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."
For those data above, can anyone from those companies confirm
it? Or he is liable to be sued?
Pardon me for being harsh, while people are looking at each
characteristic of an industry or a company that will make it work,
or not, he is looking at it as he trying to win a lottery or 4D?
Sheesh.
Is odds of success measured by retention rate or success rate? That
is pretty shallow. I would have thought the writer would write
about the exact causes that give rise to many people leaving the
industry.
Even then, how do we measure this?
Imagine, a networker that refuses to acknowledge that he is
incompetent, and chooses to lay the blame on the companies?
On the other hand, how about a scam or a badly managed company that
cleverly deny its unethical activities?
Lastly, one point that stands out on the active and inactive group.
Assuming that the company's active group is smaller, why would they
still disclose the payout for the smaller group, assuming that its
not going to make much money already?
