Wednesday, November 4, 2015

MLM Basics: Is there such thing as "good MLM"?

The MLM Skeptic has been asked repeatedly, "is _____ a good MLM?"

The short answer is: I don't know.

The longer answer is: I don't know. I can't do your due diligence for you, as I am not you.

But perhaps here's a more philosophical question... Is there such as thing as a "good MLM"?

Almost every MLM claimed they are good, and some may go as far as point out a few "bad apples" that had been stopped by government action, but they won't name a running company, unless the company's so egregious nobody is surprised they got shut down, such as Monavie head outright stated that Zeek Rewards is a ponzi scheme.

But first, we have to answer the question...

"What is a 'good mlm'?"

Good for the participant, good for the society, or good for the owner(s)?

I am going to assume that by asking this question, the asker is looking for the right company to participate in, and therefore, 'good mlm' means a company that justly compensates the participant for the effort put in. The other two factors (good for owner, good for society) are not really relevant for the participant, but they'd be nice to have.

But what exactly means "justly compensates participant for the effort put in?" While it may be "obvious" to everyone that one wants to be paid the maximum amount for doing minimal work, the real world is exactly the opposite... companies want you to do the maximum work for the minimum pay. The actual amount of work and pay is somewhere in between... at least, that's what's supposed to happen in a real job. Nobody want to be paid peanuts for hard labor, and no company will pay 1M a year for doing something that can be done in a few minutes with minimum skills.

The next question we have to answer: in MLM, are you rewarded for your own efforts?

But you're only PARTIALLY rewarded for your own efforts. Depending on how many levels of downlines you've developed (and how well they sell), you may make practically nothing based on your own efforts (your PV, personal volume is bare minimum), and you live mostly on the commission based on your group volume (GV) generated by your downlines.

In other words, the longer you spend in the business, the more you're rewarded for OTHER PEOPLE'S EFFORTS, as you build up your team. In fact, many MLM participants only knows how to recruit downlines. They can't sell the products they are supposed to be selling, and just buy the products themselves for self-consumption just enough to qualify for commission based on group volume.

And that's assuming you are in a real MLM selling real products

Keep in mind those "real product" MLMs can be illegal too. Just look at FHTM and Vemma.

Critics of MLM calculated that 60% of new MLM participants quit within the first year, and 90% quit after several years, often racking up losses of tens of thousands of dollars. While I don't have anything to confirm or deny these numbers, I do have some numbers directly from Direct Sales Association, the MLM industry group...

According to the DSA, average sales per MLM participant in the US for 2012, is about 2000 PER PERSON PER YEAR. And that's not profit or commission. That's just basic revenue / sales.

Assuming you consider your time to be worth $15 USD per hour (and that's "minimum wage" in some cities), and assuming out of that 2000 in sales you can take 20% profit (after expenses, probably overly optimistic),  that means you can spend 27 (2000*0.2/15=26.67 rounded up ) hours a year, or roughly half an hour a week, on MLM to be making $15 / hour, assuming 20% profit (after expenses)

In conclusion, there's NO WAY as an average MLM participant to be making much, if any, money.

Average Participants makes minimal money for dozens of hours of work

Have you looked at an income disclosure form lately? Here's a disclosure from Amway for 2013:

The average monthly Gross Income for "active" IBOs was USD $183 (in the US) / CAD $206 (in Canada) in 2014.
53% of IBOs in the US (and 49% of IBOs in Canada) were considered "active" (in 2014)
source: Achieve Magazine, published by Amway, August 2014 issue, from AchieveMagazine website
Amway is actually talking about actual sales, NOT commission which is different from most other mLMs. What should be read between the lines is commission earnings for most participants will be minimal due to lack of downlines, who also makes minimum sales.

If you can spend only 30 minutes a week to make this sort of money, it may be worth it, but you'll probably spend dozens of hours per week, attending meetings, selling stuff to friends and relatives, and so on, thus making so much less than minimum wage it's almost comical.

This situation will last until you build a sufficiently large "organization" (of downlines) so you can live off other people's efforts (who will be making less than minimum wage, like you did before).

In other words, MLM definitely does NOT compensate you appropriately for your efforts, at least for the first year or two.

Thus, MLM makes no sense for part-time work, and requires a MAJOR commitment (and savings enough for living expenses for a year or more) if you got into it as a true "new business" (i.e. 12 hour days for a year). This is confirmed by MLM veterans, such as Richard Bliss Brooke, who wrote "this process (building up your MLM business by selling and recruiting downline sales "empire") requires 2-5 years of dedicated and successful efforts... A person might earn a net profit during their first year and they might not...".

Are you sure you can afford to make such a decision assuming the MLM is actually legitimate, which it may not be, AND assuming you are under an upline who actually want to teach you to sell, rather than just yell at you to recruit and shame you if you failed to reach your target?

Will you run into an upline insisted that you must "use" the products you sell (which makes him money) and you end up "monkey see, monkey do"? Will you teach it to YOUR downlines, who also "monkey see, monkey do" (which makes you money)?

Will you run into an upline who runs his/her sales group as a cult of personality that insist "my way or the highway"? That any questioning of authority will not be tolerated? That any "success" (meeting quota) is publicly praised and failure (to meet quota) is publicly shamed? That "dress code" is enforced, and founder to be idolized? That any criticism is to be ignored? That "quitters" are no good?

Will you be exploited by pushing your psychological buttons such as Ikea Effect and Sunk Cost Fallacy?

It's also ironic that a lot of MLMs were advertised as the way to "own your own business, escape from the clutches of the 1%" when it actually is making the 1% (the business owner on top) rich while you toil away making less than minimum wage.

Crunch the numbers, check reality, rather than chasing false hopes and dreams.

That's what scams do: they sell your own hopes and dreams back to you.

Don't be scammed. Go in understanding all the factors, not just the promotional material.

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