighted heavily towards those who got in early or scrambled to get to the top of a pyramid of participants
   
   
6. “In any business, one must invest time and money to be successful.” Like anything else, you can expect to get out of it what you put into it.
   Independent research, supported by worldwide feedback, suggests that the more a person invests in an MLM in time, effort, and money, the more he/she loses
   
   
7. MLM claim you are your own BOSS and that you work for yourself.
   Those at the top earn commission from your work/sales. The definition of a BOOS is “person in charge of or employing others”, since you “bought” a license from someone, they “hired” you and they are your “boss”. When you recruit new people, then you are their “boss”. At the same time, any one that benefits from your work could be considers your boss, so anyone on the company that makes money from you selling, is your boss.

Finally I want to share my personal experience on regards of MLM’s in hope that this may help you.

When a MLM preaches and sells the business, they always say that you work from home few hours a day and you make money. What they failed to mention is that like any other business there are expenses attached to it, internet bill, phone calls, driving to meet people, lunches and so on.

The person I know works on average over 8 hours a day on the business; this is over 160 hours a month [more than a full time job]. Then she has a phone bill of about €75, a petrol bill of about €300 a month and miscellaneous cost of about €100 and then the minimum monthly purchase from the MLM of €80 in products. All those expenses and time yield an income of €600 a month.

Let’s do the maths on this scenario;
Income.......................... €600.00
Expenses ...................... €555.00 (300+100+75+80)
REAL INCOME................... €45.00

Now let’s calculate the hourly rate €45.00 / 160 = €0.28

In this particular month, this person worked for €0.28 an hour, the minimum wage is circa €8.50

This person is being at this business for few months, as you can see yourself, FREEDOM is not free, it comes at an EXPENSIVE cost. In any other “traditional” business, this could be consider illegal, as she is working for less than €1 an hour.

At this point is important to mention that her "boss" up the level in the company, is earning money on the sales she generates, so in reality, she is working for him. He is the one earning money with no work.

true

Excellent post. MLM reminds me of one firm who exhibited at the Franchise show in Dublin some years ago. It was not MLM, but the result for those unfortunate people who invested time and money in the business was the same ...no it was even worse, because not only did they ALL not make a decent income , they all lost money on their initial "investment". OP, you have good writing skills, you should write a book on people who have been "scammed" ( or who have ended up feeling that way anyway ) in to losing money in MLM / franchises / business investments etc in Ireland.

tedshredsonfire

Most self employed people work for a similar wage if they calulated the hours. A business is something that makes you money when your not there or even if you do nothing/very little. Anything else is self employed. I run a business with two staff but wouold still regard myself as self employed. When/if I can get it to a level where it runs itself etc and throws off money then its a business.

carbayon

tedshredsonfire

The difference is that as a "self-employee" person, you may work for the same hourly rate, but you are not making anyone else (except the usual, government and landlord) any richer. This is your business, you work hard at it to secure a future, all you earn in the business is yours.

On an MLM, the person on the level above you makes money from your work. Unlike your case, the MLM worker is making money for the person above them. If I sit on level 1 and I take 10% of the sales from the level below me, and there are 5 people working (and killing themselves) to make themselves money, I am doing nothing to earn the money. The 5 self-employee MLM workers put the effort, the time, the expenses to sell €1,000 and earn €600 gross and about €300 net, I doing nothing, have no expenses and I get 10% of €5,000 or €500; that is more than any of them.

The point I am trying to make is that the MLM emphasis is that "you are your own boss", and that "you work for yourself"; when in reality you are working for the levels above you. You are in a worse situation as you are REALLY making other people richer.

As a business man and a self-employee, you would not like to see 10% of your sales go to some else just because they taught about the business you run.

I have written more about this topic on another link; MLM and the Business Model, for who do you really work? if you have 2 minutes, that goes on a bit more into the entrepreneur sales pitch MLMs use.

carbayon

Romalda

I will get my hands on the book and read it.

Nowhere on my entire posting I mentioned the work QUICK; furthermore, I have never said how long has this person been working for the MLM. The time working for the MLM is measured in years and not in weeks or months.

If you are working for a MLM, my points are valid and you are welcome to test them on yourself.

Are any part of your profits going up the levels?. In other words, is the person above you making money from your work? It yes, what does s/he do to deserve the money? What are your total monthly expenses?

Have you calculated your net income and hourly income? Is it above the minimum hourly rate?

del046

Carbayon,

Well done. Thank god a man of experience and wisdom.
As an accountant in London and Dublin I have come across MLM (Amaway etc ...) companies who do well in times of recession when people loose jobs and are in need as MLM ticks all their boxes.

Sadly the truth is as your describe. Such people are duped by the marketing and then live in denial as their friends/family question the 'benefits' for all their efforts. It seems MLM are similar to cults in this regard.

However, there is salvation as the truth is out there!
If you consider researching this topic further the following may be helpful,
'MLM-the truth' by a professor Taylor. His scientific approach leaves little for the MLM promoters/advocates to deny.

Keep up the good work.
Del046.

MLMwatch

Hi folks,

I was in the Shopping Genie business for a couple of months. I even had a couple of people signed up under me. I started hearing some disturbing rumours about the legality of the system. I have published my research here.
http://byfocal.com/byfotech/?page_id=5

In summary - best left alone.

Cheers,

MLMwatch

del046

Carbayon,

Well done. Thank god a man of experience and wisdom.
As an accountant in London and Dublin I have come across MLM (Amaway etc ...) companies who do well in times of recession when people loose jobs and are in need as MLM ticks all their boxes.

Sadly the truth is as your describe. Such people are duped by the marketing and then live in denial as their friends/family question the 'benefits' for all their efforts. It seems MLM are similar to cults in this regard.

However, there is salvation as the truth is out there!
If you consider researching this topic further the following may be helpful,
'MLM-the truth' by a professor Taylor. His scientific approach leaves little for the MLM promoters/advocates to deny.

Keep up the good work.
Del046.

Trashbat

While I am in agreement with most of the MLM criticism, I would like to clarify one point that is being rehashed.

When it is mentioned that you can be your own boss and such similar terms, there is an arguement that you have to give someone above you a cut. I dont really understand the problem with this tbh. In business terms, surely this person is filling the role of supplier? If i run a company selling a certain product, I dont get to keep all my turnover, because I have to pay for that stock. My earnings, and thus my whole business structure is calculated with this in mind.

I would argue that while MLM is obviously promoting the opportunities in a deceptive manner, saying that "you can be your own boss" is not that untrue, as the overheads are similar to what other self employed people have to deal with.

Apologies if i'm missing the point. further detail would be much appreciated.

carbayon

Trashbat;

I do believe you are missing the point; I will try to clarify this.

Regular business (I sell coffee);
My supplier sells me coffee beans, sugar, chocolates... this are real (physical) products I can sell, make profit and pay the cost back to the supplier. The supplier has a warehouse, an ordering system, stock, delivery trucks, employees and so on.

MLM (I sell LICENSES and products);
I buy the right to sell licenses to possible marks customers. The person above me gets a cut just because I bought the rights from him/her. Once he has sold me the rights, his/her work ends. Every so often s/he may call to see how I am doing and may help me; but yet again, s/he many never do that.

Unlike a traditional business, where a supplier gets paid for a physical product I bought and then sold, on the MLM business model the person gets pay commission for the right-to-sell.

Imagine you have to pay a supplier A for the right to sell coffee, and they you pay a supplier B for the actual product. The more coffee cups you sell, the more money you pay supplier A, as commission is paid per each coffee cup sold. Supplier A is getting paid for "allowing you to sell coffee". Supplier B has to be paid, as he has provided the products.

I can only hope this has cleared the confusion.

del046

Trashbat,
Good point. One major difference........ in your own business you can change the supplier.

dormant_co_acc

I've read the OP post with interest. In the past, I have been in Amway, Euphony and Imagine. Thankfully now, I've a thriving business now that doesn't involve MLM. I felt I should share my own experiences.

With Amway, I found I was being strong-armed into buying a lot of monthly books and weekly tapes. Good material, undoubtedly, but I often wonder how much money was in this merchandise for them. We would be given the whole "well, the people who are serious about the business are on these books and tapes". Also, there was a monthly seminar. Again, you were nobody if you weren't there and you got the whole "I'm surprised at you" looks from your esteemed upline (who's favour you really wanted!).

That said, I think, at least in my experience, a lot of the material in the OP is quite unfair. Yes, not everyone can make a living from it because there are finite people in the world and there is an obvious saturation point. But people go in with their eyes open, if they can't take a bit of salesmanship with a pinch of salt then they probably shouldn't be in business anyway.

Also, the systems I was a part of were designed to reward the member to the point where it was very realistic to overtake your sponsor and other members of your upline.

So while I'm certainly not held up by any of the three above MLMs as the example to follow, I don't harbour any hard feelings because I never felt I was misled or lied to. Only for the fortunate position I'm in now, I would still be doing some form of MLM. Let's not tar all of them with the one brush eh?

carbayon

dormant_co_acc;

Thanks for your inside on the matter.

It is true that all Multi-Level programs allow for a person to "up-scale" the system, but if I am correct, your effort and work (along with sales) still benefit the person that introduced you to the system.

In true reality, if I start the MLM business and introduce 6 people and I stop, it will be easy for 1 or more of the 6 people to sell more and thus pass me. Now they are "Gold Distributors" while I am just a regular "Distributor".

They are part of my tree, thus I still make commission on their sales; I am not aware of a system in which they will be able to de-branch from me. Thus my initial point stands, the more they work, the more I make. This is now better for me as the "top person on the team"; now I have multiple "Gold Distributors" earning me more money while I do less and less work.

Yes, they may (an possibly will) earn more than I do, as they are getting different commission for becoming "Gold Distributor", but I still earn money from their work.

This is the KEY to MLM business; not to sell to many, but to sell to few "eager" people that will go out and work for you. Find few and good and you will be OK, let them work for you.

dormant_co_acc

carbayon wrote: »

It is true that all Multi-Level programs allow for a person to "up-scale" the system, but if I am correct, your effort and work (along with sales) still benefit the person that introduced you to the system.

Correct. Why would you begrudge this to your sponsor? You would have the same benefits waiting for you when members of your immediate group reach these milestones too. This residual income is what attracts people to MLM (i.e. do work once and get paid for it forever) as opposed to the quick buck made from buying for x and selling for x+.

If I take the example of Amway, once I reached a certain stage (called Direct Distrubtors or DD.. this has now changed, not sure what it's called now), my sponsor would received income based on 4% of my efforts from the company, not from me, pretty much forever. I, however, being the one who has done most of the work, would be getting 21%. Sounds fair to me.

carbayon wrote: »

; I am not aware of a system in which they will be able to de-branch from me.

I agree. In my experience, your sponsor will always be your sponsor. However, your sponsor will not always benefit from your efforts more than you will. As shown above, it is possible to reach a certain stage and earn more from your efforts than your sponsor does.

carbayon wrote: »

This is the KEY to MLM business; not to sell to many, but to sell to few "eager" people that will go out and work for you. Find few and good and you will be OK, let them work for you.

This is where I feel we differ most. The term I often heard in MLM circles was "help your group to earn money and you will make money". So, it's not the group working for you, it's actually you working to help them. The power is in the numbers. It's not about a few people selling a lot of products. It's about a lot of people selling a few products.

I would find there are generally two reactions from people when they see a MLM plan.

1) They get it. Where do I sign? I'll have six people in front of your whiteboard on Monday!!

2) Wow, look at the amount of money he makes off me. This is a rip!

With respect, I feel you're in number two here. Too concerned with what's on the plates around you to work on filling your own. It becomes easy to walk away and slate it as an unfair system rather than put the shoulder to the wheel and put time into something that, yes, might not pay off. Seriously though, whose fault is that?...

I tried MLM and I failed at it. I don't feel the MLMs failed me. The system was there and I didn't use it (though, I wish I had been stronger in Amway against the books, tapes and seminars but I was very young and impressionable then).

If I had one other gripe about MLMs, it is the whole "everyone you know is a prospect" teachings..... "A stranger is a prospect you haven't met"... It gets to the stage where people will actually avoid you because they know what's coming.... "Say, if you had an extra couple of hundred quid a month, how much easier would that make life for you...". Also, I took it as a personal rejection when people declined to participate. It's hard not to.

r3nu4l

Romalda wrote: »

Read Robert Kiyosaki's book 'The business of the 21st century' and maybe you will understand more. If not - you're one of those people who try to give a smart opinion on something that they don't fully understand

Robert Kiyosaki of Rich Dad fame? If so I'll stop there thanks. I loved his Rich Dad, Poor Dad book but closer inspection reveals plenty of anachronisms that cast doubt on the veracity of some of what he says, no doubt he will claim that they are just stories with a truth behind them.

In fact, when I read the book I was so shocked about some of what I read that I decided to search online to see if I could find out anything about the guy.

I found this

Rich Dad, Poor Dad is one of the dumbest financial advice books I have ever read. It contains many factual errors and numerous extremely unlikely accounts of events that supposedly occurred.

Kiyosaki is a salesman and a motivational speaker. He has no financial expertise and won’t disclose his supposed real estate or other investment success.

Rich Dad, Poor Dad contains much wrong advice, much bad advice, some dangerous advice, and virtually no good advice.

Either way, quoting RK as a good example of understanding more shows that perhaps YOU are one of the people who needs to understand more.

carbayon

dormant_co_acc;

I have said this before on my answers to tedshredsonfire and Trashbat but I see the model as being wrong on the sense that people benefit your hard work.

If the person above you helps you to get 10% of the sales, then s/he should be entitled to 10% commission, if they don't help at all, they should get nothing at all.

If al I have to do is call my "team" and encourage them to sell more, I am in my house using the phone to encourage them. Meanwhile, they are on the road driving and meeting people, why should I earn money from the work they do?

If I am in the sceptical camp is because the maths don't support the story told. If I sell to 5 people and 5 people sell to 5 and so on, in 4 levels you reach 1,024 in the scheme, that is a small town or a neighbourhood ALL joined, so to whom do they sell now? MLM are moving to "INTERNET" as an End Less supply of people. So how can you work with your team, when you have members all over the world?

The very last thing I have you say, is that you have the same symptom as the person I know, the "only if I...". Believe me when I say to you that you failed not because anything you did or failed to do, but because the system is design for you to failed from the start.

Thinking "only if I had bought more...." or "only if I had attended more meetings" or "only if I have done..." would have never allowed you to make more money. MLMs are carefully set to ensure you are always on this mode of "if I only...", thus you keep buying more of what they sell.

Trust me when I say to you that you failed because the system was against you and that the only thing you did wrong was join in the first place.

dormant_co_acc

carbayon wrote: »

dormant_co_acc;

I have said this before on my answers to tedshredsonfire and Trashbat but I see the model as being wrong on the sense that people benefit your hard work.

If the person above you helps you to get 10% of the sales, then s/he should be entitled to 10% commission, if they don't help at all, they should get nothing at all.

If al I have to do is call my "team" and encourage them to sell more, I am in my house using the phone to encourage them. Meanwhile, they are on the road driving and meeting people, why should I earn money from the work they do?

No system can reward the sponsor for the exact amount of sales that they directly contributed towards. Plus, the exact percentage would be so hard to quantify. Indirectly though, they have contributed to 100%. Think about that one.

carbayon wrote: »

If I am in the sceptical camp is because the maths don't support the story told. If I sell to 5 people and 5 people sell to 5 and so on, in 4 levels you reach 1,024 in the scheme, that is a small town or a neighbourhood ALL joined, so to whom do they sell now?

Sell to people outside that neighbourhood maybe?....

carbayon wrote: »

MLM are moving to "INTERNET" as an End Less supply of people. So how can you work with your team, when you have members all over the world?

I'm not quite sure of the logistics but my understanding from Amway was that if I signed someone up in another country, there was an arrangement I could enter where someone would actively support the new member and get a cut of what I would have been normally entitled to.

Also, I understand what you mean about the "If I had only done x or said y" but I just didn't make it happen, plain and simple...

The fact of the matter is, and this would be my main argument.. people have succeeded at MLM since I have left it and new people will continue to join MLMs tomorrow and while many will fail, many will also succeed. This is why I feel your criticisms are flawed.