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The answer is surprisingly hard to pin down, as proponents and opponents are both guilty of cherry-picking the data to suit their own side of the story.
Thus, as a skeptic, it is an interesting exercise to get some REAL numbers and give you a realistic number, while showing you all the work so you can tweak the figures if you don't feel it's realistic, and get your own answers.
How much money *can* you expect to make in MLM? The numbers may surprise you, and my numbers are released by the MLM industry themselves. So if there's a bias, it'd be a PRO-MLM bias.
According to Direct Selling Association (DSA), the MLM industry group, as of 2011 (that's the latest info they have), the figure is $29.87 billion retail sales made by 16.5 million sellers. However, DSA includes both MLM and direct sales (single level commission) companies. It says 95% of its members are MLM companies, but did not include breakdown of how much that $29.87 billion is made by MLM companies. We'll assume 29.87 billion is all MLM to simplify the math (in reality it's less).
That's $1810 of GROSS SALES per seller per year.
Let's assume that the RETAIL PROFIT MARGIN is about 25%. i.e. if you sell a $100 product, you pocket $25 (as you really bought it for $75). I believe this is a VERY GENEROUS number, as the real number would probably be lower (much lower?). That would mean the actual "gross profit" per seller per year is $452.5, let's just use $450. And that's NOT counting any MLM commission (through sales by others or recruitment).
How much MLM commission can an average rep bring in? I'll just take... Herbalife as an example. Here's from their 2011 disclosure:
Remember the note: only 25% of all sellers get MLM commission. And the average is $2900. That means the actual OVERALL average commission per seller in Herbalife is $725. However, we'll just use that and pretend it's "industry average"... for now. (Actual numbers are probably lower across the industry)
That's an average gross ANNUAL income of $1175 (725+450) and that's BEFORE you count expenses and such.
Keep in mind that US Federal Minimum wage is $7.25 per hour. A typical work-year is 50 weeks of work (taking out sick and vacation time) at 40 hours per week (full time work) or 2000 hours of work a year. A worker doing minimum wage would have earned... $14,500. That's 12 times as much as an average MLM guy (with some VERY generous assumptions for the average MLM guy).
If the "average MLM guy" worked any MORE than 3.2 hours PER WEEK, he's making LESS THAN minimum wage. And that's with the VERY GENEROUS assumptions for MLM.
Just to give you a different perspective, here's an OFFICIAL number from Direct Selling Association:
The median annual income for direct sales consultants in 2011 was $2,400, according to Amy Robinson, spokesperson for the Direct Selling Association. (quoted from Forbes article)However, there's no background data available on how that number was derived, or what exactly is definition of a "direct sales consultant". But this is also BEFORE expenses.
Let's assume $2400 is a more "reasonable figure".
That means an "average MLM guy" worked more than 6.5 hours per week on MLM, he's making LESS THAN MINIMUM WAGE. And that's with DSA's own number.
Also keep in mind, that as you start, you will start BELOW AVERAGE. That means you will end up spending a TON of time at LESS THAN minimum wage for uncertain return (while paying all the expenses such as printing brochures, running parties, and such by paying out of YOUR OWN POCKET).
Feel free to make your own calculations, but you'll need the following figures from your recruiter:
- How much is he making via retail now
- How much is he making via MLM commission now
- How much time is he spending on MLM now
- How long had he spent in MLM
- How much expenses he's spending on MLM related activities (running parties, promos, print brochures, cards, etc.)
From there, you can figure out how much is your upline really making, and how long will it take you to get there (assuming you're just as good a salesperson as he was).
The results may be startling (for you AND for him).
Editor's note: This article was inspired by the "Naked Skeptic" 2008 column as published in Australiasian Science. You can read it at http://www.ratbags.com/rsoles/comment/ausscience0802_mlm.htm
Hi K Chang.
ReplyDeleteI do not see here where I can connect with you through a contact page. I am the person who commented on Oz's site as SicknTired and would like to connect with you if you have some free time to talk.
You can post your comments here. They default to HIDDEN unless I show them.
DeleteOr you can send email to fact22@cloak.gli.ph
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