Noted MLM expert Robert FitzPatrick did a recent blog post on the YourTravelBiz.com lawsuit filed by the California Attorney General. He has a nice analysis of how and why YTB is nothing more than a pyramid. These multi-level marketing companies are almost always the same, they each just have a different “hook.” In this case, the hook is travel services, although according to the company’s own numbers, very little travel is actually sold. (That’s a clue to it being a pyramid scheme… Little “real” business done, in favor of instead selling a dream and recruiting with that dream.)
Here are some interesting statistics and analysis from Fitzpatrick:
One of the main issues highlighted by the California AG is that 99% of YTB participants never earn a profit and virtually all the commissions go to the top 1%. This outcome obviously makes all claims about a YTB “income opportunity” false.
But, this outcome is the same for nearly all DSA/MLMs!
A study of eleven (11) MLMs, including YTB, showed the 99% loss rate was true for every one of the MLMs. And in 10 out of the 11, the majority of all commissions wound up in the hands of the top 1%. For some as much as 85% (Herbalife) went to the top 1%. Those 11 are representative of hundreds of other MLMs. All are members of DSA.
The massive losses among the MLM recruits are calculated and pre-determined. The losses are built into the MLM model and are the inevitable result of the “endless chain” offer. According to the laws of mathematics only a tiny fraction of all the participants could possibly be at the top of a large downline. Most have to be losers for there to be any “winners.” After all, it is the lost money from the downline that becomes the “profit” to the upline!
When all the people invest in an “unlimited opportunity” based on an “endlessly expanding” chain something has to give. Won’t the scheme totally collapse? Yes, in a way. What occurs is that the bottom of the pyramid, composed of the lastest recruits, collapses continuously, and the scheme itself rebuilds continuously.
What gives is that “collapse” is borne by the last ones in. Massive losses are suffered by the recruits who pursued the impossible mission of building “unlimited” downlines when they were enrolled at the bottom of the recruiters’ downlines. They were doomed to lose from the day they signed up.
Their losses and the scheme’s “rebuilding” process take the form of “churning.”
At YTB, 50-80% of the recruits churn (quit and are replaced) within one year! At the start of 2007 YTB reported that it had 59,736 “registered travel agents.” During the year, it recruited another 139,237, but lost 67,908. About 50% of the number that joined had quit during the same time period. This is exactly the same with most other DSA/MLM members. The “quitters and losers” leave the MLM, and nearly all of them stop buying or using the products or service.
50-80% annual churn rates occur in ALL MLMs because the “endless chain” model causes a 99% “failure” rate. So, most quit the scheme in less than a year, after they suffer punishing financial losses. The scheme continues only if it can replace the “losers.” It uses the same claims about “unlimited income” to fill the slots each year vacated by the previous year’s “quitters.”
Could it be that all these MLM recruits did not care to make money? They signed sales contracts. They surrendered rights as consumers to become “contractors”. They took on risky legal obligations. They paid fees. They bought sales kits. But could it be that they only wanted the products or travel services at a discount? They never intended to make any income?
Well, could be, except, why would so many of such avid and loyal consumers quit the MLM schemes so quickly and never use those products ever again? Herbalife, for example, reported that 80% of all its distributors quit the scheme each year. They don’t come back. Strange behavior for people who “loved the product”! Their “strange” behavior is evidence that what really motivated them to sign up and buy the goods in the first place was the lure of the endless chain, the impossible dream.
In the end, YTB’s sales model, marketing scheme, income promises, loss rates for its agents, concentration of commissions to its top recruiters, and churn rates of “quitters” are the mirror image of nearly all other MLMs in the DSA.