Lie #1: MLM is a business offering
better opportunities for making large sums of money than all other
conventional business and professional models.
Truth: For almost everyone who invests MLM turns out to be a losing
financial proposition. This is not an opinion, but a historical
fact. Consider some notable examples from among the largest
MLMs.
In the largest of all MLMs, Amway, only 1/2 of one percent of all
distributors make it to the basic level of "direct" distributor,
and the average income of all Amway distributors is about $40 a
month. That is gross income before taxes and expenses. When costs
are factored, it is obvious that nearly all suffer a loss. Making
it to "direct", however, is not a ticket to profitability, but to
greater losses. When the Wisconsin Attorney General filed charges
against Amway, tax returns from all distributors in the state
revealed an average net loss of $918 for that state's "direct"
distributors.
Extraordinary sales and marketing obstacles account for much of
this failure, but even if the business were more feasible, sheer
mathematics would severely limit the opportunity. The MLM type of
business structure can support only a small number of financial
winners. If a 1,000-person downline is needed to earn a sustainable
income, those 1,000 will need one million more to duplicate the
success. How many people can realistically be enrolled? Much of
what appears as growth is in fact only the continuous churning of
new enrollees. The money for the rare winners comes from the
constant enrollment of armies of losers.
The vast majority of the losers in MLM drop out within a year. In a
1999 court case brought against Melaleuca, one of the country's
largest MLMs, the company claimed it has the highest "retention"
rate among distributors in the entire MLM industry. Melaleuca
boasted a drop-out rate is 5.5% per month. This equates to about
60% per year, if the dropouts are replaced each month.
In its annual report to the SEC, Pre-Paid Legal, another large MLM,
revealed that more than 1/2 of all its customers and distributors
quit each year and are replaced by another group of hopeful
investors.
This pattern of 50-70% of all distributors quitting within one year
holds true also for NuSkin, the industry's second largest MLM.
NuSkin also exemplifies the accompanying pattern in which a tiny
percent of the distributors gain the majority of all company
rebates. In 1998, NuSkin paid out 2/3rds of its entire rebates to
just 200 upliners out of more than 63,000 "active" distributors.
The money they received came directly from the unprofitably
investments of the 99.7% of the others.
In 1995, Excel Communications, another "fast growing" MLM, reported
to regulators an 86% turnover rate of distributors and 48% drop-out
rate among all customers.
To obscure their dismal numbers, some MLMs classify their
distributors as "active" and "inactive." The Active group includes
only recent participants and those still buying products or
receiving rebates. Payout and retention statistics are then
disclosed only on the "active" group.
If ALL distributors who participate are included the losses and the
average incomes are exposed as much worse. And, if all the
distributors who enroll and quit over several years are included,
the odds of success for a new distributor/investor are shown to be
absurdly low. Yet, these companies typically advertise their
business as "an opportunity of a life time" with "unlimited
potential."
Lie #2: Network marketing is the most
popular and effective new way to bring products to market.
Consumers like to buy products on a one-to-one basis in the MLM
model.
Truth: If you strip MLM of its hallmark activity of continuously
reselling distributorships and examine its foundation, the
one-to-one retailing of products to customers, you encounter an
unproductive and impractical system of sales upon which the entire
structure is supposed to rest. Personal retailing is a thing of the
past, not the wave of the future. Retailing directly to friends on
a one-to-one basis requires people to drastically change their
buying habits. They must restrict their choices, often pay more for
goods, buy inconveniently, and awkwardly engage in business
transactions with close friends and relatives. The unfeasibility of
door-to-door retailing is why MLM is, in reality, a business that
just keeps reselling the opportunity to sign up more
distributors.
Lie #3: Eventually all products will be
sold by MLM, a new form of marketing. Retail stores, shopping
malls, catalogues and most forms of advertising will soon be
rendered obsolete by MLM.
Truth: MLM is not new. It has been around since the late 1960's.
Yet, today it still represents less than one percent of US retail
sales. In year 2000, total US retail sales were $3.232 trillion,
according to the Dept. of Commerce. MLM's total sales are about $10
billion. That is about 1/3rd of one percent and most of this sales
volume is accounted for by the purchases of hopeful new
distributors who are actually paying the price of admission to a
business they will soon abandon. Not only are MLM sales
insignificant in the marketplace, but MLM fails as a sales model
also on the other key factor maintaining customers. Most MLM
customers quit buying the goods as soon as they quit seeking the
"business opportunity." There is no brand loyalty.
These basic facts show that, as a marketing model, MLM is not
replacing existing forms of marketing. It does not legitimately
compete with other marketing approaches at all. Rather, MLM
represents a new investment scheme that uses the language of
marketing and sales of products. Its real products are
distributorships which are sold with misrepresentation and
exaggerated promises of income. People are buying products in order
to secure positions on the sales pyramid. The possibility is always
held out that you may become rich if not from your own efforts then
from some unknown person who might join your 'downline,' the 'big
fish' as they are called.
MLM's growth is a manifestation not of its value to the economy,
customers or distributors but of the recently high levels of
economic fear and insecurity and rising expectations of quick and
easy wealth. It is growing in the same way day trading on the stock
market, legalized gambling and lotteries are.
Lie #4: MLM is a new way of life that
offers happiness and fulfillment. It is a means to attain all the
good things in life.
Truth: The most prominent motivating appeal of the MLM industry as
shown in industry literature and presented at recruitment meetings
is the crassest form of materialism. Fortune 100 companies would
blush at the excess of promises of wealth and luxury put forth by
MLM solicitors. These promises are presented as the ticket to
personal fulfillment. MLM's overreaching appeal to wealth and
luxury conflicts with most people's true desire for meaningful and
fulfilling work in something in which they have special talent or
interest. In short, the culture of this business side tracks many
people from their personal values and desires to express their
unique talents and aspirations.
Lie #5: MLM is a spiritual
movement.
Truth: The use of spiritual concepts like prosperity consciousness
and creative visualization to promote MLM enrollment, the use of
words like 'communion' to describe a sales organization, and claims
that MLM is a fulfillment of Christian principles or Scriptural
prophecies are great distortions of these spiritual practices.
Those who focus their hopes and dreams upon wealth as the answer to
their prayers lose sight of genuine spirituality as taught by all
the great religions and faiths of humankind. The misuse of these
spiritual principles should be a signal that the investment
opportunity is deceptive. When a product is wrapped in the flag or
in religion, buyer beware! The 'community' and 'support' offered by
MLM organizations to new recruits are based entirely upon their
purchases. If the purchases and enrollment decline, so does the
'communion.'
Lie #6: Success in MLM is easy. Friends
and relatives are the natural prospects. Those who love and support
you will become your lifetime customers.
Truth: The commercialization of family and friendship relations or
the use of 'warm leads' which is required in the MLM marketing
program is a destructive element in the community and very
unhealthy for individuals involved. Capitalizing upon family ties
and loyalties of friendships in order to build a business can
destroy ones social foundation. It places stress on relationships
that may never return to their original bases of love, loyalty and
support. Beyond its destructive social aspects, experience shows
that few people enjoy or appreciate being solicited by friends and
relatives to buy products.
Lie #7: You can do MLM in your spare
time. As a business, it offers the greatest flexibility and
personal freedom of time. A few hours a week can earn a significant
supplemental income and may grow to a very large income making
other work unnecessary
Truth: decades of experience involving millions of people have
proven that making money in MLM requires extraordinary time
commitment as well as considerable personal wiliness, persistence
and deception. Beyond the sheer hard work and special aptitude
required, the business model inherently consumes more areas of ones
life and greater segments of time. In MLM, everyone is a prospect.
Every waking moment is a potential time for marketing. There are no
off-limit places, people or times for selling. Consequently, there
is no free space or free time once a person enrolls in MLM
system.
Under the guise of creating money independently and in your free
time, the system gains control and dominance over people's entire
lives and requires rigid conformity to the program. This accounts
for why so many people who become deeply involved end up needing
and relying upon MLM desperately. They alienate or abandon other
sustaining relationships.
Lie #8. MLM is a positive, supportive new
business that affirms the human spirit and personal
freedom.
Truth: MLM marketing materials reveal that much of the message is
fear-driven and based upon deception about income potential.
Solicitations frequently include dire predictions about the
impending collapse of other forms of distribution, the
disintegration or insensitivity of corporate America, and the lack
of opportunity in other professions or services. Conventional
professions, trades and business are routinely demeaned and
ridiculed for not offering 'unlimited income.' Employment is cast
as wage enslavement for 'losers.' MLM is presented as the last best
hope for many people. This approach, in addition to being
deceptive, frequently has a discouraging effect on people who
otherwise would pursue their own unique visions of success and
happiness. A sound business opportunity does not have to base its
worth on negative predictions and warnings.
Lie #9. MLM is the best option for owning
your own business and attaining real economic
independence.
Truth: MLM is not true self-employment. 'Owning' an MLM
distributorship is an illusion. Some MLM companies forbid
distributors from carrying additional lines. Most MLM contracts
make termination of the distributorship easy and immediate for the
company. Short of termination, downlines can be taken away with a
variety of means. Participation requires rigid adherence to the
'duplication' model, not independence and individuality. MLM
distributors are not entrepreneurs but joiners in a complex
hierarchical system over which they have little control.
Lie #10: MLM is not a pyramid scheme
because products are sold.
Truth: The sale of products is in no way a protection from
anti-pyramid scheme statutes or unfair trade practices set forth in
federal and state law. MLMs that sell useful, quality products have
been successfully prosecuted under anti-pyramid scheme laws by
state and federal officials. MLM is a legal form of business only
under certain rigid conditions set forth by the FTC and state
Attorneys General. Many MLMs are currently in gross violation of
these guidelines and operate only because they have not been
prosecuted. Recent court rulings are using a 70% rule to determine
an MLM's legality. At least 70% of all goods sold by the MLM
company must be purchased by non-distributors. This standard would
place most MLM companies outside the law. The largest of all MLMs
acknowledges that only 18% of its sales are made to
non-distributors.
