3 min read

Multilevel Marketing: You make More Money by Staying Away

Multilevel Marketing: You make More Money by Staying Away
Photo by Eugene Tkachenko / Unsplash

Recently an old friend tried to sell me a unique business opportunity, like a once in a lifetime opportunity, by making me a member of Amway. For those of who don’t know Amway, it’s a multilevel marketing (MLM) company, dealing in dietary supplements.

What is Multilevel Marketing?

Multi-level marketing is a strategy that some direct sales companies use to encourage their existing distributors to recruit new distributors by paying the existing distributors a percentage of their recruits’ sales; the recruits are known as a distributor’s “downline.” All distributors also make money through direct sales of products to customers. (Investopedia)

When most people hear about a pyramid scheme, they think multilevel marketing, or MLM. These organizations sell nutrition supplements, household goods, cosmetics, etc. Also, among the offerings might be the copies of “How to make a Million Dollars in an MLM”. One of the industry’s primary money-makers are a series of “training materials” designed to keep the person motivated to keep participating in the scheme.

Maths remains the great enemy, as well as the primary tool, of MLMs. Promoters draw matrices (never pyramids) and compute what 20 people mailing money to a distributor’s house every month would amount to in a year’s time. These schemes ignore other aspects of the equation. First, the market for any product outside those owned by large national brands is extremely small. Cashing in on a submarket requires an excess of savvy, finance, and luck, which most MLM-ers lack, then there is pyramidal mathematics – after a couple of levels, you run out of people willing to hear your pitch.

As a general rule, any organization that recruits distributors into a pyramid-style compensation plan, offers big payoff for recruiting, and spends more time focusing on its distributor levels than its product lines, is probably illegal.

How to Spot a Pyramid Scheme?

If a distributor is more interested in selling you the membership of the company, more than its products, it’s better to stay away from such scheme, than to burn fingers.

To get a sense of how much money you as a distributor can make or loose, ask the below questions to the person selling you the MLM membership before making any decisions:

  • What are the annual sales of the product?
  • How long have you been in the business?
  • How many people have you recruited?
  • How much time did you spend last year on the business?
  • How much product did you sell to distributors?
  • What were your expenses last year, including money you spent on training and buying products?
  • What percentage of your sales were made to distributors?
  • What percentage of the money you’ve made – income and bonuses less your expenses — came from recruiting other distributors and selling them inventory or other items to get started?
  • How many distributor the company has all over the world and in the country?
  • To how many distributors the company issued a cheque for commission income, in the last 6 months?
  • Of the above cheque, in how much of the cases the cheque was for more than $500?
  • How much of the commission was paid for recruiting new members and how much for selling actual product?

It’s important to get a complete picture of how the plan works: not just how much money distributors make, but also how much time and money they spend on the plan, how long it takes before they’re earning money, and how big a downline is needed to make money. One sign of a pyramid scheme is if distributors sell more product to other distributors than to the public – or if they make more money from recruiting than they do from selling.

If you are thinking of joining an MLM, you should look at this great video on MLM by John Oliver in Last Week Tonight to know your real prospects of making a million dollar in MLM. Multilevel Marketing: Last Week Tonight with John Oliver.

In 2016 director Ted Braun made a documentary film on the practices of Herbalife titled “Betting on Zero”. In October 2016 while screening the movie at the Washington D.C. Double Exposure Investigative Film Festival, the lobbying firm, Podesta and Partners, retained by Herbalife bought all 173 tickets in an attempt to keep the theatre empty. You can check more details about the film at http://bettingonzeromovie.com/.

Eric Scheibeler wrote a book “Merchants of Deception” about his experience as an Amway distributor and the scam Amway was perpetuating on its members. You can download a free copy of the book at archive.org, Merchants of Deception.
There are a few blog posts I found dating back to 2007, which claimed that Eric admitted in a federal court filing, that he lied about uncovering billions of dollars in fraud with Amway in his book. But I was unable to find any news article on the same.

Fun Fact: If in an MLM scheme you recruit 5 people and those 5 people recruit another 5 people, then within 14 cycles, every person on this planet would be a member of the MLM scheme.