Multi-Level Marketing is not a Business (It’s a Pyramid Scheme)

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direct-selling-pyramid-schemeOver the weekend, cracked.com posted an insightful article about the realities of multi-level marketing. Simply put, MLM is the same thing as pyramid scheme. It’s not a business. Almost everyone loses money. The behaviors are cult-like. And you will NOT be successful with MLM, so don’t bother trying to recruit your friends and family.

Author Kathy Benjamin calls pyramid schemes the world’s fastest growing industry, and she is right. You see the evidence all over Facebook. Several of you friends are inviting you to their party, or they’re posting staged before and after pictures and leaving cryptic messages that say “ask me how!” They often will not mention the name of the product they’re pushing, because they know they’ll lose you as a potential victim if you Google the product before they can fill your head with lies about how good the product is.

Which companies are we talking about? Some of the most common names heard are Amway, Mary Kay, Herbalife, Usana, Avon, Isasgenix, Legal Shield, Forever Living, Advocare, and Shaklee. But there are literally hundreds of these companies around. Basically any company that shows you a product and then offers you an “opportunity” to buy the product and wholesale and/or make some money selling to family and friends is a MLM. Look for keywords like opportunity, compensation plan, sharing (“we don’t sell, we share!”), independent, and recruiting.

How prevalent is MLM? In the United States, between $15 billion and $30 billion is sucked out of the economy by multi-level marketing predators each year. You’ll hear MLM pushers say that this is an inaccurate characterization, as the money was used to buy products. Yes, some of the money went toward the products – – over priced products that aren’t any better quality than you could get at Wal-Mart. So consumers are wasting money on these products, likely buying more than they can ever sell or consume because they must meet certain minimums to qualify for paltry commissions in the schemes.

Pyramid schemes have been around forever, and our government allows them to operate. Promoters will tell you that MLM is perfectly legal, so there is nothing wrong with getting involved. Just because the law doesn’t stop these companies from operating doesn’t mean they’re any good. Even though 99% of participants lose money in multi-level marketing, consumers still get sucked in by the millions. Kathy writes:

One of the reasons people have been taken in, over and over, decade after decade, is the recruitment practices these companies use. When you get right down to the way that most of these MLMs recruit people, you can’t help but start thinking that they sound like cults. The companies draw people in with a sense of community and the bonds of personal relationships, but when you decide you want to get out, they use those same things against you. People will choose to keep losing money over losing friends and their support structure. Some families of MLM members get so desperate they actually hire people to get their loved ones out of the programs, just like with cults.

Multi-level marketing companies are based on endless chain recruitment. They live or die based on the ability of distributors constantly recruiting more people. They make you think the MLM is really about selling products, but that’s a complete lie. The products are used to make the schemes look like legitimate businesses, when the bottom line is that it is all about recruiting. Kathy explains that saturation from this recruiting can happen faster than you think:

This progression works wonderfully when only a handful of people are making all the money from it. If everyone in your town uses one shampoo, no one loses out and you all have fabulous hair. But MLM programs mean that instead of just recommending your friends try a new nail polish or jewelry or essential oil, you actually need to encourage them to sell these things as well in order to make money from them. And they need to encourage more people. And so on and so on and so on.

Soon, way too many people in one area, or with the same group of friends, are selling the same thing. How soon? Well, if one person starts out and recruits two people, and they each recruit two people, etc., it would only take 28 recruitment cycles for virtually EVERYONE IN THE USA to be selling the same product.

But maybe the biggest problem is that no matter how hard you work, you are almost guaranteed to lose money. MLM supporters will claim that those who lose money just didn’t work hard enough. That’s not true. It’s simple mathematics that guarantee almost everyone will lose money. You can only make money if large numbers of people are recruited below you. That necessarily precludes almost everyone from making money, because they can’t recruit into infinity. As the pyramid below you gets wider, the new participants added have an even smaller chance of making money because there aren’t enough people in the world for everyone to make money.

Kathy writes:

Herbalife, the company getting lawsuited all over the place that we discussed above? Of all their sellers, 99.92 percent lose money. And that is just when you are a part of the scheme. When I asked friends about their experiences working for these types of businesses, most of them said they had hundreds, even thousands of dollars’ worth of stock left after they finally got out. The companies were not about to buy that back — they just had to add the loss to their other ones.

No matter what your recruiter tells you, you aren’t going to make money. 99% of people lose money in multi-level marketing. Those people bragging that they make money? Almost all of them are lying. They inflate their gross income, leave out business expenses, and otherwise flat out lie to you about making money. Of course they’re going to say that they are making money. They are trying to suck you into doing what they’re doing. If they told you they were losing money, you wouldn’t join.

Here’s the bottom line: Recruiting others to recruit others in not a business. You are almost guaranteed to lose money. It’s not fun, and your friends and family don’t want to participate. Since our government won’t stop MLMs from operating, the only answer is to educate consumers so they avoid these scams.

19 thoughts on “Multi-Level Marketing is not a Business (It’s a Pyramid Scheme)

  1. Jo

    Tracy,

    I have a question, Do you know MLM company call exFuze?
    My ex got roped into exFuze, and she’s been working really hard at it.
    Do you have any info on them? or percentage of people losing money in them?
    Would be really great to have your help.

    Jo

  2. One of the great things about multi-level marketing is that it is so affordable, anyone can join. One of the worst things about multi-level marketing is that it is so affordable, anyone can join.

  3. Monica

    I have joined three MLM companies and have yet to see any real profits. RUN!!! don’t sign up!!!

  4. Pamela Stone

    It’s funny LOL the stupid an unintelligent woman who wrote this is just that- stupid and an unintelligent.. And I am not even in any MLM company… She just passing her failures onto other people.. I wish I could slap her across the face .. Once should be enough.

  5. Lila

    #PamelaStone–perhaps before accusing others of being unintelligent you should proofread your own comments for spelling, grammar and punctuation errors.

  6. lam

    all above statement happened to me except she Sana took all my info licence, bank check and social insurance.its now reported as stolen. hope these scammers all get caught and put in for life imprisonment.

  7. Ron Allen

    Pamela Stone–this really isnt rocket science. Basic marketing fundamentals teach us that supply and demand, and market saturation mean everything to marketing success. That’s something MLM fails at all the time. Market saturation is discussed in this article, and there’s nothing stupid about it.

  8. Mikecamil

    Thank you for this great article. I just wanted to point out that for MLM’s you don’t have sell just products, it also includes services. That is the case of Primerica. They sell primarily overpriced Life Insurance. As many MLM’s, they claim not to be a Pyramid, but if you MUST recruit others continually to succeed, then it is a Pyramid Scheme

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