Friday, December 12, 2014

Bad Argument: Distributors can't lose money if they enjoy the product (WTF?!)

One of the contentious issues between MLM proponents and critics is the definition of a "customer" vs. a "distributor".

Logically, the differences are crystal clear:

Customer spends money, buys stuff (from distributors).

Distributor earns money, sells stuff (to customers).

However, in the MLM world, things are never so clear. And one of the arguments proponents often use is "if the distributor enjoys the product for internal consumption, they could not be considered having suffered financial loss".

Or as someone argued on reddit /r/vemma...
Because even those "poor souls" who join the business but don't earn commissions still aren't losing money, just like when you buy anything else in life that you ultimately consume or use you don't think of it as losing money. 
This is bogus logic. Can you imagine a bar owner drank all his own stock of liquor, and need to close the bar, and then tell himself, "I didn't really lose money because I got drunk"?

There's another reason though... consuming the stock prevents distributor from getting a refund.

Thursday, December 11, 2014

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

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.