The Lure of Multi-Level Marketing

I constantly marvel at how multi-level marketing (MLM) can continue to lure in millions of people a year, who collectively pump billions of dollars into these losers. Time and again, industry experts calculate a failure rate of 99% (failure = losing money on the deal) … And still consumers line up to sign up for these things.

Even the COLD HARD FACT that they have almost no chance of turning a profit does not deter them. Stop and think about it. These people have less than a 1% chance of turning a profit in MLM, yet they still sign up and pay hundreds or thosands of dollars each into these recruiting schemes. (Schemes… because the name of the game is signing them up and getting their money via fees to join and/or inventory purchases.) Consumers have a better chance of coming out ahead if they simply put their money on a table in Vegas.

Today Robert FitzPatrick, noted expert on multi-level marketing compares the Wall Street crisis to MLMs. You should read his entire post, but here is a short part on the MLM scam:

In MLMs, each consumer is solicited to pay fees and to buy into the “pay plan” by purchasing MLM inventory (soap, vitamins, fruit juice, weight loss pills, skin lotion, etc.) at prescribed monthly amounts. Most of the initial investment in the “home-based business” is “inventory.” Later, it will include seminars, books, CDs, more inventory, travel, lost time and lost friendships. These investments will be paid for from savings or credit card debt.

But, the inventory, it turns out, is priced far too high to be profitably resold. So, the net value of the business is negative unless… unless new people join the “downline.” Income is based on later investors joining that program. So, more investments are made in the hopes of building that downline. Why would more people join your downline? Because they can make money by getting others to join their downline also. It has no end.

Without new people coming in later, the initial investment in MLM fees and inventory becomes a net loss. All further investments in more inventory, business expenses, seminars, training, etc., only make the losses worse. Recruiting new investors is the only option to recouping investments and making a profit.

However, the MLM consumer soon learns that the market is saturated with MLMers and very few of the millions of new recruits can recruit a large enough downline. For many to succeed, there would have to be hundreds of millions of new MLMers. There simply are not enough qualified people to “buy in.”


  1. Mike

    What is the success rate of non MLM small business owners, according to the SBA?

    I hear all the time about people in MLM going into debt; however, my dad was in debt almost a quarter million dollars with loans, leases, inventory, and payroll before he could open his business.

    I am an MLMer and I think you are awesome, Tracey. The problem with the MLM industry is that it’s made it too easy for people to go into business. I’m sick of people that tell me how excited they are to start their business and then give up in a month or so, saying it doesn’t work. Thank you for your posts and blogs because it scares these people out of joining.

    Business is in my blood as my whole family is made up of successful business owners. I have no doubt you’ve heard of or are familiar with at least one of my family’s businesses. I’m the first MLMer, though. I like MLM because it’s much, much less overhead than a “brick and mortar” business. There are a number of crooks in this industry; however, the majority of people are good people. Just like anything else, we hear more about the bad stuff than good stuff.

    Tracey, business person to business person, how much have you spent over your life on courses, books, and seminars that have allowed you, combined with your inner drive, to become the expert that you are?

    I always recommend my downline attend seminars, read as many books as possible, and take any course they can afford. These are all meant to better there knowledge and educate them. As you and I both know, all expenses incurred for one’s business are tax deductible, including seminars, inventory, and books. I NEVER want my downline spending money they don’t have, though. We are in business to make money, not go broke. I’m in this for the long haul and I expect my business partners to be the same.

    Some people in this world are not meant to be in business, period. This is where you come in. I wish more people would read your sites because the serious, dedicated, business smart, and goal oriented people are the only one’s that should get into MLM or any other kind of business.

    I’ve actually turned people away and refused to let them join my downline because they wanted to get rich quick.

    If we took an uneducated, lazy, unclean person and GAVE him/her a McDonald’s franchise; do you think they could make it work? Maybe, but the odds are against him/her.

    I’m probably one of the few MLMers that think you do a good job. I don’t agree with everything you say, but that’s why we live in America.

    Keep up the great work and hope you are having a great day!


  2. Tracy Coenen

    LOLLLLLLLLLL – Spending money on real education and training cannot in any way be compared to the crap sold to people in MLMs. Here’s what they’re selling to the people in MLMs as training:

    * believe in yourself
    * don’t quit
    * get five names a day each day
    * you can make it to the top

    There. I gave it all away for free. Why? Because those statements are worth nothing.

  3. Mike

    Who is “they?” Are you talking about me?

    I agree with all of those except the “get five names a day each day.”
    I don’t build my business this way. Now, with that said the other three are values our parents instilled in us from an early age.

    People of all walks of life and careers are still paying for those types of seminars and books. Has anybody read or watched the Tony Robbins motivational series or videos?

    I’ve seen you address Dave Ramsey in previous posts throughout your blog. The Total Money Makeover is one of the many books on a recommended reading list for my new distributors. Same with anything written by Robert Kiyosaki (Rich Dad, Poor Dad) who in fact, is very involved with Network Marketing. He and Donald Trump endorse Network Marketing in the book “Why We Want You to Be Rich.”

    Now, I’m not saying these fellow’s opinions are the Gospel; however, all are very successful business people and hold a fair amount of credibility.

    What is “real education?”

    Some would say college is for people not smart enough to learn on their own. They have to go and pay for it. I’m not one of those people, but isn’t “real education” a relative term?

    Dr Steven A Komadina, M.D. and U.S. Senator – New Mexico. Do you think his education is “real?”

    Tracey, do your readers know that you are making an income from the Network Marketing Industry? I’m sure you realize it.

    I won’t say how as the readers can figure it out themselves if they want. Or, are these advertisements the legitimate businesses? :>)

    What were the small business failure statistics on the SBA site?

    Keep up the great work and hope you are having a great day,


  4. Tracy Coenen

    Mike – Real education is that which offers substance and actual knowledge. You know as well as I do that the trash sold by MLM promoters has little to no value. Robert Kiyosaki is a complete clown and I should ban you from this site permanently for suggesting he’s a reputable source of information. I’m not “making money” from this site, so I’m not “making money” from MLMs. I’d love to not have their ads here, unfortunately there’s only so much control I have over what ads Google serves based upon the keywords of my pages.

    P.S. I’m not here to answer your trivia questions, so if you want to know about small business failure rates and the SBA, I suggest you trot on over to their site and look it up yourself.

  5. Mike

    Tracey-What trash sold by what MLM promoters are you talking about? I agree there are bad seeds out there giving the rest of us bad names.

    Instead of blanketing an entire industry as trash, liars, and scum, why not go after and publicize the specific bad seeds? You’ve done the homework, why not expose the real frauds and compliment the good folks. You don’t have to spend much, if any, on the good ones; just be more specific.

    Kiyosaki a clown? I did not realize this; however, I have read a few articles lately questioning some of his methods. Still, in a lot of circles he’s a credible figure and lots of people have benefited from his books. If you want to ban me from your site for mentioning his name, so be it. It’s your site and you certainly have the right to do as you wish. This is why our country is so great!

    I hope you take all this as strictly debate as it’s pretty tough to get me riled about too much. I’m not asking anybody to change their way of thinking, just be more specific and show off how hard a worker you are.

    The argument of everybody in the MLM industry is trash is like saying all tissue is Kleenex, all pop is Coca Cola, or all accountants are boring. LOL

    Apparently, all accountants are boring. Did you hear the one about why the accountant crossed the road? To bore the people on the other side. Just kidding. LOL

    Keep up the good work and have a great day!


  6. Barbara

    Sad to say but I know more than one person involved in an MLM based business. Even sadder is the fact that these people have been working at it for years and can not seem to make any money. They claim one day they will be making a lot of money. Years later they are still claiming they will make a lot of money. Most new businesses fail within a short period of time in the real world. When people keep claiming that their MLM business will take off one day and we are still sitting here 4-5 years later with nothing to show for that to me is a sign that the MLM busisness is nothing more than a scam. The people in their upline telling them that they need to keep trying they will make it one day are just full of C$#P. Sure a lot of people quit after the first year because they are just not good sales people (they cant sucker someone into the scam). But after more than 3 years of making no money they are just plain STUPID (either that or just brain washed). Can someone explain to me why someone would saty in a Business making no money when in the real world the business basically shuts down when they fail. If it was not for all those suckers signing up the greedy people above them would not be making a cent…

  7. Mike

    Though the recruiting does go on and on, I am at the top of my organization, as my coach is the top of hers, and each member of my downline is the top of theirs, respectively. Each person starts their own team and are at the top of their respective team.

    As far as anybody keeping themselves in a losing situation for three years, I agree 100%. This goes back to my original point. Some people should not be in business, MLM or other, PERIOD. I know there are bad seeds in MLM but somebody losing money over a three year time period, and continues to do so, has nobody to blame but themselves. I know this sounds cold, but it’s a fact and I mean no disrespect.

    On the flip side, if each month of their respective business is better and more profitable than the month before, they should keep going as long as they can pay their bills. If they can’t pay their bills, then maybe a part time job is needed until the respective business grow to the point it can fully fund your friend’s lifestyle.

    If this was a regular job and they were losing money for their respective company, they would have been fired. Actually, if the coach truly wanted to make money, they would have a very strict list of screening questions and won’t allow any old “warm body” in their organization.

    I don’t emphasize recruiting and anybody thinking they will make it in MLM strictly on recruiting will fail….fast. Unfortunately, there are coaches out there, including some in my organization, that stress recruit, recruit, recruit.

    Though recruiting will help a distributor make more money, retailing is what creates the cashflow and keeps the distributor in business longer. I’m not saying I don’t recruit; I have distributors, some good and some not so good, in Canada, UK, across the US, and plan to grow even more, globally. I’m very strict who I let in my organization and spend most of my time retailing. As picky as I try to be, some people get in that shouldn’t, and that is my fault.

    Again, I’m not trying to change anybody’s mind here, just shed a little light. There are some bad people out there and some not so good organizations. Not everybody in the MLM and Network Marketing Industry are bad people.

    Each person needs to do their respective diligence and do what’s right for them.

    Keep fighting the good fight and hope y’all have a great night!


  8. Tracy Coenen

    Unfortunately, the data provided by MLMs themselves shows that more than 99% of people who get involved with MLMS will lose money. That doesn’t sound like much of a money-making venture to me. Studies have also shown that a very low level of actual retailing to actual third-party customers occurs. *sigh*

  9. Mike

    I know statistics are high, but they don’t mean anything to me. I don’t believe in the 99% failure rate, but I do believe over half will fail, possibly 70%. I care about my business and my team. If I’m paying attention to statistics, I’m not making money. I pay an accountant to keep track of the only statistics that matter to me….my personal business statistics.

    The problem with MLM, and some of the promoters, is that it makes it too easy for just anybody to go into business. People think they are going to get rich quick and this is not the case.

    My business is built on a solid retail foundation and this is the same principal I teach my downline. I guess this means I’m in the 1%? LOL

    I’m not here to say that I’m getting rich; however, I’m able to pay my bills and each month is more profitable than the previous. I run a business that I’m proud of. Not every day is a bed of roses and it’s a lot of work, but I don’t worry about a boss and life is lived on my terms. The PROs far outweigh the CONs.

    MLM and the Networking industry, just like the “brick and mortar” business world, is tough and will chew people up and spit them out without blinking an eye. It is, though, a great tool to help SERIOUS and DEDICATED people get out of their respective dead end jobs.

    Anybody thinking that MLM is a great way to make tons of money in a matter of days or weeks needs to stay away and stick to buying lottery tickets.

    Keep fighting the good fight and have a great night!


  10. Tracy Coenen

    LOL – You don’t “believe in” cold hard facts. Produced by the MLMs themselves. That, my folks, is what leads me to the conclusion that so many people in MLMs are fools. Why “believe in” the facts, when you can lie to yourself (and your recruits) with fiction?

  11. Tracy…

    I’ve concluded that people involved in MLM eventually understand the ultimate bad truth and the ones that persist in the business are con men who believe that they can succeed the way other crooks seem to. They see success in MLM about the same way the fellow operating the 3 card monte game in the alley sees his operation. People who promote these affairs are morally deficient, but yet many of these con men have the nerve to find new recruits sitting in church pews.

    Go ahead and hate your neighbor, go ahead and cheat a friend; do it in the name of heaven, you’ll be justified in the end.

  12. Mike

    LOL– that’s funny. One of my many faults is that I can find humor in just about anything.

    In this great country everybody is allowed their opinion and I respect that.

    What works for one doesn’t work for all and in this case, I am clearly in the minority, no disputes. Just like my business, I won’t try and talk anybody into changing their minds.

    Aside from Tracey, does anybody have a success story to share about business ventures in a “real business?”

    I always like to hear about somebody’s success, whether it be in business, in a club, family affair, anything.

  13. Mike,

    99% of MLM distributors LOSE money in MLM. 99% are FORCED to lose money due to the mathematical properties of the compensation plans. The model is designed for 99% to lose money and greatly enrich the top 1%. Work it out on paper or a nice spreadsheet and it’s revealed. These FACTS are not just made up from those who are Anti-MLM. These FACTS are just revealed from those who are Anti-Fraud.

    Anyway, I want to ask you a couple simple questions.

    Do you disclose to your Prospecting distributors that 99% of MLM distributors are “Losing Money”? (A Gross Income is NOT necessarily a profit!)

    Do you disclose to your prospecting distributors that there is roughly a 70% to 80% attrition rate? (70% to 80% of distributors drop out within the first year).

    Do you disclose to your prospecting distributors that they will be required to make ongoing monthly product purchases to be eligible for commission from their downline? (The Pay To Plan Scheme)

    Do you disclose to your prospecting distributors that their MLM distributorship is analogous to having a Burger King on every single street corner since there are no territorial restrictions?

    Do you disclose to your prospecting distributors that the products they will be trying to retail is also being dumped in huge volume on Ebay at half the distributor’s cost???

  14. Mike

    Hi Terminatedramp,

    I’ll address all of your questions as written:

    “Do you disclose to your Prospecting distributors that 99% of MLM distributors are “Losing Money”? (A Gross Income is NOT necessarily a profit!)”

    ***No, I do not disclose that 99% of MLM are losing money because I don’t believe that. HOWEVER, I DO disclose that the majority of the people in this industry WILL FAIL and that it is a very tough industry. I try to scare people a bit to see if they are serious and know what they are getting into. I won’t BS anybody.*****

    “Do you disclose to your prospecting distributors that there is roughly a 70% to 80% attrition rate? (70% to 80% of distributors drop out within the first year).”

    ****I do not use those exact percentages because I’m not familiar with them. HOWEVER, I do emphasize that the MAJORITY of people in this industry WILL FAIL. Then, only if they run their respective business like a business, not a hobby or get rich quick, will an individual be profitable.*****

    “Do you disclose to your prospecting distributors that they will be required to make ongoing monthly product purchases to be eligible for commission from their downline? (The Pay To Plan Scheme)”

    ****No, because in my organization you are not required to make a minimum monthly purchase to be eligible for commission from their downline. My organization is built with a solid RETAIL BASE. You still have to reach a minimum volume each month to receive commissions, but the way to do it is through RETAIL. If an individual wants to BUY their respective way up the market plan, they could, but it would not be smart, or profitable, and they will fail within a year. Again, I’m only speaking about my organization as I don’t know how others work.****

    “Do you disclose to your prospecting distributors that their MLM distributorship is analogous to having a Burger King on every single street corner since there are no territorial restrictions?”

    ****With all due respect, please explain why you think this. There are millions upon millions of people in the US, Canada, and around the world. I encourage distributors to do business worldwide. Tools like SKYPE allow us to speak to people all over the world, computer to computer, for FREE. Vonage allows us to speak on the phone all over the world relatively inexpensively. Distributors only working with their “friends and family” will experience saturation problems. One example: the size of my community is 60,000 people, not including suburbs and smaller towns around the area. There are 582 distributors in the same business as I am just locally. That’s 103 POTENTIAL customers apiece. Granted, 10% – 20% of those people will actually become customers. But the word of mouth spreads from there and advertising actually becomes cheaper and profit per sale goes up. Add the internet to the mix and business will continue to grow. I know this sounds like a “sales pitch” but this is not the intention. I’m just trying to answer your questions from MY EXPERIENCES; please remember, I’m not speaking for anybody else.*****

    “Do you disclose to your prospecting distributors that the products they will be trying to retail is also being dumped in huge volume on Ebay at half the distributor’s cost???”

    *****No, I don’t. If potential distributors aren’t deterred by the MAJORITY WILL FAIL discussion, I have a few other screening questions to be sure my business is not just a good fit for the prospect, but I want to be sure the prospect will be a good fit for me.****

    Do I want people’s money? Absolutely!! That’s why I’m in business. However, I do my best to bring in people that want to run a profitable business. It would do me no good to bring somebody in, take their money, and the leave them high and dry. In this scenario, they join forums such as this, talk to their friends, and say bad things, which makes it tough to get more business. I won’t lie, when I first started my business, I lost a lot of people and did try to sign up everybody. After getting sick of people quitting after just a month or two, I decided to subscribe to the theory of quality over quantity.

    The better scenario is to find serious people that want to run a profitable business with long term goals. Train them and teach them everything I know so they WILL be profitable and I earn MORE than just their initial investment and keep earning over the long haul.

    Not sure if these are the answers you are looking for but they are answers from MY experiences and I won’t try to speak for others.

    Hope you are having a great evening,


  15. CJ

    Hi Tracy,

    A friend of mine tried to get my husband and I involved with “Shop to Earn” after reading the entries on your website regarding “STE”, we believe that it is truly a scam. I also read what constitutes an illegal MLM business and it pretty much covers what “STE” is all about. I told my friend what I had learned – that it was an illegal scam, not ethical to recruit your friends and family for their hard earned cash, that you are not actually selling anything except a website that can be made by anyone of average IQ, etc…She insists that this is a legitimate business and not illegal because she talked to a lawyer (also a member of “STE”) and she said it is not considered MLM, but direct marketing, so it is legal. If this is a scam, then why hasn’t the FTC stepped in and shut this thing down?? Thanks.

  16. Tracy Coenen

    CJ – The FTC has basically chosen to not enforce the laws that apply to MLMs for years. It’s my opinions that almost all of the MLMs in the U.S. are thinly veiled pyramid schemes (that use their product or service as the “front” to make it seem legal). I believe that they do violate laws, but since the FTC chooses not to enforce the laws, the companies continue on.

    Why aren’t the laws enforced. The Direct Selling Association does tons of lobbying. They present themselves as an organization that ensures quality among members, but the reality is that the members belong because the DSA is such a strong lobby. Lobby hard enough, and the laws will not be enforced, in my opinion.

  17. CJ

    Ok. So the laws aren’t enforced. That doesn’t surprise me. In your opinion, is “STE” a scam? I would love to be wrong and see my friend make money – but I hate being wrong!

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