I ran across a blog that did a series examining Primerica Financial Services, a multi-level marketing company that purports to sell financial products. While the company does offer life insurance, investments, and other financial products, like a typical MLM… they’re really out there selling the opportunity. The name of the game is endless recruiting.
The Financial Blogger did several nice posts about the company, but this explanation of the pyramid scheme aspect of Primerica was exceptional:
Is it a pyramidal scheme? In legal terms, the answer is no. However, it does not mean that because it is legal that the company’ structure is not shape like a pyramid. Everybody is making a cut on the people below them; it goes up to four level. I think this is clear that the guy on the top makes the big bucks. They will answer that every company is like that as the President and the VP’s are in the driver’ seat and the other employees are left with nothing. It is right also.
However, they do not explain why they are able to give a commission to four people for the same sale. The answer is pretty easy: they have to cut down the commission compared to the regular industry. As an example, if a life insurance of 100K would provide another agent with $1,500 in commission, a Primerica advisor at the lowest level will earn $900, then his recruiter will receive $300, the recruiter’s recruiter will get $200 and finally the guy who put all of them together will earn $100.
So for those who are in to sell, Primerica is definitely not the right place to be. “Yeah, but you could build a team and create your own business”, I guess they forgot that the best sellers on earth are not necessarily interested in building a team compared to earning the big bucks right away. The main problem I see with this approach is that you have to convince individual to work hard for less that they could earn only because they have the option of building a team a earn extra commission on somebody else’s work. In fact, if everybody concentrates on recruiting individuals, who will make the sales? You may have a hundred people below you, if nobody sales, it still makes 0$ in your pocket.
Check out the blogger’s whole series on Primerica.