My opinion is that MLM is not a scam but clearly there are people who setup scams using MLM.
Q. What is Multi-Level Marketing (MLM) ?
You buy the products from your single supplier and sell them to your customers.
BUT you also recruit more ‘MLM marketers’ to sell the product and you get a percentage of the sales they make. Likewise, whoever recruited you gets a percentage of the sales that you make.
The people who just sell, can make money – often working when they choose for as long or short a time as they wish. But it’s the people who recruit a lot of other people who make the big money.
Avon cosmetics are known to most people either directly or through the catalogues pushed through the door.
Avon was setup in the late 1800s in America and the first Avon person was a man. Avon was always about direct selling on the doorstep. Then more recently Avon turned to MLM and encourages its reps to recruit and train their own teams of reps and get commission from their sales.
Some say this has ruined Avon as people spend their time recruiting rather than selling and that by its nature MLM is fundamentally wrong as when pushed hard it becomes effectively a pyramid selling scheme.
Avon says they avoid the excesses of MLM by limiting commission to only three generations. i.e. you recruit a team and they each recruit a team and they each recruit a team and you get commission from all of them.
There are many successful and long lived MLM operations including Herbalife, Mary Kay, Young Living Essential Oils, Origami Owl jewellery, Stella and Dot, Isagenix, Nerium International and Rodan & Fields.
It’s easy to see the attraction of these schemes – work from home, own your business, work the hours you choose, the more you work the more money you get and so on. And for many people this works out well to provide a supplementary income or even a main income.
But there are also many MLM operations that came crashing down including Vemma nutrition (shut down in 2015 by the FTC) , Mona Vie Health Drinks (admitted that only 14% of distributors make any money) , Wake Up Now financial management (bankrupt in 2015; admitted only 5% of distributors made money).
Multi-Level Marketing is also known as Network Marketing, Direct Marketing, Matrix Marketing and more titles and they sell everything from vacuum cleaners to candles to computers to properties.
Q What’s the main difference between MLM and Pyramid Selling?
If the money you make is basically from selling a product or service to a consumer of that product or service then you’re probably in a good business. But if the money you make is basically from how many others you can recruit then it’s a pyramid scheme and you should think about getting out before it collapses.
The Consumer Awareness Institute analysed data from different network companies and found that the least successful MLM was Amway where 99.99 percent of distributors lost money. The best of these companies was Herbalife. Only 99.42% of their distributors lost money.
That is frighteningly poor.
The Herbalife Story
In February 1980, Mark Hughes began selling the original Herbalife weight management product from the trunk of his car. His stated goal was to change the nutritional habits of the world.
His first product was a protein shake designed to help people manage their weight. From the beginning he ran the company as MLM.
In 1985, the California Attorney General sued the company for making inflated claims about the efficacy of its products. The company settled the suit for $850,000. In 1986, Herbalife became a publicly traded company on the NASDAQ, and in 1996 Herbalife reached US$1 billion in annual sales.
Herbalife reported net sales of US$3.825 billion in 2014, a 21% decrease over 2013, and net income of $308.7 million. It is incorporated in the Cayman Islands, and its corporate headquarters are there.
The company operates internationally and distributes its products in 95 countries, as of July 2015. The MLM compensation structure consists of commissions, royalties and bonuses on sales done by a distributor's downline (the people they have sponsored as new recruits). In 2014, approximately 1.4% of distributors in the USA received over $5,000 in bonuses per year and 0.25% received over $50,000. These figures do not include income from product sales nor do they include the costs incurred by distributors.
It is very clear that few people who join Herbalife will ever make any money from the company.
Herbalife came under investigation by the U.S. Federal Trade Commission. In July 2016 for being a pyramid scheme.. Herbalife agreed to pay $200 million in a settlement and is subject to a set of restrictions to effectively stop it being a pyramid scheme.
Herbalife do sell health products but their main business is selling the rights to sell Herbalife ie.e. the MLM scheme.
Adverts for Herbalife talk about the products but also about the ‘business opportunity’.
Q. The company has been around for many years and that seems unlikely if it really is a pyramid scheme. Surely it would have collapsed?
All pyramid schemes eventually run out of new ‘distributors’ and collapse but that can take years especially if the scheme expands overseas as Herbalife has done.
You can choose to be in Network Marketing /MLM/Matrix Marketing /whatever new name is used, but at least go into it with your eyes open and the realisation that few people ever make money from it.
If you have any experiences with scammers, spammers or time-waster do let me know – go to the About page then Contact Us