In a blogpost back in 2014, author Robert Fitzpatrick, who operates the website PyramidSchemeAlert
postulated that Multi-level Marketing, i.e. MLM is really a delusion that redefined various terms to create a myth around itself that cloaked its true nature (as a part of his "Myths of MLM" series). It is an interesting viewpoint, and I can see how he came to that conclusion. The premise can be narrowed down to five separate yet related delusions that MLM participants perpetuate. Fitzpatrick claimed that by accepting the myth jargon, the participants gave the MLM myth power over themselves.
The MLM Myth has five major components, according to Fitzpatrick:
1) MLM is described as "direct selling", but few if any participants actually make retail sales or profits from such.
2) MLM is described as "income opportunity" even though most MLM participants lose money.
3) MLM is described as a "business" even though there is no fair exchange of value... Majority of people lose money.
4) MLM is described as "legal" even though it's merely "have not been proven to be illegal", i.e. presumed innocent
5) MLM is described as "network", "relationship", "personal" even though it disrupts the social norm.
Let us examine each part and see if Mr. Fitzpatrick is right.
Is MLM really Direct Selling?
From my personal experience, most people in MLM had learned to emphasize the "multi-level" part of MLM rather than the "marketing" part. I have read comments of hundreds of people on BehindMLM and many commenters believe one cannot succeed in MLM without recruiting, and the emphasis should be on recruiting and retaining downlines, rather than product sales. Not that BehindMLM attracts the "typical" MLMer, of course.
It is also interesting that the MLM industry association is called
Direct Selling Association, even though the organization actually predated MLM by about 20-30 years. DSA started its life as "Agent Credit Association" in 1910, and its members are companies that employed door-to-door sales, and Avon, then known as
California Perfume Company, was a founding member. It wasn't until 1968 that it adopted its current name, Direct Selling Association. Most people accept that MLM was popularized with California Vitamin Company, later
Nutrilite, in the 1930's, which eventually became an
Amway brand, founded in 1950's. Thus, MLM came AFTER direct selling, but took over the name direct selling.
For what it's worth,
Avon was direct sales up to 2005, when it went multi-level. Didn't seem to help its bottom line though.
There is no doubt that MLM is supposed to have a direct sales component, but in reality, this is rarely put into practice. When the companies themselves count purchases BY the distributors as "sales" for calculating commission, instead of actual retail sales by the associates, there really is little if any incentive to retail. Even Direct Selling Association want to
formalize "self-consumption" as a RIGHT of MLM distributors, i.e. they have the RIGHT to NOT retail what they buy, and still have that counted for commission. A couple states even put that into law thanks to lobbying by DSA.
Indeed, in the past decade or two
DSA has fought every attempt by various groups to require the companies to
document how much retail was actually performed by the industry. Any stats they compile are based on estimates by the companies themselves based on sales to distributors.
In 2013/2014 Herbalife was accused by none other than
Bill Ackman to be a huge
pyramid scheme. You'd think that Herbalife would simply produce some numbers proving they were retailing their products, and if they didn't, they have a WHOLE YEAR to gather that data, but no,
instead, it spent money on hiring lobbyists instead, and hire survey teams, but NO ACTUAL RETAIL FIGURES. And DSA said nothing, because DSA is not a regulatory body... DSA is a lobbying organization for the companies.
Think about it. The Direct SELLING association does NOT want its members to prove they are actually SELLING stuff, through their distributors, to the public. And claims it is a RIGHT for distributors to NOT SELL their stock.
Verdict: MLM is now mostly NOT direct selling, even though it was meant to be.
Is MLM really an income opportunity?
Proponents of MLM claimed this is a way to earn supplemental income, part-time income, side job, with potential transition to full-time if you find yourself attracted to it.
The REAL pros in the business knows that to make serious income in MLM
you need to dedicate two to five YEARS to build your organization and during which you will achieve MINIMAL income.
Thus one can be answered pretty definitively: NO, not for a vast majority of the people involved.
From
DSA's own statistics for 2014:
- 18.2 million people involved in direct selling
- Estimated product sold 34.47 billion dollars
That's average SALES of... $1894 dollars per person PER YEAR. And that's just revenue, not profit. We haven't taken into account any of the expenses involved either. Even if the person was able to achieve 50% profit, (i.e. $947) AFTER counting expenses (highly unlikely), and spent only two hours a week on this... That's only that's $9.10 per hour, not much above
Federal minimum wage of $7.50 an hour.
Furthermore,
Herbalife, in their own defense, claimed that 73% of their own distributors DID NOT JOIN FOR INCOME. This is one of their own slides released as rebuttal of Bill Ackman's claim that Herbalife is a pyramid scheme.
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| Herbalife, in 2013, claimed that 73% of distributors did NOT join for income as primary reason |
Thus, MLM can be an income opportunity... for a tiny minority of people who made it to the top. The rest of you are likely to lose money or earn minimum wage, or not even that, as you get no benefits or even income security, unlike a minimum wage job.
Verdict: MLM in general is not income opportunity (with small exceptions)
