Are people really making money from all this recruiting of FHTM Independent Representatives? The vast majority aren’t.

An income disclosure statement for Fortune Hi Tech Marketing from January 2010 shows exactly how dismal the financial results are for its representatives:

• 54% of representatives who qualified for commissions got an average of $93 per month
• 41% of representatives who qualified for commissions got an average of $256 per month

These figure are before all business expenses. Those who have been involved with multi-level marketing know that there are plenty of expenses, including fees for meetings, travel expenses, promotional materials, sign-up fees, renewal fees, and marketing costs.  I doubt many of these 95% of representatives receiving commission checks actually turn a profit.

But here’s the best part of the above disclosures: They exclude the 28% of FHTM representatives who got $0 in commissions. Only a careful reading of the disclosure statement reveals this fact.

If we re-run the numbers using all of the representatives of Fortune High Tech Marketing, we find that:

• 28% of reps receive commissions of $0
• 39% of reps receive commissions of $93 per month
• 30% of reps receive commissions of $256 per month

In total, we see that 97% of people participating in FHTM make between $0 and $256 per month, before deducting any business expenses. Clearly, it’s almost impossible to make a living in this scheme.

And here’s another important fact to note: The 72% of all representatives who received a commission check during the year included in the income disclosure statement didn’t necessarily receive that average commission every month. They only had to receive one monthly commission check to be included in the 72% receiving commissions.

But don’t take my word for it! Stuart Watson, a television reporter in North Carolina dissected the same income disclosure statement from FHTM and came to the same conclusion:

In the paragraphs under the chart, FHTM notes that during the reporting period covered in the chart (January 23, 2009 to January 20, 2010) “…71.85 percent of all active independent representatives earned at least one commission or bonus payment.”

That leaves 28.85 percent of sales reps earning nothing.

Additionally, the statement says the reported average monthly income only includes the months that sales reps received some payment.

Robert FitzPatrick of Pyramid Scheme Alert took the analysis further:

The data revealed:

–  28.15% — Earn nothing
– “Manager” Level:  39% — earn $93 on average (only on the months they got a check)
– “Regional Sales Manager” Level :  29% — $256 on average (only on the months they got a check)

The first three levels at the bottom constitute 96% and the maximum, on average, earned by these three levels is $256. When the average for each level is multiplied by the number in the level and the sums are totalled, an aggregate for this 96% group is revealed:

The average paid out to the bottom 96% is $115 per mo. This is less than the initial and monthly cost of participating, not counting all other normal business costs.

Bad as they are, in reality, the outcome is worse that those figures show for consumers who pay hundreds of dollars to join and more each month to pursue the scheme’s income promise. FHTM calculated as “averages” only the months that the recruits earned anything at all, and excluded from calculations the months they earned nothing! In its own disclosure, it offered “percentages” based on exclusion of all the people – nearly a third of the total – who never earned anything ever, and then it hid the “dropout rates”, thereby obscuring the true scale of losses.

These figures – especially when the distortion and trickery are factored – display the typical 99% loss rates that apply to virtually all MLMs.

It’s probably a good time to point out that supporters of multi-level marketing schemes suggest that “regular” companies also look like pyramids. They have fewer people at the top (who are highly compensated) and many more people at the bottom (who make far less).

However, there is a clear distinction between normal companies and MLM. In a normal company, all employees make money. Some more, some less. But they all make money. And the people at the bottom aren’t paying the people at the top. Everyone works, and everyone gets paid based on the “value” of the job which both the employer and employee agree to in the form of wages and benefits.

In a multi-level marketing structure, however,  most of the people do not make any money. They are not getting paid for their efforts. They are “paying to play.” There are a handful of highly compensated people at the top making huge money, a slightly larger handful of people who are making a living wage, a much larger handful who are not making enough to survive on much less provide even a respectable part-time income, and the vast majority are losing money.

So no, multilevel marketing companies and pyramid schemes are nothing like normal businesses.

This great news story shows the false promises being made to Fortune recruits, and how the pyramid relies on constant recruiting in order for the representatives to make any money. From the story:

Isaacs said, “If you’re a regional manager and you’re getting $200 every time somebody comes in the business, and you’re getting 5 cents a month off their cell phone, what are you going to go do? You’re certainly not going to go sell cell phones. The whole presentation that they give you–and I’ve asked that question- isn’t this a pyramid scheme? Well, it can’t be a pyramid scheme if all these Fortune 500 companies have agreed to do business with FHTM. They wouldn’t do business with an illegal company. The problem is, they’re not doing any business with FHTM.”

Representatives at the top of the pyramid, however, have an even greater incentive to continue the recruiting. They travel the country putting on recruiting events because they get a cut of the action for each person recruited into their downline:

Former representatives say that the top National Sales Managers can each make $20,000 on a good night of recruiting, so they constantly tour the country, speaking at local Fortune meetings.

“He’s there for one reason and one reason only. When you get in the business, the guy makes $400. So the only thing he cares about is your $400. He doesn’t care if you’re successful or not. He knows it’s a numbers game,” said Isaacs.

But if these pyramid toppers can do it, why can’t others? In theory, it is possible for someone to start today and build a large organization and make the big money. In reality, it almost never happens. The numbers are simply stacked against the new representatives, as they are in all MLMs.  There are too many other representatives running around trying to do the same thing. People are tired of these recruiting schemes. Any of a number of reasons make it almost impossible for a newbie to make the big money. To do it, you need a steady supply of money to cover the expenses of fast-and-furious recruiting activities, unlimited time to devote to the schemes (no real job or family responsibilities can take time away from this), and a good dose of luck.

When people criticize Fortune (or any other MLM, for that matter), they are accused of “not understanding” the business. FHTM CEO Tom Mills said exactly that in a television interview about the complaints from representatives and law enforcement actions against the company. Critics are often accused of being “anti-MLM zelots,” of having hidden agendas or financial motives, or simply being “dream stealers.” It is incomprehensible to those in the fog of multi-level marketing that some critics just want consumers to know the truth about these recruiting scams.

It is also common to blame the victim, saying “no one put a gun to his head and forced him to join.”  The victim will also be criticized for not working hard enough, not staying in the scheme long enough, or not doing the “right things” while participating in the scheme. It’s the victim’s fault if he didn’t do enough research before signing up, or if he’s not “good at sales,” or otherwise has some personal deficiency which the recruiters will claim is the reason he failed.

They will never admit that while people do have choices and do control their own actions, it is the goal of the recruiters to obscure the truth about the MLM companies. They will never tell you about the massive failure rates. They will never say how hard it is to get new recruits. They will never tell you how much time, money, and effort most spend in the scheme, with little or no return on that investment. They purposely conceal the true nature of the “business” and the actual results most people have.

No, their goal is to tell you that this is a legitimate business and that anyone can succeed at it. They lie to the prospective recruits, yet want recruits to take personal responsibility for getting involved (no one held a gun to your head!) David Brear of Corporate Fraud Watch writes:

At the same time, numerous dissidents, testify that the ‘FHTM’ plan for financial freedom is, in point of fact, a dissimulated closed-market swindle, in which unlawful internal payments (in exchange for effectively-unsalable wampum) have been arbitrarily defined as lawful external ‘sales.’ In this way, tens of thousands of ‘FHTM’ adherents continue to be deceived into handing over regular cash-payments to a counterfeit ‘direct selling company’ controlled by a little gang of sanctimonious racketeers, on the pretext that anyone can retire from work by being their own loyal ‘FHTM ‘ customer and by recruiting their friends and relations to be their own loyal customers, etc. ad infinitum.

It is widely understood by those who have done the research that it is nearly impossible to make a living in multi-level marketing. Supporters of MLM claim this is because people don’t work hard enough, quit too soon, or simply don’t WANT to make any money. In a USA Today article criticizing Fortune, CEO Tom Mills  claimed that success depended on hard work and leadership, and that those making little money only work part time.

Critics of multilevel marketing and pyramid schemes know the truth, however: These scams are set up in such a way that almost everyone is guaranteed to lose money.