So, I was pitched by a psycotic MLM guy this week...

[M. Johansson]

This week, I went to see a show at the city theatre - it was pretty good, and afterwards, I went out to have a beer with a girl I knew, and some guy who tagged along, since he knew the girl in question.

Anyhow, we talked about work and money, and after explaining what I did for work when I'm not studying, I asked him what he did. The answer was vague, and he said that he didn't feel like explaining it in this environment. I smelled something fishy right there, but my natural curiosity took over, and I told him to call me, so that he could explain it to me over a cup of coffee.

Sure enough, a few days later, he calls me and schedules an appointment. He doesn't show up for the meeting alone. He brings Psycho Sect Guy with him. Psycho Sect Guy instantly greets me with a smile, a firm handshake, almost instantly starts asking me questions about my personality, and then passionately begins talking about money. Sure enough, it turns out to be an Multi Level Marketing scheme. Quite a sophisticated MLM scheme, but an MLM scheme nonetheless. I suspected this from the start, but I thought I might learn something from talking to them, but I ended up sitting for about 60 minutes thinking about how to tell these guys to go fudge themselves in the nicest manner possible.

Does anyone here have an experience with MLM? It sounds very freakish to me, selling stuff to your friends, and having all these tiers and stuff. Is it really something more than an elaborate pyramid scheme? I have no intention of joining Crazy Sect Guy whatsoever - this is just put of curiosity.

[Jeremy W.]

The only, only, only advantage I have ever seen from the various MLM companies around, and even that is only from a VERY select few, is the training and knowledge they can offer.

I have never known anyone to make anything more than a couple of hundred dollars per month doing it.

But, I have known many people, myself included, who have gained amazing knowledge and experience by watching what they do.

There are 3 in particular which are very good.

The True Star System is amazing, as it is business, and "cell" based. Hard to explain, but very very good.

Amway is also, believe it or not, very good at the teaching side of things. If you can ever get ahold of some of the tapes they might blow your mind, once you can get past the fluff.

Primerica was one of the best. My parents were with them, and another friend was, and they all got their Insurance Certificates (whatever it's called in your country). One of them, my friend, is now the top motorcycle insurance salesman in Canada and has his own staff of 12

So, is MLM good? Not really. Can you make money? Yeah, on a select few (another good one is prepaid legal, but it's only good in a non-saturated locale). But it's hard work. Harder work than most people know, and if you simply took the principles they teach and applied it to your own business, you would make far more money

J

[Chul1ss1mo]

MLM isn't as bad as it's made out to be. I currently belong to Quixtar (which is part of the old Amway) and it's not bad. For $37 a year, I get pretty good discounts on products and get a check which more than makes up for my investment every month. I don't really put that much (any) time into it so i haven't really brought it to the full potential.

I know a couple of close friends of mine (who I knew before MLM) who make a pretty good living doing it full time.

--Chul1ss1mo

[darnell]

I'm no fan of MLM. I always tell people trying to get me into MLM that I don't need any extra money. After getting responses like "what you mean you don't want to retire early" and all their other standard lines they leave me alone .

Regardless of my wants or needs I've never wanted to fill them via any MLM scheme I've ever seen.

For me the line "I don't need any extra money" seems to work better than saying "I'm not really interested". Because some just want to make you feel that they can sway your view. So I tell them their scheme is great if they can get people under them and I don't need any extra money. Let them feel I'm a fool with no ambition . Works every time!!!

[JonPKibble]

There are good MLM companies, and there are bad ones. Just like investments. Good MLM companies have solid products, and make it possible for the last guy in to make money without any recruits, by selling the product. When you look at an MLM company, look at how long they've been around, how they've dealt with problems, and how good their products are. Just like you would if it wasn't MLM.

Remember, MLM is just a TYPE of payout structure, not a business itself. For instance, Earthlink sells internet access. So does a company called Excel. They are both internet providers. But the difference is, Earthlink advertises for its customers, and Excel pays people to do it for them with word of mouth - the MLM business model. Kind of hard to call that a scam.

What you are doing when you start a business through a MLM company, is buying into a system. You don't have to go through the hassles of starting your own business, getting licensed, and shipping orders. They do it for you. All you do is refer customers, and show others how to do what you're doing if you want to duplicate yourself.

I think the problem with MLM lies with the way people go and promote it. It gets problematic when people make ridiculous income claims, and hype their business too much. Yes you need some hype to get peoples' attention. But if you want to "retire early" with MLM you do need to put in hard work. And unlike a traditional business, a lot of MLM companies give you the power to earn true residual income.

Some people who promote MLM do it in such a way that turns people off to MLM, and that's where the bad rep comes from. But there are many honest MLMers out there with many honest MLM companies. If you ate a bad steak, it doesn't mean every steak you'll eat for the rest of your life will also be bad.

MLM is not a get rich quick scheme. It is a way to leverage yourself, something that's hard to do with a traditional business, and impossible to do with a job. Most people aren't business oriented, and if you find an MLM company that sells a product or service you already use, there's little sales experience needed. However, any business needs to make money through the sale of products, so you will need to do some selling. It's the type of selling that makes MLM different than traditional direct sales. Often you will sell the product to friends and family, if it is something they already use. (If you had a gas station, wouldn't you want your friends to buy from you, if you had the same price or better? If you say "NO" to that, MLM isn't for you.)

If anyone has any questions about MLM please feel free to e-mail me, I've been in MLM a few years, and it runs in my family. My e-mail address is Jon@funnywebsite.com

[Ravedesigns]

I've got a little experience with companies like Amway, Quixtar (Amway's online division) and have been to more than my share of "opportunity" meetings that friends have invited me to at one time or another. While I think that there are many good things to be said for Network Marketing companies (they hate it when you say "MLM" ) and the principles on which they're based...they all depend on people to promote their products, and as we all know...the world is full of strange people!

Personally, I think there are only a very few people who make the really good incomes you hear about in MLM. Most programs take lots of time and dedication to get going and to be able to make some decent money, and I think it's usually those that get in "near the top" that see the most benefits from these programs.

I really have alot of respect for the founders of companies like Amway and Mary Kay, but the "personal selling" they're into is just not my style. ;-)

As for you and this "crazy sect guy," anything is worth looking into and finding out more about...just don't sign your life savings over to people wanting you to stock your garage with the latest in new water coolers!

Steve

P.S. Most MLM's are listed with the Direct Selling Association if you want to see if you can find more info on them.

[JonPKibble]

These days most companies do not even require you to buy any stock (no more garage full of water filters!), so the cost of the business is under $400. Some companies even pay you back the starting cost after you get your first few customers. But any company requires you to move a product or service to create a profit.

Selling is selling. Selling is the only way money moves. Lots of people don't like selling, even if it's a product they use themselves. So it's definitely not for everyone! Besides, someone's gotta make my steak sub for me at Subway

But the point is, yes there are many quirky people out there, but there are quirky people in any profession. Don't let them cloud a good opportunity from you. But at the same time, do your homework.

The average MLM'er doesn't make too much from MLM. But take into consideration that most quit pretty fast (which is standard with any business). And the ones that don't quit immediately often just stop promoting it, but still walk away with a couple hundred a month in RESIDUAL INCOME.

But pretty much anyone that's stayed with it long enough has done well. There are many folks earning five, six figures a month in MLM. They're ordinary people. But they stuck with the plan 5,6,7 years or more to make it happen. Nobody gets rich quick, it's almost a fact.

Just like with any business - it takes time and consistent effort. With my first big web site, I didn't make any decent money for almost a year. When my dad got started in MLM it took him quite a few months too. But we both are on the track to where we want to go.

For any of you who are wondering, I am an MLM distributor. I have been active with my company on and off for a few years, but after showing the business to my girlfriend we decided to give it a serious go a couple months ago. She is leaving her job to devote more time to working the business with me. So there you have it - this is a real business with real people.

By the way, I'm also a 21 year old homeowner.

[Jeremy W.]

Jon,

No offence, but what you are saying is far from "standard". I literally know hundreds of people in dozens of organizations.

I know 2, out of hundreds, who have made decent money. One did it because he took the knowledge and reapplied it. One did it because he took the skills and made it into a new business.

The dropout to success ratio in MLM is far greater (99.5%) than in any other business or industry, even far greater than web design, which we all tell new people to stay away from unless they have a niche.

How can there be a niche in MLM? The only possible way is if you have a great product and happen to live in an unsaturated area.

The real money in MLM is in MLM program creation or high-level marketing. Doing corporate seminars, or creating MLM programs will earn you far more than product distribution ever could.

[JonPKibble]

Jeremy,

How much effort did these hundreds of people you know put in? How many people did they show the product to? How many people did they show the opportunity to? How many trainings did they attend? How much time did they put into the business? I've had tons of reps drop out. And none of them ever did anything with the business. Who's to blame there? Most people sign up, talk to one person, hear the word "NO" and quit. Is that the fault of the MLM company?

Saturation doesn't exist in MLM the way people think it does. Take Excel for example. They are a 2 billion dollar company with 3% market share. MLM doesn't need a niche. Remember, MLM is just a way of distributing a product.

Doing seminars or starting a company is nice, but it's not the only way to make money. Just because the people you know didn't do well doesn't mean there aren't people out there that are.

I live in northeastern Wisconsin and there's little MLM activity up here. But go to Milwaukee and you'll find a few MLM millionaires, and hundreds of people who have been able to at least cut their hours or have their spouse stay at home with the kids because of an MLM opportunity. Remember, you don't need to make a fortune in MLM to have it make a difference in your life. Even an extra $300 a month can make a difference for a lot of middle class families.

Out of pure curiosity, how much experience do you have in MLM? What companies have you been with, how much time have you spent in the business itself, and how much unbiased research have you done on the MLM industry? How much of your opinions are based on personal experience, and how much are based on the industry as a whole? I would like to know.

[Jeremy W.]

Jon,

I'll answer your questions (which are meant to show experience and bias), however yours is far from ordinary, as hundreds of articles and books show. I feel no need to quantify my statement that 95%, if not higher, of all MLM partners make less than 100$/month.

To answer your question, I've been with Amway, Primerica, and been trained in several others. I made money on all of them, but the reality is that even after several years the money made is nothing compared to the time required to recruit, the cash to go to training seminars, the cash to buy "monthly training products", the pressure on your social life, etc.

Of the hundreds I do know, most stayed with the MLM companies for 2 years. If they didn't, they often tried another out and stayed with that one for two years (find a match and stay with it).

You keep saying MLM isn'ta company, it's a way of distributing products, but we both know that's bunk. MLM is marketing, sales, etc. It isn't simply product distribution, because the majority of the tapes you get from MLM companies have nothing to do with product distribution.

In reality, the example given by Mattias of the over the top MLM guy is very standard. In fact, MLM companies will often train individuals to invade others' lives.

Maybe yours didn't. Are there people who are succesful at MLM? Yes, I said that originally. I'm really not sure what you are arguing. Are you arguing that many more people drop out of MLM than any other industry? Are you arguing that returns are often exceedingly low, far below the ROI of other business models?

I'm really not sure what kind of response I'm expecting here, as we all know your position. Mine is very simple: take the knowledge and apply it elsewhere, I don't see much advantage in it otherwise.

[JonPKibble]

Well, MLM isn't for everyone. Some will do well, some won't. You can't compare one company with another. My company for instance, doesn't require the distributor to buy any products, since it's telecom service.

I do find it interesting to note that one of the guys I know in Milwaukee didn't make any money until his third year. He now makes six figures a month, after over ten years. But everyone's results will vary.

I've been in three years and I'm starting to see some pretty good income. My website, in comparison, took one year to build up to a reasonable amount of income. But I've hit a plateau with my site. My MLM income is growing consistently and will surpass my website income in a few months. It's a completely different type of business.

One more thing. Saying it's a distribution method isn't bunk. It's the truth. If you have a company selling a phone service through advertising on TV, and another one selling it through MLM, they're both phone companies. They just have different sales channels. Nothing bunk about that. If your company requires you to invade peoples' lives I don't suggest promoting them.

My ROI is pretty good. I spent $299 to get started and the only money I spend over that is on advertising outside my warm market. What most people don't understand is that in MLM you don't have to go out of your way to do the business, it's something you do as you go about your day. If I talk to my cousin on the phone I will tell him about what I'm doing and would he like to be my customer and save some money. The rest is history.

I am enjoying this debate with you, because I am really beginning to understand in depth why it is so many people have negative perceptions of MLM. Hopefully in 10-20 years these negative perceptions will be corrected somewhat. I mean, back in the 50s, franchises were one vote away from being declared illegal. Everyone thought they were big time scams. Weird, eh?

[Jeremy W.]

No, MLM isn't for everyone, and yes it is for some people. There are good MLM providers and bad ones. In fact I got invovled in PrePaid Legal services recently because it was a good product, had a good foundation and was reasonably unsaturated in my market.

Okay, saying it is a distribution method isn't bunk. Saying it's only a distribution method is. I've yet to see a single company where it is only about product distribution.

[JonPKibble]

I agree, Prepaid Legal has a great product - and I know they'll be a household name in a few years.

As far as distribution methods go - I think I know what you're trying to say. It's not the fact that it is a DISTRIBUTION METHOD that makes it so great - it's the fact that it lets an average person have the chance to make an above average income. So, you are right, it's not just a distribution method, it's an *income opportunity*.

However, at its roots, it's just a distribution method, that happens to have the side effect of creating a great income opportunity through word of mouth advertising. Which works out very nicely.

I mean think about it, what if you got paid every time you referred someone to a great restaurant, movie, or store? That's why MLM is a great system for Prepaid Legal. Because it rewards its customers. Now, if you had a product which was overpriced or impossible to sell, this concept wouldn't work. Do water filters come to mind?

If you think of MLM distributors as customers recommending to other customers, it makes perfect sense. If you think of them as salespeople, then that's where the stigma comes from. Fact is though, most people think they have to hard sell people, but if you have a product people already use, or don't use but could really benefit from, all you really do in this business is share something.

Take Mary Kay - my girlfriend's friend Julie is a Mary Kay distributor. Mary Kay has the #1 selling cosmetics in the USA. If they come out with a great new product and she uses it, people will ask her about it, and there is word of mouth advertising in action. Being a customer of product, not as much a salesperson.

The fact is that people recommend things they like all the time, MLM is a way to get paid for doing that, if you can find a company with a product that is recommendable. For instance, making free long distance phone calls to other customers - MCI is offering this, and so is Excel. Excel is getting customers a lot faster than MCI, because of their word of mouth MLM advertising channel. MCI will probably not make a profit, since their TV advertising isn't nearly as effective.

That being said, I welcome anyone to e-mail me if they've got any questions about any specific MLM company, I'll try and help you get the facts.

[jazz]

Well I always look at MLM's with a suspicious eye .

My mother is a Mary Kay Representative and she often tells me about how her director makes 6 figures and drives around in her pink cadillac. But it seems that for a company which is selling a product they seem to spend a lot of time on how much you can earn selling the product rather than focusing on the product or better yet the customer.

I wonder how much product these MLM companies are actually selling to end consumers? And compare that number with all of the sales representatives who have quit or have a basement full of Makeup. With Mary Kay you are required (if you want to stay an official representative) to make regular purchases of the product. Most of the MLM companies require an initial buy-in rather than just a straight commission or referal fee.

It seems to me that MLMs work on a slightly modified version of the Lotto concept. "Buy in for a chance to make millions!". Only difference is that you increase your odds by how much time and effort you put in. And that you get a commission for new signups. But simarlarly as more people get involved the bigger the jackpot gets. So it is in your best interest to recruit as many people as possible.

At worst, MLM's revenue is made not by providing a superior service or product but by conning people into believing in a "get rich quick" scheme. At best, MLM are getting people into the entrepreneurial spirit through an elaborate commision system. But often those who succeed in this pyramid scheme invest a lot of time and money. Had they started their own business they would have made just as much.

[JonPKibble]

Jazz,

Mary Kay only requires a $100 one time purchase. And if you quit, they buy it back at 90% of the cost. I know this for a fact. You don't need to purchase inventory to be an active rep. Of course, the more inventory you move, the more qualified you are for higher commissions. But isn't that the point?

All their money comes from the sale of products. I do see your point, about advertising the products, versus the opportunity.

It's a fact. Not everyone will make six figures. But most people in MLM think that advertising the prospect of making six figures sounds better than "make an extra $200 a month". Fact is, most people only need a few hundred a month extra to meet their goals.

The products make the money. The opportunity makes the big picture. But the fact is, all the money comes from the sale of products. When someone in MLM is pitching financial freedom, they're pitching the big picture. I agree though, if more people would just be down to earth and realistic, it would give a better image to MLM.

[jazz]

Re: Mary Kay I'll have to ask my mom when she gets back home.

I agree though, if more people would just be down to earth and realistic, it would give a better image to MLM.

Since you live in the US, you know what it's like, all those little newspaper ads, or signs on the side of the road. "Make $3000-$5000 a week from Home" etc. I've become so used to seeing those things they don't even catch my attention any more.

Like M.Johannson said, why all of this secrecy behind MLM's and what they are selling? Doesn't that reinforce the idea that it's a "get-rich-quick" scheme which has to be kept secret before everybody finds out? (Reminds me of that Sesame Street skit where the one guy walks around in a trench coat and asks Grover in a whisper "Wanna buy an S? Shhhh!!! An S..."

[JonPKibble]

I agree, $3000-$5000 is unrealistic for the average person. Truth is, those people MIGHT make that much after a few years, but the reason most people quit is because they expect to make that much within a couple weeks. I don't blame them either.

MLM isn't a get rich quick scheme - if it was, we wouldn't have this problem. The problem is, people think they can get rich quick, don't, then quit, and badmouth the industry. It's an endless loop. And it gets worse whenever someone puts up one of those billboards too.

There isn't any secrecy, just a lack of coherence. There are many books and business articles that you can read that will say the same thing I'm saying. Authors such as James Robinson, Richard Poe, and Mark Yarnell all explain the truth about MLM. You don't hear about MLM in the media, because, well... do you see MLM advertising in the media?

If you want the truth on a company, just do your homework. Read about the company, go to their web site, and look at BBB reports. Look at their financial statements if they are publicly held. And most importantly, see what the product is like.

Oh - and if it was such a big deal to keep it a secret before everyone finds out - would everyone be advertising it so much? But think about it - we're not taught ANYTHING USEFUL about business in school. We're taught to be good employees. So it really makes sense if you look at it from that dimension.

I'll finish this post off with an analogy from "Hyperspace" by Michio Kaku. (It's a physics book but you'll see the connection in a second). There is a two dimensional being living in a two dimensional universe called Flatland. One day, a sphere passes through the atmosphere of Flatland. The two dimensional beings can't understand it. They see a small dot that becomes a circle that gets larger and larger, then gets smaller and smaller until it becomes a dot and dissappears again. Why didn't they understand it? Because it was a three dimensional object, and they were only used to thinking in two dimensions.

The moral: most people are so fixed on traditional business ideas that when they see something like MLM, it doesn't make sense to them. But look at it from the company's perspective. Let's say you sell a product that makes your company $10 on every sale, in profit. If you can pay $5 to acquire that sale, you make $5 in profit. You could pay $1 each down five levels. You could pay $2.50 on two levels. The amount doesn't matter, just the idea. It's a profitable way of doing business - did someone say multi-tiered affiliate program?

[samsm]

Years ago I was looking for a summer job and ended up sitting through a Kirby Vacuum recrution video tape where William Shattner arrives at the crossroads of life and explains that the three career possibilites are industial work, college or selling Kirby vacuums.

I'll admit that besides that, I have little personal experience with MLM because I have always personally concidered them to be scams.

This is a good essay on the topic:
What's Wrong With Multi-Level Marketing?
http://www.vandruff.com/mlm.html

And this link is a brief article from the US Postal Inspection Service regarding MLMs. Just one page, fairly balanced:
http://www.usps.com/websites/depart/inspect/pyramid.htm

[JonPKibble]

Yes the USPS explains that "Some entrepreneurs have built successful companies on this concept because the main focus of their activities is their product and product sales." But the scams are the ones that focus/pay on recruiting, regardless of sales.

The "What's Wrong With MLM" thing I've seen before, and wonder about how credible this guy is in the first place. But besides that, I'll explain each point.

1. Saturation.

Point #1: How many MLM distributors do you know?
Point #2: Excel is one of the top 10 largest MLM's, and they only have 3 percent market saturation. Mary Kay too I believe. Check these numbers if you'd like.

2. Pyramid

Point #1: Every corporation uses the same kind of structure, are they illegal?
Point #2: Multiple people get paid for a sale of a product, what's illegal about that?

3. Morality

See Pyramid, Point 1.

4. Relationships

This goes back to the "Small vs Big Companies" thread going on in this forum. Same topic. Which is better, a community of employees, or a community of small business owners that buy from each other? If you could buy the same product for the same price wouldn't you want your best friend to get paid on it, or yourself?

I love writing these

[samsm]

I think the USPS brief really hits the nail on the head... if the company is about a product, cool.

If the company is mainly about convincing people to sell the right to sell (and that is clearly built into the model of business) then there is pyramid action going on and most likely those who enter into business with the company will be screwed.

Addressing the points presented in the post below:

How many MLM distributors do you know?

Well over one hundred ads in the local newspaper for what appear to be MLMs. What companies they represent, I don't know, I'd have to go see each video.

Excel is one of the top 10 largest MLM's, and they only have 3 percent market saturation. Mary Kay too I believe. Check these numbers if you'd like.

I'm more familiar with Mary Kay so I'll use that as my example. When you say they have 3% saturation, do you mean that they have 3% of the cosmetics market? If so, that means that 97% of all cosmetics are sold somewhere else. Is there any reason to believe that Mary Kay will ever be able to steal another 1% from WalMart, mall retailers, supermarkets, etc? Or, is there an equally good chance that WalMart and friends could eat that margin and get 98% of the market?

Or are you saying that for every 3 people Mary Kay currently sells products to, there are 97 others who would buy Mary Products if they were offered them? How could anyone possibly know that?

Or (option 3 ) have I completely misunderstood your figures? Seems to me like the 3% of the market figure just illustrates that there is a minority of customers who go for products marketed in this fashion which means that there are very finite sales possibilites.

Every corporation uses the same kind of structure, are they illegal?

Corporations have a degree of responsibility for the success or failure of their employees. Not so with MLM.

However, that alone does not make an MLM a pyramid scheme, it just opens the door. If an MLMs profitability is based upon getting people to get people to get people based upon promises then there is a pyramid structure and it is illegal. A corporation would never do this because for each employee the coporation would be accepting the risk of them being unable to make sales, unlike in an MLM where each person involved generally accepts their own risk and in many cases even pays the person above them to be involved.

Anyway, I'll agree with you (and the USPS) that anyone looking into doing something like this should research the company first and not expect to get rich quick.

[JonPKibble]

Well, yes they should sell the opportunity, but the product should always come first. A company should be paying commissions only when customers are gathered.

To answer your saturation question, yes they can certainly capture more than 3% as they show more and more people their higher quality products, sold in a person to person environment (See the "small company" post). I'm not saying they will ever get to 100%. But there is certainly room for growth. And if it did get saturated, well, there wouldn't be any prospects left, but the company could continue selling the products to their customers and the reps would all still get paid (their product is consumable.)

The reason that only 3% (from the companies I named) of consumers are consumers doesn't mean it's a minimum or a maximum. It's just where it is now. As the number of people promoting a company rises, it'll surely go up. But most people simply DON'T KNOW about these products or services.

How many people here have heard about Excel's Friends-R-Free Plan for instance? Raise some hands?

You said, "Corporations have a degree of responsibility for the success or failure of their employees. Not so with MLM." Actually you have it backards. If the rep doesn't get paid, neither does the company. It goes both ways. MLM companies certainly want to put the reps first, at least good ones. And not only that, corporate responsibility doesn't exist the way it used to. Layoffs anyone?

You wrote, "If an MLMs profitability is based upon getting people to get people to get people based upon promises then there is a pyramid structure and it is illegal."

Indeed, but if there is an actual product being sold, it's just a multi-tiered sales network. That's all true MLM is.

You wrote, "A corporation would never do this because for each employee they would be accepting the risk of them being unable to make sales, unlike in an MLM where each person involved generally accepts their own risk and in many cases even pays the person above them to be involved."

Of course. In MLM you're paid for performance, for making the company a profit. That's why you can't get downsized if you find a good company that's been in business a long time, and sell their services. Of course there's a risk involved, the risk being, will you do this or will you give up? Also, the company collects any distributor fees, not the upline.

Just thought I'd clear that up.

[samsm]

You said, "Corporations have a degree of responsibility for the success or failure of their employees. Not so with MLM." Actually you have it backards. If the rep doesn't get paid, neither does the company. It goes both ways. MLM companies certainly want to put the reps first, at least good ones. And not only that, corporate responsibility doesn't exist the way it used to. Layoffs anyone?

What I meant was:
When a coporation hires an employee hires an indivisual they accept risk of losing money.
Not so with any MLM I've ever heard of. Generally, the top of the MLM can benefit from a rep's sales but never lose any money because a rep does not sell.

[JonPKibble]

Oops, I apologize. All this typing has gone to me!

Yes, you are correct. There is less risk for the company, which is a good thing for everyone in the company! That includes other reps.

[samsm]

I think it is more of a mixed bag.

The fact that the MLM absorbs none of the risk when adding more associates means that they could actually still profit if they had too many reps.

If there was enough sales opportunity for 50 reps and there were 500 under the MLM, the MLM can typically profit off the 450 who aren't selling in addition to the 50 who are. In other words, the people who make the most money, absorb the least risk and the people who try to sell will typically lose money.

Alright, now apply this through multiple levels. Each person knows that it would be nice to have people who sell product but it is practically as nice to have 100 people who aren't successful. For each person you can collect on minimum fees or minimum purchases. With this in mind, the demand for the product doesn't matter, all you need to do to succeed is to sign up as many people as possible. To do so, many will explain what a great opportunity this is, etc, etc which is where the promises and fraud can come into play.

Generally, the problem is that uncontrolled growth is encouraged by the MLM model.

The more of an investment each MLM distributer makes in their sellers, the more this is minimized. I'm sure that in the better MLMs out there a substantial investment is made in each seller and as a result frivolous growth is avoided.
By the way, just found some stats.
In 2000 WalMart was the number one cosmetics seller with 16% of the market, MaryKay was #2 with 13%.
In 2001 WalMart had was at 17% and MaryKay 11%.
Don't think that really influences anything we're talking about but seemed on topic.

[Jeremy W.]

I was about to post on Jon's "market saturation" figures. You aren't talking market saturation (which I'll get to in a second), you're talking market cap, which is the figures just posted.

Market saturation is the percentage of people selling the product out of the general populace. I think you'd be hard pressed to argue that 3% of the population are Mary Kay distributors.