Saturday, March 19, 2016

MLM Basics: Why a MLM Comp Plan is MORE important than the product, not less

One of the biggest mistakes a MLM "noobs" makes is put all the emphasis on the product, without analyzing the business model itself, i.e. the compensation plan, or in jargon, "comp plan".  (Or perhaps there's only a cursory glance). They are all enthusiastic about the product. OMG, it totally works. I (blah blah blah blah),  product is (blah blah blah blah). You have to try it! It's totally legit! I didn't believe at first but now I do! (blah blah blah blah)

When critics / concerned friends/family told them the company is likely a pyramid because of X, Y, and Z, the first thing out of their mouth is "it can't possibly be a scam, the product works".

They are suffering from the "blind men and an elephant" problem... They cannot understand that what they experienced  may be true for them, but is NOT the WHOLE truth.

Here's a very simple analogy... Take a look at this car:

Those of you who know cars should be able to tell, by the GT-R badge on the hood, that this is an older generation, Nissan Skyline R34 GT-R (or a reasonable facsimile thereof), which is a two-door coupe.

Except this is not a coupe. It's a station wagon. A five-door station wagon Nissan GT-R, and no, it's NOT photoshop(ed).

The point is if you ONLY look at the nose of the car, you'd have assumed it's a GT-R. But it's not. You have to see the entire body to realize this is NOT a coupe but a station wagon.

Similarly if you ONLY look at the products of a MLM, you could not have gotten "the whole picture", on whether the company may be a scam or not.

That's why the compensation plan, i.e. what you need to do to get paid by a MLM, is FAR MORE important than the product... It is the PRIMARY indicator on whether the company is a pyramid scheme... or a real MLM.

So how do you determine which is which?

Comp plan basically spells out what you need to do to get paid. How many sales are required to qualify, how are they counted, so on and so forth.

Why is this important? Because HOW (and WHY) you're getting paid determines whether the comp plan is legal (MLM) or illegal (pyramid scheme).  For those of you who forgot or need a refresher, please refer to #MLMSkeptic's earlier explanation on what is the difference between a pyramid scheme vs. a MLM.

After all, a company can sell anything, as long as the comp plan is legal. There are MLM selling cleaning products (Amway), cosmetics (Avon), weight loss (way too many), energy drinks, legal rep plans (Prepaid Legal), medical plans, auto club, investment and more.  The product is interchangeable.  The comp plan, even with variations, are still MLM.

Thus, a comp plan is VASTLY more important than the product itself.

Yet when you listen to how most presentations run, a bare minimum amount of time was spent on the comp plan and how it makes it a true MLM, not a pyramid scheme. Instead most of the presentation was spent on how fancy the products are, how cool the company is, how great the reps are, how much money you can make (with a disclaimer), how much your life will be changed, and so on.

If they do cover the pyramid scheme angle, it'd be something like the Simpsons' lampoon way:

From the Simpsons: "First, let me assure you that this is not one
of those shady pyramid schemes you've been hearing about."
Basically, they are avoiding the issue. Yet by reading the comp plan, and their marketing literature, you can easily tell what is their emphasis... are you encouraged to sell stuff, the way MLM should be, or are you encouraged instead to BUY stuff (reality inversion)... or are you encouraged to RECRUIT downlines (growing the pyramid)?

Here's an example (with company name redacted)
While there is no product purchase required to be an Associate, your business will probably grow and duplicate more quickly if you’re a satisfied product user and have product on hand to share with others...  
We recommend that you choose (REDACTED) Product Introduction Paks that best suit the goals and needs for your business...
Paid-As Consultants with an active Autoship and above can earn on GV generated by Associates in your Sales Teams that are in regions outside of your own. 
In other words, while they don't require you to buy and use the stuff yourself, you are "recommended" (i.e. heavily encouraged, everybody else does it) to do so, and if unless you sign up for products shipped automatically to you every month (autoship), they will reduce your commission that your sales team earned for you.

Nice company to work for, eh? Yet it's been around 10+ years. 

What does YOUR MLM's comp plan say about your company, that you failed to notice? Or failed to understand?


  1. I have several friends really getting sucked into the"pink drink" through Plexus Worldwide. Taken in by all these Diamond Ambassador videos of every day people supposedly making it rich simply by drinking it each day and effortlessly letting the drink then sell itself, earning free trips to HI and by being presented a "free" Lexus once you sell enough on social media via so many glowing testimonies (that have people pictures with names so they MUST be true). To me it just screams and oozes scam! And that's before I happened upon your blog and others that explain the such MLM schemes so well. Just Googling the products, one would almost believe it cures EVERYTHING and that you'd be a fool NOT to buy it and join up. Therefore, I do not have any good vibes about it and see clearly what it really is. The friends selling Plexus claim it's legit since it is up and coming in the Inc. 500 list. Which if I understand properly through my own research, each company that wants on that list, they have to pay and provide their own income figures, which again, sounds sketchy. Could you provide any definitive info about it all?

    1. 1) It's the Inc 5000 list, not Inc 500.

      2) Correct, company can submit their own figures, as long as the submitter is a licensed accountant or an attorney.

      3) Lexus is a monthly lease. The money they fail in sales they have to pay the monthly lease themselves, not that they'll tell you of course, and they get to pay their own insurance. MANY other firms have similar programs. (this is about Vemma, but everybody's stuff's about the same, and look at what happened to Vemma)

      4) "Extraordinary deeds require extraordinary proof". No such proof is forthcoming from such firms.

      5) Plexus income declaration for 2014 (somehow 2015 is STILL not available?) says... 99.43% of all participants made less than US Median per capita income of $28051 per year in 2014.

      Google "plexus 2014 income disclosure" and see for yourself on the PDF.

    2. "the MOMENT they fail in sales"... Argh, typo.

  2. Thanks for the reply and info! Hmmm... especially interesting about how the car plan works.