Beware the Dreamstealer…

Multi-level marketing (MLM) is in the business news again with Fortune Hi-Tech Marketing, a billion dollar U.S. company selling health and other goods, shut down by the U.S. government for operating an illegal pyramid scheme and Herbalife, with a US$4 billion annual turnover, standing similarly accused and fighting for its life in a multi-billion dollar stock market battle between rival activist shareholders.

Here’s why MLM companies remain a doubtful way to buy health or other products and even less, make a living unless you’re Carl Icahn

First the good news: the promise of wealth and independence as your own boss is compelling. You could even retire with a large residual income. In short, most people’s dream, total financial security! You meet some apparently perfectly ordinary people, who have indeed become very rich. There is talk of sums like US$100,000 in the second or even first year. Over $1.0m by year 3 and over $5.0m by year six with at least $2.0m p.a. thereafter. If they can do it, why not you?

Next, there is little to stop you launching yourself on your new career. You don’t even need an office; you don’t have to make a large initial capital investment. You don’t need a college degree, you don’t need to hire staff and you don’t need years of training or experience. Furthermore, if you’ve chosen your MLM company well, they look after all the administration, storage and product dispatch for you as well as training both yourself and your downline.

If your horizons are less ambitious, you could hope to pull in US$4,000 per month. and if you got lucky with your downline it could be $7,000 a month. $40,000 to $80,000 p.a. for a little sideline business is not bad. And finally, if you just like the products and use them yourself, selling them on to family and friends might not only pay for them but make say $600 a month in pocket money.

Sounds Great… what on earth could be wrong with such a scenario?

Quite a lot I’m afraid.

What’s the Catch....? Let me count the ways. While all of the above is possible it happens to very few people. Some people do get rich but it will hardly ever be you.

For a start 85% of all MLM companies go belly up within 18 months.

Even Blake Roney, founding boss of Nu Skin one of the most successful MLM companies ever, said 99% of folks in network marketing don’t make it. And these are the best of the bunch, the top 200 MLM companies in the world, we’re not even talking about the also-rans and scams operations that gravitate to MLM.

Unless you are a member of the initial 0.7% elite connected to the MLM parent company or a brilliant salesperson with the hide of a rhinoceros and a natural gift for selling…. you are not going to make it.

Natural salespeople are very rare and very valuable; the guys running the show know this. Only reason they bother with ordinary folks is to buy product thereby legitimizing the business model, and to do the canvassing until you come up with the STAR SALESPERSON for them. The real currency here is the downline, not product. The only people who are going to get rich are the owners of the MLM company, the existing star salespeople with mature downlines, who threw in their lot with the company at the outset and that rare gem, the future star salesmen.

If you really want to make money out of MLM your best bet would be on the stock market based on whether Herbalife is found to be a pyramid or not.

How much rejection can you take, before you pack it in?

Research shows the average person can accept between 3 - 10 negative responses before they want to call it a day but successful salesmen routinely accept 100 negatives to get a sale. According to MLM experts to get anywhere at all you have to approach 30 people every day 5 days a week or 600 people a month for one year. Then, and only then, you may get to be on the bottom rung of the ladder.

Meantime, you have become an MLM monster!

Every friend you ever had and every family member becomes a potential sale. Every chance encounter is turned into a sales opportunity and every dinner conversation a sales pitch. You cannot have a normal conversation any more. People will avoid you like the plague and quite right too. Yet if you don’t do this, your chance of success is zero.

OK, so you want to remain a remotely acceptable human being and don’t expect to make a zillion bucks.

You would be satisfied with building a business earning say just $4,000 per month. Well - that’s most people, and only 20% of MLM’ers are likely to make even $1,000 p.a. so good luck with that….

Wait… It gets worse!Just suppose you have worked or purchased the right to make a business of MLM from this point on you’re on a treadmill. If you have a bad month, get sick or can’t meet a monthly quota you may not be paid anything. It can all go the person who signed you up. Worse, in certain circumstances they can take your downline away from you. It’s all in the small print. The company can pretty much decide the rules. Now in America you might be able to sue them if you thought it was unfair and if you had a spare million or two to spend on lawyers. Remember, they’ll have some of those too. In most Asian countries? They might think you should have thought of all this before you signed up – and they might have a point.

Here’s something else to know…... Just say you got lucky and signed up one or two of these sales superstars and think to ride on their coat tails to fame and fortune. Whoa! Not so fast my friend... the small print can say that when someone below you sells more than you do the commission “rolls up”, meaning they now slot in the network above you.

Even were that not the case, most MLM companies are structured so that you only get paid commission on all levels of your downline if you have brought in new people and developed other legs of corresponding depth. If after working very hard you get one or two legs of your MLM business working really well, you’ll still only get a fraction of the money earned, the balance going to the person above you. You only really start to make money when you have 3 or 4 legs established. That’s the equivalent of launching four start-up businesses.

It’s all in the compensation plan. This is a document that is as impenetrable as the collected works of C.G. Jung and only the senior members of the MLM priesthood know their way around it. When you initially sign up you are fed information on a need-to-know basis. The only way you are ever going to get the full picture is through hard, if not bitter experience.

Then there are the actual products the MLM company sells.

If it is a product like gold or jewellery stay away. It either is, or is closest to being, a pyramid sales scheme. You are buying products that are overpriced and in the end the market becomes saturated and you are left with a room of stuff you either can’t sell or find is worth 25% of what you bought it for. The smarter MLM companies sell cheap items that people use all the time and that’s why cosmetics and nutritional supplements are such popular items for MLM’ers. In MLM the product, valid or not, is the token which allows you to participate in the business of the company, which is recruitment and/or the sale of services.

That in essence is why some people insist that all MLM companies are pyramid sales schemes and illegal in most countries.

Another unappealing aspect of MLM is the cynical use of independent distributors to spread anecdotal and spurious product claims.

Particularly with health care products. All kinds of weird and wonderful stories are told of miraculous cures and amazing properties for various of the products. Research results are used, abused and misquoted and all the while, if held to account, the MLM company can hold up its hands in horror and say,

“We never, ever said that!”.

And it will probably be true. They are very, very careful about what they say in print. It was, of course, the independent distributors who said it and they are not employees. The larger and more established MLM companies also spend a lot of time and money on compliance, which is another way to say stretching the letter of the law to see what you can get away with.

In short it’s a terrible way to buy health products, which are average and over-priced at best.

It’s an even worse way to make a living. If I’m stealing your dreams, I’m sorry…. but not very, because unless you really are a super dooper salesperson I reckon I’m doing you a favour.