MLM Mythbusting: Is MLM really a growth industry? (The Numbers May Surprise You)

When you listen to MLMers / Network Marketers, you're often told that MLM is the big thing, it's "experiencing record growth", it's "amassing fortunes for millions of people each year", it's "#1 millionaire producing industry", big companies are going MLM, and so on and so forth. They'll dazzle you with numbers such as

• Every week 150000 people join network marketing around the world (but how many quit?)
• Worldwide sales of MLM is estimated to be 90 billion (still less than 1% of world economy)
• DSA estimates 200 million new distributors in next 10 years (again, how many quit?)

Is MLM actually growing that much, when compared to other industries? Let's look a little closer. 

Is MLM the "next big thing"?

Claims have been made since the 1990's that MLM is the next big thing.  Back in 1990, Richard Poe wrote in Success magazine that network marketing is "the most powerful way to reach consumers in the 90s". He also wrote a few books, specifically, Wave 4.  This quote was reproduced ad infinitum by various MLMers trying to legitimize their own little niche. You can see this example where the author changed it to "21st century economy".

Basically, they've been saying it for THREE DECADES (going into FOURTH) and it STILL haven't come true. 

Those claims had not come true. Internet soon surpassed network marketing as the way to reach consumers, with online shopping, and ready access to review sites, peer reviews, and more. E-Commerce is a 289 BILLION dollar industry in 2012. For comparison, direct sales and network marketing is a 31.6 Billion industry in 2012, as per DSA. (see below)

One more point of comparison... Total US retail for 2012 is $4.9 TRILLION.  That makes direct sales 0.64% of stuff sold. It's a niche market, and it's not growing much, and hadn't done so for decades. 

Is MLM "experiencing record growth"? 

A lot of places repeat big words like "record growth"... 

The problem is... relative to what? DSA itself reports that sales has been down since 2006 and only just recovered in 2013 or 2014 (not counting inflation). See for yourself (all graphs courtesy of DSA.org):

1991 to 2000

2000 to 2008

2008 to 2012 (latest data from DSA)

So "record growth"... In relation to what, exactly?  It's now 2014 and they probably did break their old 2006 record... but that just means they are not as recession proof as they claimed to be... 

Also, is 31 billion a lot? Again, in relation to what?  Franchising is a 740 billion industry as of 2011, according to a PricewaterhouseCoopers analysis. And franchising started at about the same time as network marketing.  In fact, franchising may have success rate of up to 95% (the stats are old, per 1991, and no new data had been compiled since)

"Record growth" statement is meaningless. 

Is MLM "amassing fortunes for millions of people"?

The answer is no... not even close. Yet random coaches are making these grandiose exaggerations, and they want to provide you with training and inspiration (for pay, of course).

Simple math should tell you that can't be true. Remember, 31.63 billion estimated US MLM retail in 2012. How many reps were making sales?  According to DSA, 15.9 million. (in the US) as of 2012. 

That's average of  roughly $2000 SALES per rep. Even if you assume profit of 50% (extremely unlikely, way too high) that's only $1000 profit per rep PER YEAR. That's hardly a "fortune", is it?

Is MLM #1 millionaire producing industry?

That is a myth perpetuated by the same liar who claimed decades ago Harvard Business School teach MLM (it never ever did). 

Are big companies going MLM?

Often promo copies contains statements trying to name-drop big company's names to legitimize their no-name schemes. Here are some examples:

Fortune 500 corporations, such as IBM and MCI, now market products and services through third party MLM firms. 

MCI is long gone. The closest link to MLM is Amway helped sell MCI back in 1980's. 

IBM is no longer in the PC business. In any case I can find no link between IBM and any sort of network marketing / MLM. If you can find one, let me know via the comments below. 

CitiGroup, the largest financial services company in the world, sells mutual funds and life insurance through a network marketing subsidiary called Primerica. 

Citigroup had been trying to sell off Primerica since 2008, and finally did so in 2010 with an IPO.

And you need to understand how Primerica really works... only 1 out of 10 will be a regular seller according to article on SFGate. (the rest will quit after paying the join fee, so the existing reps have to recruit a lot due to huge churn rate)

For the last five years, the number one offering on the American Stock Exchange, in terms of profit growth, has been Pre-Paid Legal Services --- an MLM firm.

Pre-Paid Legal was originally "Sportsman's Motor Club", really. It started because the owner spent a lot of money fighting an auto-related lawsuit and thought, why don't I make my rich buddies buy insurance for that? Later they changed their name to Prepaid Legal.

Later it was hit by multiple SEC, FTC, and state attorney general investigations, as well as multiple trials. In 2011 it was purchased and made private and renamed to "LegalShield".

Not exactly another high-flyer... And Nolo guide advises against them, stating they are unlikely to save you any money. You may want to read the review at BehindMLM

I will also point out that Avon, by going MLM despite its 100 year heritage as direct-sales only, had apparently ruined the company instead. 

So what is the truth about Direct Sales and Network Marketing?

To put it plainly, Network Marketing is growing by adding salespeople, not by retailing. Just take a look at this chart compiled by William Keep and Peter J. Vander Nat:

Sales people are being added for past 20 years (redline), but average sales per salesperson (green line) has actually dropped slightly. Thus, any increases in sales are made by ADDING salespeople.

When you add the fact that DSA and its various advocates are trying to legitimize "internal consumption", i.e. "when salespeople buy their own inventory and consume it thus making no profit, that's still retail"  that is extremely disturbing, because it suggests that these added salespeople are merely selling to themselves (and making no profit).

Furthermore, consider the blue line: MLM Sales in relation to all US Retail sales. The ratio is DROPPING since 2001. That means US retail growth is OUTPACING MLM sales growth (despite adding all these "sales people") 

And that in turn suggests that MLM / Network Marketing is now mostly a recruiting game: the more you recruit the better you are. You recruit people by convincing them to sell stuff to themselves (i.e. internal consumption) and sometimes, others. They think they're selling when they're buying. Total reality inversion. This reality inversion can be restated as 'sharing' or 'demonstrating' or 'promoting' the products but the fact is the distributors are buying most of the products, NOT the customers.

Furthermore consider another bit of statistic from the same paper by Keep and Vander Nat. During 1980, Amway distributors earned average of $267 annually in Wisconsin (revealed via lawsuit "Wisconsin vs. Amway 1982"). In 2012 dollars, that's $744.

Care to guess how much are the folks in Herbalife or NuSkin making now? As per 2012 income disclosure statements? $749 and $641, annually, respectively.

That's right, 30 years later, MLM income still sucks.

Consider that when you think about MLM.

Do your due diligence. Know the truth. 

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