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Multi-Level Marketing (MLM)
You see the ads all the time: "Make millions now, no manager" or
"Work on your own, start $12,000 per week." Maybe you saw the ad in
the paper, or maybe you received it by e-mail.
Yes, we're talking about Multi-Level Marketing, also known as
"MLM"
MLM: Once Legitimate, Now a Scam
Once upon a time, multi-level marketing was a legitimate business
which provided a way for small companies to get their unique
products to consumers in small towns and rural areas which had no
access to these products. At this time, the products sold
themselves, and the multi-level aspect was a way of giving a small
reward to those who had worked hard to build the organization. But
the focus was always on the product.
Today, and especially with the growth of the internet, it is
possible for consumer to get about whatever they want at
competitive prices. There is simply no real need for distribution
"systems" as there once was, and indeed the focus of all the
programs is not on the products they sell -- which are usually
either bogus or are available somewhere else to the public at the
same or lesser prices. Instead, the focus now is solely on
recruiting new people to either buy into the program or else to buy
products that are grossly overpriced (i.e., a $1 bottle of "herbal
shampoo" for $26), with the idea that those people will recruit
additional people who will also buy into the program or themselves
buy the grossly overpriced products.
Thus, today just about ALL of the multi-level marketing programs
are scams. In today's internet economy, there is simply no need for
multi-level marketing or the overpriced products that they sell --
meaning that the only thing they are selling are memberships in
anticipation that future memberships will be sold in the future,
which is the classic definition of a pyramid scheme, and thus
securities fraud.
Because products are available over the internet to everybody at
lower costs than ever before, claims that "Multi-Level Marketing
will take over the World!" are completely bogus. Indeed, the fact
that no MLM schemes sell significant product to anybody other than
the people who bought into the programs is proof positive that MLM
is a dinosaur in today's economy, and exists only by defrauding
people to buy memberships in anticipation of being able to make a
profit defrauding other people into the program.
Indeed, as is discussed elsewhere, many of these programs have been
broken up for securities fraud and the people in them now have
criminal records. So, save your Quatloos and avoid MLM
schemes.
Stars! Stars!
Like many advertising campaigns, many MLM programs now attempt to
associate themselves with celebrities. "Zig Ziglar goes MLM!" read
one spam e-mail we received.
Note that the celebrities didn't make their money in MLM. Nor will
you.
Buying Into the Program
So you are being "hired" to sell products, and you have to buy into
the program? This is a sure sign that it is a scam. If the product
is worth a darn, the company will make its money selling the
product. No program that requires you to buy into the program is
real, meaning that all our scams.
If you have to buy into the program, forget it! It is not a real
program.
Sales Material
Often MLM scams have sub-scams within the main scam of buying
Distributorships. One of these scams is the purchasing of
advertising materials. Think about it: A company wants you to sell
their product but they want you to pay for the advertising
materials? Especially with the huge profit margins that the Top Guy
makes with these programs, they should at least pay for your
brochures and tapes. If a company requires you to pay for
advertising or marketing materials, it is a sure sign that it is a
scam. The very worst programs will even require you to buy the
"samples" of the product that you have paid to be able to
sell!
Training Seminars
A scam-within-the-scam is the "training seminars" offered
(sometimes required) by the MLM programs. These "training seminars"
offer little training, but are mostly rah-rah seminars to boost
enthusiasm -- and to make big bucks for the promoters. We have
often seen people encouraged to take out thousands of dollars in
credit card debt to go to these seminars, with the promise that
they will make so much selling the MLM program that they will
quickly pay back the credit card debt (this is almost never
true).
These training seminars can cost thousands although the company
ought to be paying you to attend and learn how to sell its product.
No company which requires you to pay for your own training seminar
is a real program.
Only The Top People Make Money
The hard truth is that only the guy who sets up the program, i.e.,
the Big Cheese at the very top, makes any really good money with
these programs. Everybody who is selling for the Promoter typically
gets screwed.
Nonetheless, the promoters of these programs will often have
pictures of themselves standing next to their mansion, yacht,
executive jet, whatever, to show their success. Yes, these are real
and they did make money by selling programs. Unfortunately, they
made this money by cheating and defrauding the people under them to
sell these programs for them -- you never see a distributor with
anything other than a bunch of credit card debt.
The Drop Out Rate
The "Drop Out Rate" of MLM programs is enormous -- 98% will drop
out immediately, meaning that only 2% will continue with the
program over any long period of time. The Promoters will tell this
2% that they are the "successful" ones -- what this means is that
they have become "successful" scamming other people (who will
probably spend their money and then drop out, possibly a big
personal loss to them but a profit to the Promoters).
The Promoters know the Drop Out Rate, and know that by far most
people will buy in, but then never sell anything and quit, which is
one of the reasons why MLM programs are criminal schemes.
The Promoters also tell those who stay in that they are the
"well-motivated and lucky ones". This is 100% false. The people who
never sold anything and dropped out are the lucky ones, since they
will not be liable for securities fraud or any of the related
criminal penalties that goes with promoting somebody else into the
program. It is the people who stay in the program who are risking
some prison time and a felony conviction for selling an
unregistered security.
One of the biggest problems of MLM is that they are marketed to
people who are down-and-out and desperate, and who can ill-afford
to lose their money by purchasing memberships in these bogus
programs.
You Gotta Believe!
Promoters tell prospective Distributors that to be successful "You
gotta believe!" in the program. This is part of a
brainwashing/programming effort to lead you to believe that you
will fall into that (falsely) "successful" 2% if you believe in the
program and the products that it sells. Thus, active Distributors
will defend to great lengths their program and their products, to
the point of slandering naysayers, spamming "negative" or competing
sites with e-mail to shut them down, threats of physical
harassment, etc., etc., not to mention often buying the products
themselves in substantial quantity.
But the proof is in the pudding. It is an interesting phenomena of
MLM that the hardcore and brainwashed Distributors who defend the
products the hardest, almost always quit using those "great
products" completely when they move on to the next program!
The point of this is that the 2% of "successful" Distributors have
usually been brainwashed and programmed so that they really believe
the junk they are saying about the junk they are selling. But that
doesn't make it any less junk.
Building that Downline
The promise of MLM is that if you are "successful" (in defrauding
others) that you will create this big "downline", i.e., multiple
layers of sellers under you, which will quickly lead you to riches
and allow you to retire forever with a never-ending stream of
seven- or eight-figure revenue.
This promise is totally fraudulent, for at least the following
reasons:
1.
As discussed above, the 98% drop-out rate means that you probably
will never build a significant downline.
2.
None of these programs last very long (Amway seems to be the sole
exception), meaning that as soon as the program croaks your revenue
stops.
3.
The odds of anybody in your downline making any money are
incredibly small (smaller than yours!), meaning that they will
probably "drop out" and be mad at you for getting them into a
program where they lost your money -- the upshot being that these
people will certainly not follow you to your next program (which
will be necessary when your existing program finally collapses),
meaning that you will have to build a completely new downline with
every new program!
For all these reasons, your chances of long-term residual income
with MLM is zero. Even if you are successful, the best you can hope
for is a lot of hard work defrauding others to build your downline,
some short-term profits until your program collapses or is shut
down, and then a lot more hard work defrauding even more people
into your next program, and so forth and so on until you get sick
of it and drop out of MLM completely.
Buying Your Own Products
To the extent MLM programs sell any product, it is usually
purchased by people who -- frustrated by their ability to build a
downline and pressured by their recruiters -- will themselves buy
mass quantities of the product as an attempted badge of "success".
Thus, newbies on the lowest levels will max out their credit cards
and buy lots of worthless product themselves in a vain attempt to
move on to the next level. Usually, this works only if there is a
"buy in" to the next level (more Quatloos for the promoters!) but
never means success to the poor sucker buying the products,
although he or she will end up with a closet full of vitamins,
shampoo, phone cards or whatever -- and usually a lot of credit
card debt too.
Fake It 'Til You Make It
Buying your own products is just one aspect of the MLM method of
"Fake It 'Til You Make It", meaning that even if you are having
zero success, you should act like you are very successful and have
already made the Big Time. Many programs will tell people to start
living a high lifestyle (on their own credit cards, of course), go
lease a new BMW, etc., etc., so that people will believe that you
are successful and they will then want to be in the program
too.
The problem of course is that only a small percentage are
successful in MLM, and these only for the short time until their
program collapses. Their debts and BMW leases, however, are long
term and require monthly payments to maintain. We have spoken with
a few people who were encouraged by Promoters to lease expensive
cars, and then were forced to actually live in those cars because
they couldn't make the rent (and of course the cars were eventually
repo'd from them too, leaving them homeless).
Additionally, the "Fake It 'Til You Make It" is just more fraud on
the people you are trying to bring in. Acting like you are making
the Big Bucks when you are not is blatanly dishonest -- but all
part of the MLM scheme of cheating people.
Heavy-Hitters
A variation of "Fake It 'Til You Make It" is the "Heavy-Hitter" who
bounces on the scene and seems very rich, and then acts as a
"closer" of new recruits. Whether or not the "Heavy-Hitter" will
actually have any money is subject to serious doubt: He may be one
of the people living out of his leased BMW! More likely, he has
been hired on a pure salary basis by the Promoters to act as a
cheerleader and "closer" for prospective Distributors.
The "Heavy-Hitters" usually circulate from program to program, and
are often the "Heavy-Hitter" in several MLM programs at the same
time. A good way to identify these scam artists is to inquire as to
what other programs they are in now, and have been in the future.
If they have been in several other programs, you know that you are
facing a "Heavy-Hitter", which when you get down to it is just a
professional MLM scam artist (and, again, probably on a flat salary
no matter what BS they tell you).
At seminars, you will frequently hear the Heavy-Hitter buildup:
"Maybe Mr. Such-And-Such" will be here today!" The excitement is
such that when Mr. Such-And-Such finally appears, you'd think Moses
just came down from the mountain. It is all hype: The Promoters
know exactly who will be at these seminars, and they plant people
in the audience to make statement such as these, so that Mr.
Such-And-Such finally does make his appearance, people attribute to
him the credibility of the Messiah. Don't fall for this ruse.
For reference, the "Heavy-Hitter" is not unique to MLM. Casinos
have for many years employed "Shills", being people who are hired
by the casinos on salary and given a bunch of chips, and sent into
the casino to mingle with the other gamblers and spin a few stories
of the casino's big payoffs (which may or may not have occurred) --
and of course to gamble the (casino's own) chips and thus encourage
others to gamble with the same enthusiasm and similar better
levels.
The "Heavy-Hitters" perform the same function with MLM, often
coming in to tell false stories about themselves hitting it big
with the program. You can admire their gold pinkie rings, and their
expensive leather shoes. But avoid these people, and just chuckle
at the stories they sell. And be sure to ask them about the lease
program on that BMW they are driving!
Fending Off Criticisms
You may see your program mentioned in an unfavorable light, such as
on 60 Minutes or 20/20 or some other investigative news program.
The Promoters will tell you something like "Their job is to bring
down good companies . . .." Bull! Their job is to point out scams,
and if your program has been featured on one of these program you
can pretty much be sure it is one (if it is an MLM program it is a
scam whether it is featured on these programs or not).
Survival Mode
After you have made big investments into the MLM program (or maybe
several), are strung out on your credit cards, and the program
isn't working out, then you will go into what is called "Survival
Mode", where you finally give up the (false) dream of big riches
with MLM and start trying to figure out how to hold off your credit
card companies while getting back to a normal lifestyle.
Unfortunately, we don't have any special advice to offer. The only
thing that we can say is that suicide shouldn't be an option
(ex-MLM'ers unfortunately have a very high suicide rate), and that
you should simultaneously seek credit counseling, and maybe adult
education for re-education for a better job.
Refunds
The worst programs will promise you some sort of refund if it all
doesn't work out. These are the worst programs because the refund
programs are usually contingent on this-or-that, require long forms
and long waits, often the refund is only 30% or so of what you
spent, and usually the refunds are illusory (meaning that they
company will never pay out the refund to you). The MLM programs
which offer refunds do this to create the illusion that there is
"no risk" to you -- and this is a 100% fraud because as discussed,
you odds of actually getting your money back is infinitesimally
small.
At least the companies which don't offer refunds tell you this up
front so that you are not suckered into believing this
nonsense.
