MLM is Not Like Corporate America

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One of the common statements made by people in favor of multi-level marketing is that it is just like corporate America. We call MLM a pyramid scheme, and corporate America is a pyramid too! That’s simply not true.

While the SHAPE of the hierarchy of people looks like a pyramid in MLM and in corporate Amercia (one person at the head of the company, a few below, managing several below them, and so on)… that is where the similarities end. Continue reading

No Such Things as a Good MLM

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pyramid-selling-scamDefenders of multi-level marketing (MLM) will tell you that some companies “do it” right, while some companies “do it” wrong. One such example is John Hempton, a clown who thinks that Herbalife is the greatest thing since sliced bread. He says the following in an article about Nu-Skin:

Disclosure: I am predisposed to believe that multi-level-marketing schemes like Avon, Herbalife or Nu Skin are likely to be good cash generative businesses. I have done much looking at Herbalife and got very long. I do not think a negative interpretation of Herbalife is sustainable. Herbalife’s business is legal, sustainable and will generate vastly more cash in five years. Nu Skin does not lend itself to such definitive opinions. History is littered with MLMs that no longer exist – and a few like Avon, Nu Skin, Herbalife, Amway and Mary Kay which have lasted decades.

The fact that a multi-level marketing company like Mary Kay Cosmetics has been around for more than 50 years does not define whether it is a fraud or scam. Remember Enron (in business more than 15 years prior to the fraud being discovered) and Bernie Madoff (whose investment firm was in business for more than 40 years before his Ponzi scheme was revealed)? Length of time in operation has nothing to do with whether something is a scam or a fraud. Being traded on the New York Stock Exchange is not an indicator of legitimacy either. Continue reading

MLM Income Disclosure Statements

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A collection of annual income disclosure statements published by multi-level marketing companies, continuously updated.

Some MLMs release income disclosures or earnings disclosures. These numbers are not required to be disclosed in the United States, but some of the companies do it anyway to appear transparent. The disclosures theoretically provide insight into how much distributors earn in commissions or overrides, but they are generally worthless. They are worthless because of what they do not disclose.

Multilevel marketing companies purposely omit important information that would allow potential distributors or investors to have real insight into these plans. In general, earnings disclosure statements often fail to provide the following information that is critical to understanding the plans and the results: Continue reading

Create a Multi-Level Marketing Company in Ten Easy Steps

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Hundreds of thousands of Americans get sucked into Multi-Level Marketing (MLM) companies each year. From Mary Kay to Amway to Herbalife to PrePaid Legal, the list is seemingly endless. Each offers its own special spin on the products it sells, but the main focus of an MLM is on recruiting new members.

MLMs live and die by the recruitment of new members, who make the bulk of the product purchases from the company. Little of the product is resold to an actual end user, but the MLM company doesn’t care. The sale has been made to the distributor (or associate or representative or member or consultant or whatever term you like).

It’s widely known that those in MLMs make little money. In fact, almost everyone in the pyramid loses money. The real money makers in the scheme are those who own the MLM company. So in the spirit of giving, I’m offering you ten simple steps toward creating your very own MLM. Start yours now and cash in on all those people who are dying to hear about your “opportunity”!

1. Come up with a product or service that you can make sound revolutionary. Funky berry juice, groundbreaking face cream, or unusual financial services will be fine. The only caveat is that you must be able to make it sound like something that’s never been done quite this way before. This adds to the mystique.

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How to Avoid Business Opportunity Frauds and MLM Scams

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In a past appearance on CNBC’s On the Money, Tracy Coenen talked about how consumers could protect themselves from business opportunity scams and multi-level marketing (MLM) schemes. MLMs parade themselves around as business opportunities, but they are nothing more than elaborate pyramid schemes that swindle millions of consumers each year.

LuLaRoe Fraud Complaints

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A recent article at CBS MoneyWatch exposes multi-level marketing company LuLaRoe and the alleged fraud being perpetrated on its consultants. You may remember that I criticized LuLaRoe and its MLM model a few months ago based on the false narrative that lots of women are getting rich by selling the leggings. One of my main criticisms:

Business Insider promoted the idea that LuLaRoe is making women rich. While there ARE a handful of women who are making a ton of money from the company, only an incredibly tiny fraction of participants can make this type of money. Why? Simple math. If you’re making a 3% to 5% commission on your downline (as you’ll see below), it takes $700,000 of wholesale purchases by your downline to earn $35,000 in a month. (I realize that various bonuses change the math, but I’m using these numbers to simplify things.)

Other problems that I have with this “business model”: Continue reading

Multi-Level Marketing in Uganda

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No group of people, no matter how poor, are immune to the predatory practices of multi-level marketing (MLM) companies.  These companies are nothing but glorified pyramid schemes, causing financial losses for more than 99% who get involved.

A Chinese MLM called Tiens has set up shop in Uganda, despite the fact that the average income is $2 per day (so few people can afford overpriced snake oil). Tiens is using false income claims and lies about medical cures to recruit distributors.

Filmmaker Priya Biring did a 25 minute film on this MLM, entitled “Uganda’s Health Pyramid,”  and produced by Al Jazeera News.

Priya says the following in the article that accompanies the video: Continue reading

TelexFree: MLMs are Pyramid Schemes

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This week we heard news of $20 million (hidden in a box spring) being seized by the federal agents in its ongoing investigation of TelexFree, a multi-level marketing company that the government says was a massive Ponzi scheme. You can read all about the TelexFree case on Patrick Pretty’s blog.

News reports about TeleFree refer to it as a Ponzi scheme (also called pyramid scheme). What isn’t mentioned anymore is the fact that it operated as a multi-level marketing company, just like Amway, Mary Kay, Herbalife, LuLaRoe, and hundreds of other companies you hear about on a daily basis. While it is NOW acnowledged that TelexFree was a Ponzi scheme, there was a time when it operated exactly as these other MLMs do.

The FBI says the following about TelexFree: Continue reading

Loss and Failure Rates in Multi-Level Marketing (MLM)

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More than 99% of people lose money in multi-level marketing (MLM). In Chapter 7 of Dr. Jon Taylor’s book, The Case (For and) Against Multi-Level Marketing, he details the failure rates of participants in multi-lievel marketing companies. In order to analyze the true failure rates and to calculate actual profits or losses from participation in these (improperly termed) “business opportunities,” it is necessary to wade through confusing and incomplete disclosures and to estimate figures that are critical but not provided by the companies.

Dr. Taylor completes a thorough analysis of the numbers. Of the hundreds of multi-level marketing companies active in the United States, Dr. Taylor could find income disclosure statements for only 30 of them. What are the others hiding?

The analysis of these 30 income disclosure statements was completed through the following process:

1. Obtain Average Earnings Statistics – These purport to show the average earnings by distributor level.
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Myth of Retail Sales in Multi-Level Marketing

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Multi-level marketing companies (MLMs) like to refer to themselves as “Direct Sales” companies, because this puts the focus on the sale of the product or service, and takes focus off the business of recruiting.

I’ve been researching MLMs for years, and I’ve found that companies use the product or services simply as bait and a cover. It is “bait” for recruiting because it looks legitimate to a potential recruit. (How many people would join MLMs if they were truthful and told you that what you really had to do was constantly recruit new people?)

It is a “cover,” since it is what makes the schemes legal under state and federal laws. Pyramid schemes (which are simply a transfer of money up a pyramid-like structure) are illegal. But if you use a legitimate product or service as your cover and your reason for transferring money up the pyramid, you can successfully claim that your company is not a pyramid scheme. Again, the product or service takes the focus off recruiting.

But the truth is that the people involved in multilevel marketing companies do little actual retailing of products or services to third-party customers (non-members of the scheme). The vast majority of the purchases of products and services are made by the members of the MLMs themselves, either to stock inventory (which they will probably never be able to sell) or for personal consumption. Continue reading