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.”