The exchange begins innocently enough. An old friend sends you a Facebook message, a former coworker invites you to lunch or an extended family member calls you out of the blue. Under the vague pretense of “catching up,” they ask if you can meet face-to-face. When you do, the small talk feels normal, but something else hangs in the air.
At a pause in the conversation, your associate turns to you with bright eyes and makes an exciting reveal. They have a new job, they’re their own boss and they’re making a ton of money. Furthermore, your trusted acquaintance wants to offer you an incredible opportunity: get in on the ground level with them. Invest in their business, become a partner, rise to the top together.
The rest of your conversation is a flurry of pamphlets and buzzwords; promises of early retirement and vacation homes abound. “Catching up” feels more like sitting through a time-share seminar and when you finally stumble away from the interaction you are left with stacks of material and a final appeal to, “just think about it.”
The opportunity that your friend offers goes by many names. “Network,” “multi-level” or “referral” marketing make up the most commonly used euphemisms. These vague terms thinly veil a deceptive and entirely unsustainable business model. Your friend has been duped – or is in the process of duping you.
Multi-level marketing (MLM) is a sales strategy in which a company’s representatives don’t just sell a product; they also market the rights to sell it. Marketers earn a commission for each member they recruit into the company’s sales-force, with the rewards for enlisting new salespeople far outweighing incentives to sell the actual product.
Network marketing strategies distinguish themselves from illegal recruitment scams in one key way: they market an existing good. While traditional pyramid schemes only create revenue by selling “memberships” with the promise of commission for recruiting others, MLMs purport to engage in “direct selling.” Unlike their illegal counterparts, referral marketing systems can’t be proven to fail. If recruited members make enough sales, the scheme is theoretically sustainable.
While the existence of a product makes MLMs mathematically feasible, the nature of the goods they sell quickly illuminates the products’ irrelevance. Network marketing companies deal in useless cleaning solutions, spiritual sleep-aids and phony health products. Think “ion emitters” that beep when you’re stressed and “energy decanters” that bear a striking resemblance to Brita pitchers.
The products represent little more than a legal necessity to create faux legitimacy. The only people who actually buy these wares are the company’s sales-representatives themselves. Upon entering the company, policy requires members to purchase a “demonstration kit” that costs hundreds or even thousands of dollars.
With no one else actually buying the company’s useless goods, newly recruited marketers quickly fall under pressure to enlist more salespeople. Without gaining commission from enrolling new members, marketers are unlikely to escape a MLM without losing money from their initial investment. Desperate to make their new venture worthwhile, marketers begin to work their personal connections in search of commission.
With no one else actually buying the company’s useless goods, newly recruited marketers quickly fall under pressure to enlist more salespeople.
The hunt for new members often takes the form of “recruitment parties,” a trademark of the MLM industry. The gatherings take place at a current member’s home, where they’ve convinced friends, family and coworkers to learn about their new enterprise. At further personal cost, the marketer creates the atmosphere of a true party, with food, drink and plenty of chitchat. When their pitch begins, however, the gathering’s jovial tone shifts to one of cult-like fervor.
Aware that skeptical questions can deflate any sales pitch, referral marketing companies provide their members with a captivating script to use at gatherings. Performed with a balance of enthusiasm and conviction, the presentation uses priming vocabulary to artfully construct a vague promise of unlimited financial success. Members who passionately desire to, “be their own boss” and feel prepared to, “commit hard work through the system” are guaranteed to thrive.
The pitch can sound awfully convincing, but scholar Robert Fitzpatrick says that the industry’s financial disclosures reveal a sea of red flags. Fitzpatrick works with a team of lawyers and academics to conduct research and assist in court cases against network marketing firms. He contests that only founders and a few elite members can actually profit from a MLM.
“Companies say, ‘we pay out x millions in commissions’ and that sounds very impressive, but who gets those millions?” Fitzpatrick asks in an online interview. “Well, our analysis shows that 50 to 80% of all the commission goes to the top 1%.”
MLMs’ unorthodox pay plans explain this imbalance in commission earned. Representatives who make a sale or recruit a new member earn less for the transaction than the person who recruited them. This practice continues up the ranks, so that the representative actually generating a sale earns a mere fraction of the commission earned by the organization’s top members.
In order to earn more substantial commission, representatives have to assemble a vast network of recruits below them. The likelihood of enlisting this many additional salespeople is slim – the market of individuals interested in joining a local MLM quickly becomes saturated, leaving few recruits for lower-level members. Without recruits, the scheme is unsustainable for new salespeople, who never reach a higher commission bracket. This explains why most network marketing firms report that 60 to 80% of their employees leave the company within their first year.
Even if a salesperson does manage to reach a level at which they earn substantial commission, they do so on the backs of misguided chumps, and over time that base will erode and fail.
With their imbalanced sales structure still intact, MLMs simply turn to a new batch of members when discouraged salespeople quit. Confused grandparents, naïve college kids and other easy prey continue to sustain the top of the pyramid. Driven by a genuine belief in the company, these members destroy personal and professional relationships in their scramble to earn commission.
The limited benefits of network marketing will never justify this sacrifice of connections and reputation. Even if a salesperson does manage to reach a level at which they earn substantial commission, they do so on the backs of misguided chumps, and over time that base will erode and fail. Much more likely, the process simply costs a member more than it ever earns, wasting precious time and money until they acknowledge their mistake.
So when a friend wants to tell you about their exciting new venture, listen closely. They might really be on to something … and they might be on the bottom level of a scheme that’s doomed to fail.
Matthew Meyer doesn’t want to sell your bullshit or sell the right to sell your bullshit.
Thanks for writing this. I’ve had numerous friends fall for this crap and they end up losing quite a bit of money and a large number of their friends in the process. You can make more money with less effort from picking up an art hobby than through these horrible scams.
Matthew, it would be difficult to find another article of comparable length with as many verifiable errors related to its subject. When you go into such a project with an extreme negative bias, then seek out only sources that entirely support your prejudice, that’s what usually happens. I admire your intent, and even agree, to an extent, that MLM does have its challenges. But to so utterly and unconditionally smear an entire 60 year old industry of over 3,000 companies (eight of which are more than 40 years old) that operate in over 100 countries – that is *still growing*… Read more »
If you dont have a dog in the race why write this post.Eighty percent of kids graduate from college and waste money on that crap. Mlm’s are not a hobby its your own business. It requires long hours and hard work just like any other business. The reason why they dont work is the person quits. Where can you start a business with a few hundred dollar’s. Mlm is not for everyone and the ones that quit complain.
MLM propoganda is always the same. They just repeat the same bullshit that was fed to them at their little cult conferences. What lovely products do you two suckers sell from your “businesses”?
“b”… I actually just provided a list of facts. Do you have any actual rebuttal?
I also do not sell any MLM products. I am, and have been for 25 years, a consultant and consumer advocate serving this space, and have testified numerous times as an “expert” in multilevel marketing in a court of law (both civil and criminal).
What facts? That MLMs have been around for 60 years? That there are 3000 companies who make their money preying on gullible people who are usually in a bad place in their lives? There’s nothing to rebut. Make a statement with some kind of value and I’ll gladly give you a rebuttal. Or you can just keep repeating the same true-believer bullshit I’ve heard a billion times from your ilk. The only people who are delusional here are the suckers whose lives you and your buddies ruin when you knowingly take advantage of them. You’ve been a cancer on society… Read more »
“b”… Here’s the irony of your commentary… First, note that the “pro MLM” participant in this discussion is the one who is not hiding behind an anonymous screen name, and thus the only one who must be accountable for what they say. Two, the point behind those *facts* I just provided is that it is extremely unlikely an industry that is as horrid, cancerous, evil and ruins so many lives would even still be around after 60 years, let alone have achieved so much success, and *still be growing*. Third, you clearly have performed no actual research or conducting any… Read more »
The tobacco industry would like to have a word with you.
I’ll just leave it at that since apparently the best you can do is mimic what I say.
Matthew, you wrote “The only people who actually buy these wares are the company’s sales-representatives themselves.” That is flat out incorrect You’re making a blanket statement that out of all the MLM Companies, there isn’t a single customer (non-distributor) buying a product or service from one. Well, I’ve been in MLM for over a decade and have at least one customer who buys from me on a monthly basis. That fact invalidates your sentence. As Len pointed out, your article is full of errors. I recorded a rebuttal podcast to point out many of your errors. You can listen to… Read more »
Haha right. One out of how many?
Sometimes you have to generalize when writing a long piece. Do you understand how writing works? I’m guessing you don’t since you had to respond to his article with a podcast. Or maybe you’re just another scummy MLM shill trying to advertise his website.
Actually, b, the longer the article the *less* an author should have to generalize. And a demonstrably erroneous generalization is still erroneous.
Even though Jason’s aforementioned single customer makes Matthew’s claim *technically* wrong, his company’s 81,000 “Preferred Customers” makes the claim utterly wrong.
And because this company is publicly traded (USNA), that number is audited and verified by a third-party accounting firm.
Is that factual enough?
Actually, it’s ok to generalize when something is generally true. That’s where the word comes from. You’ll never get to the point if you try to account for every outlier.
The downside is that you’re depending on the critical thinking skills of your readers to sort all of that out. Obviously this is not the best plan when dealing with MLM shills.
Oh wow even your podcast reviews on iTunes look fake. You’re a class act!
Len, Ignore b He is obviously one of those people who signed up with an MLM company, did nothing for 3 months, then quit when he wasn’t making a ton of free money. He’s decided this is because MLM is a scam, not because he expected something for doing no work. I’ve seen many like him. Personally, I’ve been in MLM 10 years and have never recruited a single person. Yet, I have dozens of customers who buy from me month-in and month-out and I make decent money just from that. My wife’s best friend is in a different company,… Read more »
Nope. I’ve never been dumb enough to buy into scams or immoral enough to screw over other people for my own benefit. I have watched several family and personal friends get suckered in to MLMs, however. I have also saved many other from going down that path.
Nice try though! I always love seeing the old “UR JUS JELOUS” retort, although I’m used to it coming from 15 year old girls rather than grown men.
So you spend your time criticizing something you’ve never done, have no experience with, and have no direct knowledge nothing about?
Wow, that’s credible.
Too bad you didn’t save me from getting “suckered in.” Then I would have been saved from having my business pay for our vacation last year.
Of course, that’s right. I did it by “screwing over” my customers who only get a product that they like, want, and keep buying over and over.
I love it when you call it your “business.” It’s adorable.
I own my network marketing business via a corporation. it has revenues, marketing & advertising expenses, cost of goods sold, and various other (deductible) expenses.
I manage all the numbers using accounting software, file corporate tax returns, and pay one employee (me), for whom I withhold income and FICA taxes, file a W-2, and pay SUTA (unemployment insurance).
According to the federal government and the state where I live, this is a business just like any other.
What would you call it, oh clueless one?
Hilarious no matter what. Worthless if your product is just an overpriced subpar product like Cutco knives. Criminal if your product is some kind of snake oil like It Works. MLMs can be horrible in so many different ways!
S… I think you are feeding the proverbial internet troll. “b” is only responding to see what kind of reaction she gets from us. This is how some people have to gain some small feeling of power and control in their otherwise pathetic life. By acting tough and being aggressively confrontational, while hiding behind an anonymous screen name in the comment section of an article, is the only way she can feel any sense of significance. The fact that her insults cause us to feel anger, and a desire to defend ourselves against her personal attacks, makes her feel like… Read more »
You’re the one keeping me engaged, pal. Keep the feast a comin’!
Um, actually, every one of our comments has been a response to one of your ignorant comments about MLM, or to one of your snotty personal attacks. Like all worthless internet trolls you can never allow your victim to have the last wor…
Aaagh! See! I told you it was hard!
Okay. We’re not feeding the troll anymore, starting… Now.
Disagreements aside, I think we can all agree that no one should ever join an MLM scheme and all MLM companies should close down immediately.
Aagh.. must… not… type… words…