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Is Every MLM a Scam?

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A few weeks ago, I wrote an article asking if Miessense Scam. Here's one of the quotes from their representative in an email to me:

"I get the impression that people think you are against all direct selling / network marketing companies. Perhaps one of these days, you can take a look at the company I am involved with ... although we are direct selling / network marketing, we consider ourselves much different than most of the others ... we put an emphasis on obtaining customers more than we do recruiting reps.

When you see all the components of our company, you may just be able to write something positive and shut some of these naysayers up :)"

MLMers often use this as criticism of critics. Usually it is the more simple form, "You just hate MLM."

No, it's not that "I just hate MLM", it's that I hate fraud and illegal pyramid schemes. If I wrote about how wrong domestic violence was, what kind of nut would respond with, "You just hate domestic violence!"

That comparison hinges on the fact that MLM is fraud and an illegal pyramid scheme. Hopefully, I'll prove that in this article. However, the complexity of the fraud is so expansive that books spanning several hundred pages are written on the topic. I hold that as a higher level of proof than I can provide in a thousand words.

My argument is going to be like a horse and water. You can bring the horse to water, but you can't make him drink. I'll bring the information to readers, but if they are brainwashed to think MLM is legitimate, I won't be able to change their minds... even as I cite the FTC. Even as I cite an article designed to help deprogram the brainwashed MLMers.

MLM, Fraud, and Pyramid Schemes

It sounds dangerous to say that every MLM is a scam. However, I have looked at and written about dozens now, there hasn't been one that has been CLOSE to being legitimate. Is every person in prison guilty of a crime? I can't be certain for sure, but at some point the pattern is unmistakable.

Many of the MLMs I looked at were confidence games that relied on shady company "Doctors" relying on bad science to push their nutritional supplement. That pattern has lead to numerous MLMers erroneously claim that their product is a miracle or "helps the body heal itself." No the MLM products do not do this. If you don't believe that article because it was written by me, scientists have found it so impressive that they republished it here (with my permission).

But Are MLMs pyramid schemes? I keep going back to what the FTC says:

"Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."

When I look at the people making the top money in MLM, it is because they have massive organizations of recruits and the money is based on their sales to them. In fact, this is the pitch of just about every MLM I've looked at. It is very common for them to show that if you recruit/enroll 3, who recruit/enroll 3, who recruit/enroll 3, etc. you'll have an organization of hundreds or thousands of people.

I can't see any way of interpreting the FTC's words other than these very high ranking people at MLMs are running illegal pyramid schemes. The MLM company itself attempts to shield themselves legally from distributor's actions, but it would be like Napster claiming that they didn't foster illegal activity when users shared music. In fact, it is worse for MLM companies as Napster wasn't paying people for illegal activity and taking a cut of the profits for themselves.

No one has ever been able to explain to me how MLMs could possibly be legitimate.

Their best efforts point to companies that are still running after a number of years. They make the claim, "If it was illegal it would be shut down." That is what Fortune Hi-Tech Marketing said... before the FTC shut them down for being a rigged game.

There are thousands of MLM companies and the FTC's budget is very limited. They have a lot of things to do outside of MLM and one single MLM could tie up millions of dollars of that budget in a court battle.

A lack of effective law enforcement does not make something legal. If I become really good at stealing old ladies' purses in a town that has no policemen, it doesn't mean it is legal because I haven't been caught.

No one wants to bring up the fact that Bernie Madoff ran a $50 Billion scheme or how Enron was a $100 billion dollar company. These MLM companies are peons in comparison to those schemes that ran unchecked for years and years. It isn't surprising that they'd be able to fly under the radar.

If a company is legitimate and has a legitimate product, it doesn't make business sense to associate themselves with MLMs/pyramid schemes. They could simply pay a good commission that would make people want to join without the recruitment/pyramid scheme aspect. Such a simple change would save a legitimate company from taking on a risk that could be a death blow to their business.

Since it doesn't make since for a legitimate business to take on this unnecessary risk, it stands to reason that companies that purposely choose to take on this risk do it because they it is necessary for them... and that they aren't legitimate business.

Why It Is Hard or Impossible to Find a Legitimate MLM?

I've thought long and hard about why this would be. Why doesn't anyone any come up with a good MLM? It isn't really that hard to do. I've written How an MLM Can Show It Isn’t an Illegal Pyramid Scheme. I'm happy to consult with an MLM to make them legit.

I believe that MLMs don't want the advice on how to become legit. I think I know why, legit MLMs can't complete with the illegitimate ones and be profitable.

To understand why, you have to know that as Harper's Magazine says:

"[Mary Kay's consultants] couldn’t have it all because Mary Kay’s business model (like that of any multilevel-marketing enterprise) is designed primarily to profit from, rather than enrich, its workforce."

It is reinforced by this article showing that MonaVie's business model is MLM not juice. The product is juice, but no one buys $40 bottles of juice. The business model is getting people interested in a business opportunity which happens to have an admission fee of buying $40 bottles of juice.

MLMs compete fiercely for other MLM distributors. They poach distributors from all the time. Almost every MLM makes distributors sign an agreement to not work for another MLM. It doesn't matter if the product they are selling is unrelated. That's because the people are the product.

Many of the Zrii distributors went to the company that can't be named. It looks like many will now be moving to Yevo. Many of the top MonaVie people came from Amway. There is no loyalty to the product, but it is to the people building the scheme.

This is where MLMs "race to the bottom."

There has been very little regulation in the industry (the FTC doesn't have the funding to do much), so companies and distributors can get away with all sorts of illegal claims. I've written about MonaVie juice and being pushed as cancer medication. The Huffington Post has covered it as well.

In fact, the move of these companies to pyramid schemes has been cited by Tupperware and Avon for leaving "Direct Selling." I get a chuckle when these companies are held up as successful MLMs. They've wisely distanced themselves so they'll stand a chance of surviving if law enforcement gets its act together.

If you are going to try to run a legitimate MLM organization, how can you draw people to your business and compete in an environment of illegal pyramid schemes? You can't. If everyone is allowed to put a pile of aces up their sleeves in a poker tournament and you play an honest game, you aren't going to be in the tournament very long.

Imagine if there were no drug testing in the NFL. It would be extraordinarily difficult for a clean linebacker to compete for a job against a group that are extensive steroids.

This is where I believe MLMs are. Every new MLM has to come up with a selling point to lure distributors. This selling point has increasingly become more and more misleading. It went from selling food containers (Tupperware), to make-up (Mary Kay), to juice/shakes/pills. The later MLMs add the (bad) science and (illegal) health claims to make the scheme more compelling. Who knows how much worse the deception will go in competition for distributors?

So that's my answer for the commenters like the one above who says "I get the impression that people think you are against all direct selling/network marketing companies."

I am against them, but only because there is obvious fraud and the lack of active regulatory body (yes I'm looking at you FTC) has created an environment where deception is rewarded and legitimacy is severely punished.

Last updated on October 13, 2015.

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31 Responses to “Is Every MLM a Scam?”

  1. Ramona says:

    I know many people who entered MLM businesses, invested money and time. NO ONE was able to do anything but waste their money and their time. So, I am very wary of anything resembling an MLM business.

  2. WRB says:

    Lazy Man, I just discovered you by researching yet another MLM product and wondered where you buy the helmets you must wear to protect your head when you bang it against the wall again and again as you try to reason with MLM zombies? What would be really interesting would be a psychological study on the type of personality who readily buys into these MLM schemes. The weird thing is that the actual PRODUCT name is interchangeable with the schtick that goes along with it. Yet the zombies who buy into the Get Rich Quick thing never seem to realize that. Every one of them insists that their product is better than the one you can easily buy on amazon.com or the drugstore and lists dubious scientific “proof” (honestly, is failing high school chemistry a requirement for becoming a distributor?). The pointless scientific goobledy-gook these MLMs put on their websites is hysterical – lots of big words that go nowhere and mean absolutely nothing. If you aren’t sure if a company is an MLM – then there are a couple of easy tests. 1.The person trying to rope you into their downline insists that the naysayers you may have read/heard about are simply “too lazy to do the hard work” to make the zillion dollars. 2. The person will INSIST on giving/selling you a sample of their damned product even if you clearly and repeatedly say you are not interested, and then continue to follow up and argue with you when you explain that, for instance, as a serious coffee fanatic you do NOT love their nasty instant flavored coffee, or that you got equally nice-smelling, all-organic and relaxing oils for about 1/10th the price on amazon.com. 3. They are very excited about being able to cure whatever chronic condition you might be suffering from and their proof is that they, their friend, or their relative was CURED for the exact same problem by using the supplement that they…oh, just happen to be selling. and 4. They berate you for not being smart enough to get into the business so you, too, can retire early in a mansion and drive a brand-new beemer. But three years later literally every single one of them is no longer selling that. The lucky ones simply turn red and change the subject when you bring it up, and the unlucky ones just explain that while that first one didn’t work out, NOW they are distributors for ___________ (fill in the blank), which is going to make them even MORE money and a great business opportunity you should be even HAPPIER to join them in.

  3. Vogel says:

    WRB said: “What would be really interesting would be a psychological study on the type of personality who readily buys into these MLM schemes.”

    I agree wholeheartedly with that as well as the rest of what you wrote. All I have to draw on is my own experience researching MLMs and engaging in dialog with their supporters, online and in person. I think there are several “types” that get sucked into MLMs.

    One type is the ruthless exploiter; the kind of person who knows that what they are doing is BS but does it anyway. This probably characterizes all the people who run these MLMs scams (i.e., company executives and a few kingpin distributors and investors) and profit handsomely from them, as well as some of the spokespeople, and some of the middling and low-level hucksters who are trying to scratch out a living as petty con-artists.

    The other type, which would likely account for most of the people who get involved in MLMs at the lower levels (i.e., the peons), is characterized by ignorance, with varying degrees of desperation and greed. People who are not capable of seeing through the coercive BS that MLMs use to con people — e.g., all the false/deceptive claims, cult-like persuasion tactics, etc. – or are too desperate or greedy to resist the bait. Many of these people are prototypical sad sacks: impoverished, unskilled, and uneducated with few prospects in the non-MLM workplace; people who are particularly susceptible to fraudulent get-rich schemes and snakeoil products.

    II don’t want to seem like I’m blaming the victim too much though. MLMs bear most of the blame for leveraging all sorts of manipulative tactics to hook their prey. Some are so powerful that they work on those who would generally be considered smart people. All it takes is a bit of gullibility and trust to con someone, and MLMs know this well. That’s why MLMs have their recruiters bushwhack “warm” contacts, like friends, family, co-workers, neighbors, clients, and underlings – virtually any relationship where trust, guilt, or power can be leveraged.

    If you look at the activities behind the scenes at any typical MLM, you’ll see a packed schedule of recruitment and so-called “training” meetings, which are really nothing more than the opportunity to force the victim into a situation where they can be more easily manipulated. Peer pressure, love-bombing, us-vs-them mentality, stoking greed and delusion, intolerance of dissent – these are the hallmarks of MLM cult meetings. Aside from that they force-feed victims a steady diet of cult-reinforcing audio and video recordings.

    What’s really telling is how an MLMer reacts when confronted with damnining facts. A reasonable person – an innocent victim of a con artist – would be able to recognize the truth when it hits them in the face, but those who continue to deny it are most likely scammers, motivated by greed, who know that what they are doing is straight-up exploitation. Either that or they are dumber than a sack of hammers and pretty much beyond hope.

    • Scott says:

      I take it that you are probably against religion too? You certainly aren’t interested in the truth why people get involved in MLMs.
      I’ll tell my story. While the one I’m in is also a brokerage-insurance general agency, I got involved because I was teaching school at a place that didn’t pay well. I had two kids and one on the way and my wife didn’t work. I went to an “opportunity” meeting and saw that I would be paid based on the sales of the product sold. And, I could build a brokerage business within the company and override my agents and they could do the same thing 6 levels deep. So, I paid my way. They paid for my license to sell insurance and I earned an extra $1,000 to $1,500 a month one to two nights a week. I didn’t make it to the top. But, I earned a great spare time income that I needed.
      People join MLMs because most are easy to get started. They don’t require extensive and expensive college degrees. They can bring in a few dollars to a lot based on the time a person works and sells the products. Some end up overriding others. Just like Trump overrides all his employees. No difference there to have a conniption fit over. Others join because they are sick of their JOBS and want to try something different. Are you that clueless to the great freedom and opportunity America gives people? And, you want to take that away from people?
      I’d like to know who really gets hurt. A person tries some vitamins or whatever. If it helps them feel better, great! If it doesn’t, not much different going to a doctor and have to go through several medications until one is found to work. Some people love Thrive and what it has done for them. If it doesn’t help, stop taking it. Make some money. If it works out, great! If it doesn’t, go work at 7-11 or throw newspapers for extra money.
      Honestly, why do you people spend so much time attacking MLMs? And, for heaven’s sakes, why are you against people getting together and having fun at their work places in their meetings? Are you a dull-disillusioned CPA or some boring person like that? Go get a life and leave people alone.

  4. WRB says:

    Exactly, Vogel. I think one of the other reasons people stay in these schemes as long as they do at the bottom level (which frankly is what- about 99% of them, with MAYBE the top 1% actually make some cash before the bail and start yet another MLM?) is that having invested a certain amount of money, like compulsive gamblers, they simply can’t walk away until they make back the money. Can’t admit their mistake and cut their loses, and are too embarrassed to admit to themselves that they have been duped. I think this makes them even more frantic to “prove” their product is good- even as they toss more and more money into meetings, conventions, kits, etc. In the past three days I have been approached on online forums for a chronic condition I have by three different people: One selling oils, one selling lotion, and another one selling supplements. All of whom approached it by saying, “this really worked for me and I think it could help you….” I actually DO hate MLM because honestly I have never known ANYONE who made money from them, or didn’t hound me about it when they were involved in it.

  5. Vogel says:

    Right on the money again WRB. Lazy Man has written about this with respect to cognitive dissonance reduction. A hoodwinked victim goes into denial when confronted with reality because they don’t want to admit to themselves that they have been deceiving friends and family or that they were foolish enough to fall hard for a scam. The net result is that they will continue to pour even more money into a losing venture before they finally go broke, have their spouse leave them, get ostracized by friends and family, get fired, etc — basically, when they hit rock bottom. MLMs know that people have this psychological Achilles’s heel and they exploit it ruthlessly.

    It really is hard to imagine anyone more annoying or less fun to be around than an MLMer. They are so universally reviled that it’s amazing that anyone could still decide to join an MLM.

    BTW, sorry to hear about your chronic condition. I hope you are coping well and wish you all the best. Cheers mate!

  6. WRB says:

    Thanks Vogel – I’m doing fine, just with a lifelong incurable chronic condition that makes me miserable from time to time (for the most part I’m okay). There are a lot of people in the world with chronic conditions for which there is very little treatment other than to treat the symptoms, and these people are prime targets for MLMers. I have seen the same products pop up over and over again on different forums for different diseases or conditions- and each time THAT is the condition that is supposedly miraculously cured by whatever snake oil these MLMers are peddling. The same product will have one page linked to lupus, for instance, and then the same product will have another page linked to rheumatoid arthritis, crohn’s disease, etc. Completely unrelated diseases, yet they are all miraculously “cured” by some herbal supplement or essential oil that apparently the top researchers in the world for that condition chose to ignore. When you consider that a lot of the people are unable to work and so are on limited funds- often barely getting by on disability- it makes it even more disgusting that someone would take advantage of them. So yeah- accuse me of hating MLMs- and I will admit that I am not objective about them.

  7. Vogel says:

    I think it’s perfectly objective to hate MLMs. It would be crazy not to. :)

  8. If MLM were a legitimate business, you could become successful by retailing it to customers. However, as you point out, “When I look at the people making the top money in MLM, it is because they have massive organizations of recruits and the money is based on their sales to them.” Thus, MLM is not a real business. It is a money-making scheme. I wrote a short post on MLM called “The Moral and Ethical Argument Against Multi-Level Marketing.” If you would like to read it, here is the link:

  9. Samuel Nichelson says:

    I just want to say my take on this. First off I think you have many valid points and thanks for writing this. I have been apart of many mlm companies and of course failed miserably. I do like the idea of mlm but its so hard to market when you come from a corporate background. Is there any legit mlms I really don’t know anymore and have since left mlm altogther. I was even in FHTM before they shut down. The issue has been what Dale Calvert has said…the autoship. Many distributors are just customers so when that autoship comes around and they haven’t made any money it can hurt. Life gets in the way bills,insurance, etc so they can’t pay. The only company I can really vouch for that I really like is Mca even though its direct sales more people have become successful there as a whole than any mlm I know. I just want to say though that mlm has taught me alot though and I don’t regret the time I have been in it. I just wish that people were taught better ways to market products were more affordable and it was more customer driven than recruiting new reps. Just my take as someone that will always love the industry no matter what others may say about it. Thanks for reading.

  10. victoria hanshaw says:

    I was once involved with some MLMs but I began to realize why I always felt so utterly horrible. Quite a few of them went under and it’s no wonder now. The one company had a forum where you could chat and often I’d ask questions that seem to get people riled up, they’d gang up on me on the forum (like the cult mentality, they were never truly able to suck me into). So, I’d say to the people thinking there are only certain personalities that get sucked in (one person came up with 2) your thinking is very limited. Some people can get involved/sucked in and still figure out for themselves why they have that nagging feeling in the pit of their stomach that it’s wrong, should be illegal etc.

    • WRB says:

      If you had that “nagging feeling in the pit of your stomach”, then I would say you were not completely sucked in. Tempted, hopeful and distracted, maybe, but not actually sucked into becoming an MLM zombie. The ones I am talking about are like the ones who would gang up on you with that cult mentality. What is disturbing to me is how many normal, seemingly intelligent people I have know who have been sucked in. They did eventually get out, because for 99% of the people involved the effort simply is not worth the returns. BUT- those friends had a lot of bridges to mend once they left ZombieLand with the friends they had annoyed.

  11. victoria hanshaw says:

    Granted, I never recruited anyone and focused solely on trying to sell the products. The one company forbade selling their products online though which made things even harder with the advent of selling online (they themselves had that market cornered which is probably why). I kept giving different MLMs with different products a chance (mostly candle companies), that I thought I could sell. I never got into the recruiting aspect because that wasn’t even what I wanted to do, which may be why I never fell completely under their spell. Now I try to save people from signing up with MLMs.

  12. N says:

    Hi, very curious about this article that you mentioned, but the link does not work. Could you provide? Here’s the link: http://www.mlmmyth.org/how-an-mlm-can-show-it-isnt-an-illegal-pyramid-scheme/

    Appreciate all your comments, very interesting topic!

  13. N says:

    Thanks! Appreciate it. Sorry to hear about the hack. :(

  14. Robert says:

    Another tale-tale sign of a committed MLMer is their circle of friends. As the MLMer trods further down the MLM road (to ruin), their existing friends fade from prominence as they make new MLM friends. This is encouraged by MLM execs since the echo chamber it creates helps keep the MLMer in the game.

    Sure, the MLMer needs fresh blood on which to feed so they continue to mine their extended network, but only those who join are consider friends now and are worthy of recreational association. And, indeed, that same recreation is now often steeped in MLM-related conversation and activities. Hardly a diversified lifestyle.

  15. […] know what they are getting into. Our good friend at Lazy Man and Money has an excellent article on spotting MLM scams, so check that out when doing your […]

  16. Moneyboy says:

    My cousin recently joined Tranont and is trying to get me to join as well but I am very skeptical. Have you heard of them or have any opinions on them?

  17. Ben Jackson says:

    Good afternoon everyone,

    My name is Ben Jackson. I came across this site because my best friend is relentless in trying to get me to leave my network company. That company is PlanNet Marketing and Inteletravel. Inteletravel is a brick and mortar travel agency, and along with booking travel, yes I grow a team. So I do both. So I guess I am one of the zombies and cult followers that you speak of.

    I make good, not great money, but my 2 years in this industry has been nothing but positive from booking a trip were the couple got on a plane for the 1st time, and took their 1st trip to sponsoring a person in the French Caribbean that has grown a team of over 150 since February 2016. I might also add that almost every member of our team uses the travel club they have available to them. That travel club is the Society of Intelligent travelers.
    I am not here to argue with anyone, we are all entitled to our opinions. The only thing I will say is by calling people names does not sway them to your side of the debate but makes you look less credible unless you are anti MLM as well. Very similar to Donald Trump.

    Lastly, there are definitely bad companies out there, and yes the FTC cannot regulate every company. However, when someone says that all MLM’s are bad, its like saying all white people are racist or all black people are lazy. So when the FTC comes knocking they will see that PlanNet Marketing is the marketing arm of Inteletravel and we have 11000 zombies that have booked over $23,000,000 in travel for Inteletravel since January.

    I would say keep your argument fair and open minded.

    • Lazy Man says:

      Thanks for the comment Ben Jackson.

      I haven’t heard of Inteletravel or PlanNet, but I trust the analysis of BehindMLM here and let’s just say that it isn’t good for PlanNet.

      It’s strange that you’d bring up Donald Trump because he’s actually been a supporter of MLM companies that have attracted the attention of authorities and regulators.

      I created this article, because I wanted to make sure that people understand that finding a good MLM seems to be like finding an innocent person in prison… perhaps even harder. For years I’ve openly challenged anyone to name a good one. When they named one, I’d research it and find a dozen red flags in the first 30 minutes. I don’t want to speak for him, but I don’t think Robert FitzPatrick from Pyramid Scheme Alert has found any in 20+ years of research.

      So I don’t think it’s generalizing a type of people, I think it’s very different for the reasons I cited in the article. Specifically, it is my opinion they compete for resources (distributors) and it seems they are rewarded for bad behavior in an area with very, very little regulation.

  18. Liard says:

    Not all mlm companies are fraud I’m involved with a great company that has a great product (travel). I’ve been on a trip and I haven’t been let down. I haven’t gotten involved with other companies because I don’t believe in their products but you can’t not believe in travel and if the trips are real. I can book them and go any time so no scam there a pyramid scheme is a mlm company with no actual product or service. So even the companies you are trying to call out if they actually have a product or service to sell then they are legitimate. It on the person to believe whether or not the product works. Legitimate companies that aren’t mlm make claims as well hydroxycut says you will lose pure body fat if you take their products. Are they illegal? It’s on the person who is watching the commercial to believe their claims or not and buy their products. Also people buy in and they might think they are working but if you’re not coachable then you can’t win. If you’re trained for a job and then decide that you want to do the job how you want and can’t get it done is it the jobs fault no if other people can follow the system and make it happen then it’s you the individual who is doing something wrong and have to change your strategy. Another way to look at it is if you buy a membership to a gym and go and use all the machines improperly or don’t even go at all is it the gyms fault you are not in shape. You can’t get rich in two months. If you’re good you get paid well in two years if you suck it might take you four years or 5 but you can gain financial freedom it might still be a while before your swimming in the money but if it can cover your bills it can free you from your “job”.

    • Lazy Man says:

      Liard said, “I can book them and go any time so no scam there a pyramid scheme is a mlm company with no actual product or service.”

      This is not an accurate definition of pyramid scheme. Fortune Hi-Tech Marketing had DishTV and Vemma had an energy drink. You can’t say that satellite TV and energy drinks don’t exist.

      If you are involved in an MLM company that filled your head with false definitions of pyramid schemes, I’m not sure how great they are. In my opinion, if they were great, they would be telling you that making a majority of your money through recruiting/your downline rather than through selling is what makes for a pyramid scheme.

      The FTC has further explained that Herbalife wasn’t being run legitimately. Do you claim otherwise?

      I’m not really interested in covering hyudroxycut, because MLM isn’t about the products, but the recruiting structure. There is consumer protection from the FTC, but unfortunately it is nearly impossible for them to cover every claim in every advertisement. Consumer protection isn’t about just letting people make false claims and saying, “it is up to people to believe them or not.”

      In the job scenario you said above it isn’t the job’s fault. However, if one’s job was to hit 10 holes-in-one in golf in a row to make a few dollars, would you say that it is the person’s fault or the job’s fault. That’s what MLM is. For decades, 99.5% of people at a ton of MLM companies fail. So only 5 people out of 1000 actually make money… and that’s be generous. Is virtually everyone not willing to do their trained jobs? Have they been like this for decades? Or is it that the jobs are virtually impossible?

      The gym fulfills its promise 100% of the time of being open and available (give or take a natural disaster). The exponential recruiting of building a downline/pyramid in MLM is not sustainable. It’s like a gym that is only big enough for one person and sells thousands of memberships… and that one person sits at the top and doesn’t leave. It doesn’t matter if you go 50 times a week if they don’t let you in the doors. Is that gym operating legitimately? I don’t believe it is.

    • Scott says:

      The definition that counts to the government is whether a person is paid from the sales of products or service. If a person is paid from the “distributor” fee, then it is an illegal pyramid, much like a chain letter.
      So, the way MLM’s stay in business is that they tie a product sale to the distributor fee, but the person only makes money from the sale of the products. The distributor fee goes to the company. If that fee isn’t legit, then the IRS will hammer the company.
      One has to ask, are brokers illegal then? What about large corporations? They are pyramids too. The people towards the top make the most money but don’t produce income for the company. It’s the worker bees at the bottom of those brokers and corporations that bring in the money. The checkers at stores and the sales people at their stores. How many people in those corporations that start as a worker bee make it to the high paying top positions? 1%? Not even that!
      There is a reason that only about 2% make it to the top I MLM’s. 98% of the people are unable to understand and apply the fact it takes a lot of time and effort to get there. MLM’s often promise it’s easy. But, a legitimate one does not say that because it isn’t easy. 60 to 80 hours a week in the beginning for 3 to 5 years it takes to get to the top. If everyone did just that, everyone would make it to the top, guaranteed!

    • WRB says:

      First of all, everyone can’t make it to the top. guaranteed, because the whole model is built on having people under you. If everyone was on top- who would be on your down line? Also, in a regular business- sure, the top 2% of the business make the most money- but the bottom 98% are not either making no money or actually losing money, which is what ends up happening with the majority of people who go into MLMs thinking they are going to get rich. For the amount of time spent, and then deduct the money spent for demonstration kits, free samples to give out, etc., you would be better off working at Burger King for minimum wage. I have known literally dozens of people who have tried MLMs, and not one of them is still with whichever one they were involved in (and there were many, from Amway to Organo Gold to Juice Plus, and so forth). You make money by building distributors in your downline, and if you live in a small community, eventually you will run out of people to rope into your business. Everyone I know went back to their actual jobs full-time. Not many people can afford to spend 60-80 hours a week for three years with little or not return.

    • Geoff says:

      Scott, you made a couple of errors in your assessment of MLM and the income generating process.

      You said, “So, the way MLM’s stay in business is that they tie a product sale to the distributor fee, but the person only makes money from the sale of the products. The distributor fee goes to the company. If that fee isn’t legit, then the IRS will hammer the company.”

      MLMs stay in business for a number of reasons, and none have to do with a product being tied to the entrance fee. The Amway case in 1979 specifically stated they must be generating no more than 70% of their product sales from distributor purchases, and this has resulted in Vemma and Herbalife recently being found guilty of violating that agreement and having to restructure their compensation plans. Also, it is not the IRS that goes after these companies, but rather the FTC and the FBI.

      Scott said, “What about large corporations? They are pyramids too. The people towards the top make the most money but don’t produce income for the company…” “…How many people in those corporations that start as a worker bee make it to the high paying top positions? 1%? Not even that!”

      This is a common fallacy that most MLMers use to validate their companies. Corporations are not pyramids schemes, they simply have the shape of a pyramid. The people at the top make most of the money, because they are the reason the business is a business. They cover the overhead, they pay the employees, they market the products, they are the brains of the organization. However, if you look at the distribution of funds…corporate CEO’s do not take home the biggest piece of the pie (in fact they are normally lucky to make a couple pennies on the dollar)…this is where most people forget how businesses work.

      Scott said, “There is a reason that only about 2% make it to the top I MLM’s. 98% of the people are unable to understand and apply the fact it takes a lot of time and effort to get there. MLM’s often promise it’s easy. But, a legitimate one does not say that because it isn’t easy. 60 to 80 hours a week in the beginning for 3 to 5 years it takes to get to the top. If everyone did just that, everyone would make it to the top, guaranteed!”

      This is just an incorrect and unfounded assessment of how the failure rates are founded in MLM. The reason there are massive failure rates in MLM is, the opportunity to generate income is dependent on the dollars spent of MANY people underneath you. That means the majority are going to lose NO MATTER WHAT. In any other business the employees do not fail like they do in MLM. Everyone takes home a salary, and this salary is agreed upon at the time of hiring.

      Scott, anybody who guarantees anything involving money and success is something to immediately be wary of. This is a business 101 red flag. You have no proof that every person who puts 60-80 hours into MLM has earned success, and there is ample evidence out there to discredit this thought. The reason nobody guarantees things in business is, there is no way to tell what the future holds.

    • WRB says:

      I made this comment in a previous post, but if you could afford to work 60-80 hours a week for three years with no real return- you would be wealthy to begin with and obviously not need this “business”. Who is going to pay the rent/mortgage, utilities, buy food, medical expenses, and so forth, if you are putting that much time (60-80 hours a week) into a business that will not pay off for three years?

    • Geoff says:

      Just to add onto what LM said,

      Liard said, “Not all mlm companies are fraud I’m involved with a great company that has a great product (travel). I’ve been on a trip and I haven’t been let down. I haven’t gotten involved with other companies because I don’t believe in their products but you can’t not believe in travel and if the trips are real.”

      This is a very vague statement, because it doesn’t tell us how you make money with the travel products. Are you selling vacations? Are you getting your friends to buy vacation packages, and then getting yours for free and teaching them to get more people involved so they can get free vacations? If the latter is true, then that is a pyramid, and makes your MLM travel company bad. You are in essence getting your friends to buy you vacations, and they are spending more money taking you on vacations through that company than it would for them to simply buy a vacation for you. I had a lengthy discussion with the infamous Tyson Zahner about this, and he too could not prove the legitimacy of his travel MLM.

      Liard said, “Another way to look at it is if you buy a membership to a gym and go and use all the machines improperly or don’t even go at all is it the gyms fault you are not in shape. You can’t get rich in two months. If you’re good you get paid well in two years if you suck it might take you four years or 5 but you can gain financial freedom it might still be a while before your swimming in the money but if it can cover your bills it can free you from your “job”.”

      Ah, the infamous gym example. There are two major fallacies I think of when people bring up the gym comparison.

      1. They don’t promise you success. LM already referenced what they do promise, and it isn’t anything like an MLMs promise. MLMs promise you success within 2-5 years (where they came up with those numbers is a mystery that has yet to be explained), whereas a gym does not guarantee you will be fit and healthy within a certain time frame. In fact, it is just the opposite and they consistently bombard you with personal training opportunities, because they know simply buying a membership isn’t enough.

      2. Can everyone who buys a membership to a gym be successful? Absolutely, and this is where the biggest part of the fallacy comes into play. You are not reliant on anyone else for your success in the gym, unlike MLM where you are required to recruit to earn “residual income”. You can, theoretically, be successful in MLM retailing products, but that is not how they are pitched, and they are not designed to emphasize selling. They are designed to make you a loyal customer and self-consume and then teach you how to get your friends and family to also be loyal customers and self-consume. Also, if you go to a gym 10-15 hours a week YOU WILL SEE POSITIVE RESULTS, but if you work MLM 10-15 hours a week you are more than likely to see no results or negative results.

  19. WRB says:

    In re: to products like hydroxycut and the FDA- one thing these companies do when shut down by the FDA is reorganize and reissue the product under a different name, which gives them a bit more time before the FDA comes after them again. Same with the erectile dysfunction “treatments”- of course they don’t work, they get shut down, then simply repackage and start all over again. Often the name is similar, and the marketing campaign is almost identical.

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