Multi Level Marketing: Scam or Dream Ticket?

dream-ticket

Anyone active on social media in recent times has likely come across network — or multi level — marketing schemes, potentially without even realising it. Usually, these schemes sell health and “wellness” or diet products, with sales persons claiming dramatic health improvements or weight loss, but crucially without any science to back these claims up. When they can’t sell you the products, they try to sell you the lifestyle: a lucrative business model guaranteed to generate thousands of pounds a month.

Recently popular competitors in the UK market include Arbonne and Forever Living, although there are several out there (Herbalife, Juice PLUS+, Avon etc)

A modern day pyramid scheme

All of the multi level marketing companies rely on a pyramid structure to work: for a sales person to make enough profit to be worthwhile, each sales person needs to recruit other sales people, who in turn need to recruit other sales people.

Because the sale of physical products are involved, this differs from a pyramid scheme in the legal sense: a pyramid scheme promises profit on the basis that each person involved will pass on money to those further up the chain with nothing to show for it. Nonetheless, the principles are identical: person A recruits person B and C, person B and C recruit D, E, F and so on…

multi-level marketing

After a given point, person A doesn’t even have to sell products: they can live off the hard work of person B and C’s sales and recruits (and so on, down the pyramid). Unfortunately, the system relies on an infinite number of people available to buy or recruit, which is impossible.

A saturated market

If we assume that nobody can sell or recruit fast enough to require infinite people, you still have the problem of a saturated marketplace, and even more so the lower down the ‘chain’ you are.

Let’s say your Auntie Joan sells you some cream, which you think is great, and you want to sell it too. Chances are Auntie Joan has already sold to or tried to recruit the majority of your family. So you’re now reduced to selling to family on your partner’s side, colleagues or friends. But your mate Elaine has already got a cream distributor in her local area that she’s loyal to, and you can’t invade her patch, reducing your potential sales area down further.

Most MLM sales people will only have a certain amount of friends – only a few of these will be interested in buying products. Even fewer of those friends will want to be recruited and those that do get hooked in struggle to sell within the same social circle. The chances of making a sale or hooking in a recruit decreases as the popularity (and size) of a scheme increases unless you’re “lucky” enough to get in early.

Lifestyle bait

woman with giant chequeThe key promise of these multi level marketing schemes is a type of lifestyle bait: promising the reward of time with loved ones (playing on common feelings of guilt amongst parents, particularly mothers), the suggestion – both directly and indirectly – that you could earn thousands of pounds per month, and the reward of the house, car, boat, holiday, etc of your dreams (appealing to greed).

The reality is that even if you’re lucky enough to get into one of these schemes early enough to not be affected by the saturated marketplace, you have to work very hard for a long time to be earning significant amounts of cash. Working hard means not spending time with your family, and even after putting all that time and effort in, is not indicative or a guarantee that you’re likely to cash in at the end. The success stories (the people posing in front of their brand new cars with comedy size cheques) are usually early adopters who’ve worked 12+ hour days, and can now cash in on the sales and recruits further down their chain.

Doomed to failure

In 2008, multi level marketing expert Robert FitzPatrick studied 11 different MLM networking schemes in the US, including ones that have a presence in the UK — Arbonne, Herbalife to name but two — and discovered that 99% of all distributors in these companies earned on average less than $13 a week in commission income, which isn’t even enough to cover the minimum purchases that distributors are required to make. That’s £10 to you and me, at the time of writing. Can you survive on £10 per week?

In 2015 FitzPatrick published a new report showing that more than 99% of distributors still don’t make any profit from multi level marketing schemes, and what’s more, the major MLM schemes, such as Amway, Avon and Herbalife (amongst others) have reached global saturation and now face a no-growth future: or in other words, there is no way for the distributors to recruit enough people to continue selling down the chain to compensate for the millions that quit every year.

Too good to be true

Remember the old adage: if something sounds too good to be true, it probably is. If it were possible to make thousands of pounds per month while spending all your time with your family, and not having to do a day’s hard labour, everybody would be doing it. Unless you get in early (too late) or have an infinite number of friends (unlikely), it’s likely that you will fail to profit from multi level marketing, and worse, could potentially financially suffer from buying in this late in the game.

Network AKA multi level marketing is not a ticket to your dream lifestyle.